Coordinating Multiple Insurers: Primary vs Excess Coverage Issues in Hospitality Claims

Coordinating primary and excess insurers is a critical and recurring issue in hospitality claims — especially for restaurants, bars, and hotels in high-exposure U.S. markets such as New York City, Los Angeles, and Miami. When a serious claim arises (e.g., catastrophic injury, food-borne illness outbreak, or large property damage), determining who pays first, how much they pay, and who ultimately bears recovery responsibility directly affects claim outcomes, legal exposure, and premium experience for hospitality operators.

This article provides a practical, claims-focused roadmap for insurance adjusters, brokers, risk managers, and hospitality operators handling multi-insurer claims in the U.S. restaurant and hospitality sector.

How Primary and Excess Coverage Work: Key Concepts

• Primary insurance responds first, up to its limits, whenever a covered loss occurs and the policy’s insuring agreement is triggered.
• Excess (or umbrella) insurance sits above one or more primary policies and only pays once the specified underlying limits are exhausted — or in certain policies, when underlying insurers refuse to defend or indemnify.
• Other Insurance / Contribution clauses and Anti-Concurrent Causation provisions determine allocation when multiple primary policies are implicated.
• Reservation of Rights (ROR) letters and declaratory judgment litigation often appear when carriers dispute priority or coverage.

Below is a concise comparison:

(For claims handling workflow guidance, see: Insurance Claims Handling for Hospitality Incidents: From First Notice to Final Settlement.)

Common Coordination Problems in Restaurant & Hotel Claims

1. Conflicting “Other Insurance” Provisions
   • Example: A caterer’s GL policy says “primary,” while a venue’s policy contains a pro rata clause. Claims adjusters must interpret intent and apply jurisdictional law—New York and California courts treat “other insurance” clauses differently.
2. Defense Control Battles
   • Primary carriers expect to control defense; excess carriers sometimes refuse to contribute to defense costs, leading to coverage fights or duplicative counsel expenses.
3. Underlying Insurer Insolvency or Wrongful Denial
   • Excess carriers may “drop down” and pay as primary if the underlying carrier insolvently denies coverage — but their willingness depends on policy language.
4. Multiple Limits Eroded by Defense
   • Hospitality claims often generate large defense costs (e.g., multi-plaintiff litigation). Heavy defense spend can exhaust primary limits and trigger excess early.
5. Coverage Gaps on SIR / Deductible Structures
   • High self-insured retentions on excess programs can create first-dollar exposure if underlying limits don’t truly respond.

Location-Specific Considerations: NYC & Los Angeles

• New York City: Jurisdictions here tend to be plaintiff-friendly — settlement sizes and defense costs trend higher. Expect higher premiums and tighter underwriting for high-density hospitality accounts. Public transit proximity and tourist traffic increase frequency exposure.
• Los Angeles: Popular venue liability issues (production events, valet operations) increase complex allocation questions — e.g., vendor vs venue vs promoter coverage fights.

Local market intelligence:

• Primary general liability for small restaurants through digital carriers (e.g., Next Insurance) often advertises starting GL packages roughly in the ballpark of $30–$70/month for low-exposure operations (varies widely by location and revenue). See Next Insurance’s restaurant coverage page for current offerings: https://www.nextinsurance.com/small-business-insurance/restaurant/
• Commercial umbrella/excess coverage for hospitality risks generally ranges significantly; industry estimates for commercial umbrellas often fall between $500 and $3,000 per $1M of limit annually for restaurant/hospitality risk profiles depending on claims history, revenue, and jurisdiction (actual quotes will vary materially by carrier and account). Travelers’ resource on excess vs umbrella explains coverage role and variances: https://www.travelers.com/resources/business-insurance/umbrella-excess-insurance
  (Always obtain live quotes for NYC/LA accounts from admitted carriers like Chubb, CNA, Travelers, or specialty hospitality markets; each underwriter prices risk differently.)

