The Double-Edged Sword of Sublimits


A policy with a wage-and-hour sublimit may actually be less beneficial than a policy with no coverage for that exposure.


“You may in essence be giving up cover by having a sublimit for Fair Labor Standards Act coverage.”


Janet Dreifuss, Alliant


It may seem counterintuitive, but it could be dangerous to trade in a policy with no coverage for wage-and-hour claims in favor of a policy that provides coverage under a sublimit. And here’s the reason: If a lawsuit includes any covered claims, a duty-to- defend policy requires the insurer to defend against all claims, even those for which there is no coverage. However, if a policy includes a sublimit for wage-and-hour claims, the insurer may stop defending against those claims once the sublimit is exhausted. In many situations, the insured would be better off with full defense costs and no coverage for wage-and-hour losses than with coverage capped by sublimits. Agents and brokers have an obligation to help their clients understand these important coverage distinctions.


Copyright © 2012 by A.M. Best Company, Inc. All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.


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