Do The Sublimits In Your Insurance Policies Expand Or Reduce Coverage?

Earlier this month, the New Jersey Appellate Division issued an unpublished opinion reminding policyholders of the first rule of insurance: Words matter. In Rivera v. Starstone Specialty Ins. Co.,¹ the court was asked to address a common fact pattern, in which a follow-form excess insurer sought to avoid coverage for a claim that was subject to a $50,000 sublimit in the primary policy. When asked to pay above that sublimit, the excess insurer took the position that its policy only applied if the full $1 million primary policy limit had been paid.

The Appellate Division sided with the insurer, grounding its decision in the fact that the words "applicable underlying limit" – as used in the excess policy – were specifically defined as the limits in the Declarations of the primary policy. Since the $50,000 sublimit was located in an endorsement to the primary policy – and not on the "Declarations" page – the court held that the applicable underlying limit had not been