Time and time again, property carriers insist on closing high quality subrogation recovery files because they see that their insured has yet to hit the policy aggregate deductible. Policy aggregate deductibles are becoming commonplace for large insureds with hundreds of millions in property holdings. The policy aggregate deductible is when the insured agrees to reimburse its insurer for its own losses during the policy period up to the agreed-upon annual aggregate amount in addition to standard, per occurrence deductibles. This aggregate deductible amount is usually north of $1,000,000 and the policy time period typically spans one to two years.

Strong recovery files should never be closed due to policy aggregate. This practice is equivalent to turning down diamonds offered now in exchange for the limited potential – which only dwindles with the passing of time – of finding them after the aggregate is exceeded.  

Guessing when – or even if – the policy aggregate will be extinguished is nearly impossible. At the beginning of the policy period, claims are usually covered within the policy aggregate. Claims that the insured submits towards the middle or end of the policy period are usually not adjusted and paid until after the policy aggregate is exceeded. It is also common that claims submitted early are not finalized until the end of the policy period and after the policy aggregate is surpassed. Ultimately, there is no way to definitively know if any but the simplest or smallest claims will fall within the policy aggregate. This is where valuable opportunities are lost.

Consider this hypothetical: A property adjuster reviewing a loss reserved for $300,000 will see the policy aggregate is, for example, $1,800,000. If the policy period runs from January 1, 2015 through January 1, 2016 and the loss occurs on January 15, 2015, it is unlikely that the $1,800,000 aggregate is exceeded at this early policy juncture. Regardless of liability, that property adjuster may tend towards closing the file as nothing will be paid out on it. This can be fatal to an otherwise legitimate recovery claim.

Assuming that this $300,000 loss has a viable target and fact scenario, it is likely that the claim will not be fully adjusted for at least four to six months. Even once the adjustment is final, it may take another four to six months to pursue a recovery against a stubborn tortfeasor or carrier, if not longer.  At this recovery point, some eight to twelve months after the loss occurred at the early point in the policy period, the policy aggregate is likely long exceeded.

Since the property carrier has long paid out over the policy aggregate, payment of this $300,000 claim yields potential for a full recovery by the property carrier(s).  Even if the property carrier is, by further example, only $150,000 over the policy aggregate, then a $300,000 recovery can be evenly split with the insured.  What was once a claim within the policy aggregate now becomes a diamond in the rough!