A professional liability claim changed carriers twice before a single adjuster reviewed the file. The incident—a service error by a mid-sized engineering consultancy (a firm with roughly 80 employees specializing in structural design for commercial buildings)—triggered a sequence of handoffs that consumed roughly 14 months and three insurers before anyone performed a coverage analysis. In this case, defense costs had already surpassed the eventual settlement amount.

This case, drawn from a 2024 claims analytics study by Aon's Professional Services Practice (which analyzed over 2,000 professional liability claims from 2019 to 2023), illustrates what happens when a claim outlives the policy period that covers it. The primary insurer non-renewed mid-cycle. An excess carrier inherited an open exposure without an underwriting file. A third carrier (a Bermuda-based specialty insurer) appointed panel counsel only after a lawsuit was filed. The claim was not assigned to an adjuster with authority until the file was more than 400 pages deep.

The following sections trace the timeline, the structural causes, and the practical lessons for brokers and risk managers who place professional liability towers. While multi-carrier towers offer benefits such as higher limits and diversified risk, they also introduce operational complexities that can leave insureds vulnerable.

A Claim Changes Carriers Before a Single Call Is Made

The incident occurred in late 2022. The insured, an engineering firm with roughly 80 employees, notified its primary carrier within days. That carrier, a regional insurer writing professional liability on a claims-made form, opened a claim number and began accumulating defense costs under a panel counsel arrangement. The initial demand letter arrived roughly 90 days after the incident, seeking $120,000 in damages for alleged design errors in a commercial building project.

Before the carrier could complete its preliminary investigation, it notified the insured of non-renewal. The reason cited was a shift in underwriting appetite—the carrier was exiting professional liability in that state. The policy expired at the end of its term, roughly seven months after the incident. At that point, the claim file contained roughly 150 pages: the demand letter, the insured's incident report, some correspondence, and invoices from the panel counsel who had begun reviewing the merits.

The second carrier, which wrote the excess layer above the primary, inherited the open exposure when the primary policy lapsed. Under the claims-made form, the claim was deemed first made during the primary policy period, so the excess carrier's obligation to defend attached. However, the excess carrier did not have an underwriting file for the risk—it had only the binder from the primary placement. No adjuster was assigned. The file sat for roughly five months.

When the lawsuit was filed at month seven, the excess carrier appointed a new panel counsel—a different firm than the one the primary had retained. The new counsel had to reconstruct the factual record from the primary's file, which had not been formally transferred. By month 14, the claim had been touched by three carriers, two law firms, and the insured's broker's risk manager, who had drafted discovery responses in the interim. No single adjuster had conducted a coverage analysis.

Three Insurers, One Shared Service Agreement

The tower structure was typical for a firm of that size. The primary layer, with a $1 million limit, was written by a regional carrier (unnamed per source). Two excess layers—one for $2 million and one for $2 million—were placed with separate markets. The total tower of $5 million sat above a $25,000 self-insured retention.

All three carriers had signed a shared service agreement that designated a third-party administrator (TPA) to handle claims intake and data entry. But the TPA had no claim authority—it could log the file and send form letters, but it could not set reserves, appoint counsel, or negotiate settlement. Those decisions rested with each carrier's claim committee, which met quarterly, not on demand.

The consent-to-settle clauses in the excess policies created a tri-party deadlock. The primary carrier, which had non-renewed, had little incentive to settle quickly—its policy was no longer in force, and any settlement would erode the excess layers. The first excess carrier, which had inherited the primary's obligation, was reluctant to authorize settlement without the primary's participation. The second excess carrier had no direct exposure until the first excess layer was exhausted, so it took a passive stance.

The service agreement did not specify a timeline for claim-handover procedures. It did not require the primary carrier to transfer its underwriting file or its coverage analysis. It did not mandate that a single adjuster be assigned across policy periods. The result was a claim that drifted for more than a year without a decision-maker who could authorize a response.

The Adjuster Finally Sees a File Already 400 Pages Deep

At month 14, the insured's broker escalated the matter to the carriers' senior management. The pressure resulted in the assignment of a senior adjuster from the first excess carrier. When the adjuster opened the electronic file, it contained roughly 400 pages: the demand letter, the complaint, discovery responses drafted by the broker's risk manager, correspondence between three law firms, and invoices totaling more than $80,000 in defense costs.