Subrogation & Recoveries — Don’t Forget the Right to Pursue

• After indemnity payments, carriers should immediately evaluate third-party recovery potential (vendor equipment failure, landlord negligence, or product supplier fault).
• For restaurant outbreaks or equipment-caused fires, subrogation can recapture large portions of indemnity. See: When to Invoke Subrogation After a Restaurant or Hotel Loss (and How to Do It).
• Coordinate subrogation between primary and excess carriers — clear agreements on who controls recovery and distribution avoid later disputes.

Practical Claims-Handling Checklist for Coordinating Carriers

• At FNOL (First Notice of Loss):
  • Confirm all potentially liable insurers (venue, vendor, umbrella, liquor liability).
  • Issue ROR letters where coverage uncertain.
  • Obtain policy details: limits, SIR, “other insurance” clause, “follow form,” and drop-down language.
• Early Investigation:
  • Preserve surveillance, POS records, employee statements, and third-party contracts (caterer/vendor). Hospitality claims hinge on documentation.
  • Deploy forensic accounting early for BI (business interruption) or multi-location exposure.
• Defense & Allocation:
  • Negotiate defense control with clear engagement letters when multiple carriers want control.
  • Track defense spend against limits; consider cross-carrier funding agreements for efficiency.
• Recovery & Subrogation:
  • Assign recovery counsel if third-party fault evident (e.g., defective hood suppression system).
  • Agree on recovery-split methodology in writing before large expenses are incurred.
• Post-Settlement:
  • Update underwriting and loss runs; review program structure to avoid repeat exposure (e.g., increase primary limits or adjust umbrella structure).
  • See: Post-Claim Steps to Protect Your Insurance Program and Avoid Premium Spikes.

Working with Defense Counsel and Coverage Disputes

Early coordination between coverage counsel and defense counsel is essential. When a carrier issues a Reservation of Rights or disputes apply, coordinate defense strategy to:

• Preserve privilege,
• Avoid arguments that prejudice coverage positions,
• Keep insured informed (and protected from bad faith claims).

See: Reservation of Rights, Coverage Disputes and Working with Defense Counsel in Hospitality Claims.

Case Example: Large Multi-Plaintiff Slip & Fall in Manhattan

• Facts: A crowded Manhattan restaurant experience yields multiple severe injuries from a fall due to spilled oil. Total claims exposure: $4.5M.
• Policies:
  • Venue GL primary: $1M each occurrence / $2M aggregate.
  • Vendor’s GL: $1M (denies primary).
  • Venue’s excess/umbrella: $5M excess.
• Coordination steps:
  • Primary carrier defends and pays up to its $1M. Defense costs quickly erode limits.
  • Excess carrier’s drop-down language assessed; if underlying paid/eroded, excess attaches to indemnity.
  • If vendor’s denial triggers contribution fight, declaratory relief may be necessary to resolve primary status and expedite excess payments.
• Outcome drivers: Complete documentation, prearranged allocation agreements, and early subrogation pursuit against vendor if their negligence contributed.

Final Recommendations (Actionable)

• Maintain a current map of primary and excess carriers for each hospitality account — know limits, SIRs, and follow-form language.
• Standardize early ROR/RFI templates to preserve coverage positions without delaying defense.
• Build rapid subrogation playbooks for typical hospitality scenarios (equipment failure, vendor food contamination, landlord negligence).
• Negotiate defense funding agreements for high-exposure events to preserve limits and avoid protracted allocation litigation.
• Use hospitality-savvy counsel and forensic experts for complex BI or multi-plaintiff matters — their input materially affects allocation and recoveries.

Sources

• Insurance Information Institute — What Is Umbrella Insurance? https://www.iii.org/article/what-is-umbrella-insurance
• Travelers — Understanding Umbrella and Excess Insurance https://www.travelers.com/resources/business-insurance/umbrella-excess-insurance
• Next Insurance — Restaurant Insurance Overview https://www.nextinsurance.com/small-business-insurance/restaurant/

Internal resources

• Insurance Claims Handling for Hospitality Incidents: From First Notice to Final Settlement
• When to Invoke Subrogation After a Restaurant or Hotel Loss (and How to Do It)
• Reservation of Rights, Coverage Disputes and Working with Defense Counsel in Hospitality Claims