Yes “SIR” – No “SIR”: The Self-Insured Retention (“SIR”) in Insurance Policies

In both commercial and institutional contexts there often arises circumstances where in entering a contract, one party requires the other to have insurance coverage in place which names that party as an “additional insured”.

To secure the agreement, the other party must produce a “Certificate of Insurance”, which usually confirms the addition of the party as an insured and the liability limits.  This is very common, in fact so common that people and professionals forget to scrutinize what is exactly happening.

Essentially, a SIR basically means that the insurance does not kick in until a certain amount.  Thus the liability policy acts as “Excess” only, as least with respect to the principal insured.  Often the additional party is not fully aware of this.  It sees a certificate that confirms liability limits, and presumes it is getting what it says.

This is where due diligence comes in.  The first step is to seek a copy of the entire policy, including all endorsements.  You need to understand if there is a deductible, and if so, how much, or if there is a SIR, and if so how much.  If it is “no SIR”, then fine, carry on.  If it is “yes SIR” you need written clarification as to its implications for you as “additional insured”.

There has been some instances that I am aware of in the United States, where the court ruled that based on the certificate of insurance provided by the insurer, it was the reasonable expectations of the additional insured that the policy operated as “Primary” (in other words in response to a claim, the insurer was on for all of the claim, without regard to the SIR) at least in relation to the additional insured.

But going to court to argue the point is expensive and uncertain.  The solution is to have it dealt with up front in the contractual arrangements.

A SIR is not the only area where due diligence is required when relying on a certificate of insurance.  I have seen situations where the policy had exclusions for the very thing that the additional insured thought it was getting in a lease agreement.  But without looking behind the certificate, you are leaving yourself exposed.

John Barzo
205-60 Collier Street,
Barrie, Ontario, Canada
L4M 1G8

#: 705-733-6245

Leave a Comment