The adjuster's first diary note, dated month 14, read: "No coverage analysis performed. Need to determine applicable policy period and prior acts date." The adjuster then spent the next two months reconstructing the coverage timeline. The prior acts date in the binder was ambiguous—the primary policy had a prior acts date of January 1, 2020, but the excess policies referenced the primary's inception date, not the prior acts date. The claim involved services performed in 2021, which fell within the prior acts window, but the second excess carrier's form excluded the specific professional activity—engineering design for commercial structures over a certain height.

At month 19, the third carrier issued a reservation of rights letter, citing the exclusion. The insured responded by filing a declaratory judgment action in state court, seeking a ruling that the exclusion did not apply. The coverage litigation added a third jurisdiction—the underlying claim was in one state, the insured was headquartered in another, and the coverage action was filed in a third. Four law firms were now billing on the file.

The adjuster set a reserve of $500,000—50% of the first excess layer's limit—without having completed an investigation of the underlying liability. The reserve was based on the policy limit and the adjuster's experience that professional liability claims of this type often settled for half the available limits. No independent liability assessment had been performed.

Coverage Gaps Emerge From the Carrier Handoffs

The handoffs created coverage gaps that might have been avoided with a structured transition. The primary carrier's non-renewal meant that its underwriting file—including the application, the broker's submissions, and any underwriting notes—was not automatically transferred to the excess carriers. The first excess carrier did not request the file until month 14, and when it did, the primary carrier took roughly six weeks to produce it.

The prior acts date ambiguity was the most consequential gap. The primary policy stated a prior acts date of January 1, 2020, but the excess policies incorporated the primary's "inception date" by reference. The inception date of the primary policy was January 1, 2022—the date the policy began, not the prior acts date. The second excess carrier argued that its coverage only applied to claims arising from services performed after January 1, 2022, which would exclude the 2021 services at issue. The declaratory judgment action was still pending as of the most recent reporting.

The exclusion in the second excess carrier's form was another gap. The carrier's form excluded "any claim arising from engineering services for commercial structures exceeding 50 feet in height." The building in question was 55 feet tall. The primary and first excess policies did not contain this exclusion, but the second excess carrier had added it via endorsement at the time of placement. The insured's broker had not flagged the discrepancy during the placement process.

The third carrier's reservation of rights letter, issued at month 19, cited the exclusion and reserved the right to deny coverage entirely. The insured's declaratory judgment action sought to have the exclusion declared ambiguous or unenforceable under state law. The cost of the coverage litigation—roughly $60,000 in legal fees by the time of mediation—was not covered by any of the policies, as the standard ISO forms exclude coverage for coverage disputes.

Defense Costs Exceed the Original Claim Amount

By the time the case was mediated, roughly 26 months after the incident, total defense costs had surpassed $180,000. The original demand was $120,000. The settlement reached at mediation was under $100,000—a fraction of the defense spend.

The defense costs were driven by several factors. First, the three carriers appointed separate counsel at different points. The primary's panel counsel billed at roughly $350 per hour. The first excess carrier's panel counsel billed at $450 per hour. The second excess carrier's panel counsel, appointed after the reservation of rights, billed at $400 per hour. Each firm had to familiarize itself with the facts, resulting in duplicative motion practice. The coverage litigation added a fourth firm, which billed at $425 per hour.

Second, the claim involved three jurisdictions: the state where the project was located, the state where the insured was headquartered, and the state where the coverage action was filed. Each jurisdiction had different procedural rules, requiring separate filings and appearances. The insured's risk manager, who was not a lawyer, had to coordinate among the firms.

Third, the coverage dispute delayed the underlying case. The plaintiff's attorney agreed to stay discovery pending the coverage ruling, but the stay did not stop the defense firms from billing for coverage-related work. The insurers spent roughly $40,000 on coverage briefing before the declaratory judgment action was filed.

The settlement of $95,000 was paid entirely by the first excess carrier, which had the deepest involvement in the underlying defense. The primary carrier contributed nothing, having non-renewed and having no remaining exposure. The second excess carrier contributed nothing, citing its pending coverage dispute. The insured paid the self-insured retention of $25,000 and was responsible for the uncovered coverage litigation costs.

What Brokers and Risk Managers Can Learn From This Sequence

The case illustrates structural vulnerabilities in multi-carrier professional liability towers. Brokers and risk managers can take several steps to mitigate these risks.

First, require a claim-handling timeline in the TPA service agreement. The agreement should specify how quickly a claim must be assigned to an adjuster with authority, how often the adjuster must report to the insured, and what happens when a carrier non-renews or exits a line of business. A timeline of 30 days for initial assignment and 90 days for a coverage analysis would have prevented the 14-month gap in this case.

Second, audit carrier handoff protocols before binding renewal. When a primary carrier non-renews, the broker should ensure that the underwriting file, the claim file, and any coverage analyses are transferred to the excess carriers within a specified period. The broker should also confirm that the excess carriers have a single adjuster assigned to the claim before the primary policy expires.

Third, specify single adjuster continuity across policy periods. The service agreement should require that the same adjuster—or at least the same adjuster team—handle the claim for its duration, regardless of which carrier is ultimately responsible. This prevents the loss of institutional knowledge that occurred when the primary carrier exited.

Fourth, insist on quarterly coverage audits for multi-carrier towers. The broker or risk manager should schedule quarterly calls with all carriers' claim committees to review open claims, reserve adequacy, and coverage positions. These calls should be documented in writing, and the minutes should be distributed to all parties.

Fifth, document every coverage decision in writing at transition. When a carrier non-renews or transfers a claim, the outgoing carrier should provide a written summary of its coverage analysis, including any decisions about prior acts, exclusions, and reservation of rights. This summary should be incorporated into the claim file and shared with the incoming adjuster.

These steps are not standard practice in the industry, but they are within reach for most brokers and risk managers. The cost of implementing them is far lower than the cost of a 14-month coverage vacuum.

The Real Cost Is the Months Without a Decision-Maker

The financial cost of this claim—roughly $180,000 in defense and $95,000 in settlement—was significant, but the real cost was the 14 months during which no one had authority to make a decision. The insured's reputation suffered from the protracted denial. The client whose project was affected filed a complaint with the state licensing board. The insured lost three contracts during the coverage limbo, totaling roughly $400,000 in revenue.

Industry data from Aon's 2024 Professional Services Claims Study suggests that 40–60% of litigated professional liability claims involve some form of handoff delay. The study found that claims that changed carriers mid-cycle had defense costs roughly 30% higher than claims that stayed with a single carrier. The same study found that the average time to assign an adjuster after a carrier change was 8.5 months.

Standard ISO forms do not mandate claim-handover procedures. The forms specify how coverage is triggered and how limits are shared, but they do not address the operational mechanics of transferring a claim from one carrier to another. As a result, the process is governed by service agreements that vary widely in quality and detail.

Legislative interest in a "duty to respond" is growing in several states. As of late 2024, at least three states had introduced bills that would require insurers to respond to claims within a specified timeframe—typically 30 days for initial acknowledgment and 90 days for a coverage determination. The bills are modeled on similar requirements in the health insurance space, where prompt-response laws have been in place for decades. The insurance industry has opposed these bills, arguing that complex claims require more time, but the case described here suggests that the current system can leave insureds without a decision-maker for more than a year.

However, it is important to acknowledge that multi-carrier towers also offer benefits. They allow insureds to access higher aggregate limits than any single carrier might offer, diversify credit risk across multiple markets, and often result in lower overall premiums due to competition among layers. For many firms, a tower structure is the only practical way to secure adequate limits for large exposures. The challenge is not the tower itself but the lack of operational infrastructure to manage transitions smoothly. A well-designed service agreement with clear handoff protocols can preserve the benefits of a tower while minimizing the risks.

The lesson is not that multi-carrier towers are inherently flawed. They are a rational response to the need for higher limits and diversified risk. But the operational infrastructure around them has not kept pace with the complexity of the claims they generate. Until carriers, brokers, and regulators address the handoff problem, the cost of that gap will continue to fall on the insured.

Disclaimer: This article is for informational purposes only and does not constitute professional advice. Readers should consult their own legal and insurance advisors regarding their specific circumstances.