What are companion and follow-form excess policies in apartment insurance?
Follow-form excess policies mirror the terms of the underlying policy and stack additional limits on top, while companion policies are placed with the same insurer for seamless coordination.
As apartment portfolios grow in value, the total insured value (TIV) often exceeds what a single insurer is willing to commit on one risk. Layered insurance programs use primary and excess policies to build the required capacity, and understanding the difference between follow-form and independent excess forms is essential for avoiding coverage gaps.
A follow-form excess policy adopts the same terms, conditions, definitions, and exclusions as the underlying primary policy. When a loss exceeds the primary policy's limit, the follow-form excess policy responds exactly as the primary would, without introducing new exclusions or narrowing coverage. This creates a seamless tower of coverage. For example, a $50 million apartment complex might have a $10 million primary property policy and a $40 million follow-form excess policy. A $25 million fire loss would be paid $10 million by the primary insurer and $15 million by the excess insurer under identical terms.
A companion policy is a specific type of follow-form excess placed with the same insurer that writes the primary layer. Because the same insurer handles both layers, claims coordination is simplified and there is no dispute between insurers about whether a loss is covered. Some insurers offer premium discounts of 5% to 10% for companion placements.
In contrast, an independent excess policy has its own terms and conditions that may differ from the primary. These differences can create gaps—for example, the primary policy might cover water damage from a burst pipe, but the independent excess might exclude it. Any loss that falls within such a gap is the apartment owner's responsibility.
When reviewing a layered insurance program, apartment owners should request a coverage comparison chart from their broker that identifies any differences between the primary and excess forms. The ISO Commercial Property Conditions form (CP 00 90) does not address excess layering, so the excess policy's own terms govern. Pay particular attention to how each layer treats the deductible, whether excess layers have their own retention, and whether defense costs erode the excess limits.
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Related Questions
What types of insurance does an apartment building owner need?
Apartment owners typically need commercial property, general liability, loss of rents, umbrella, and workers compensation coverage at minimum.
How much does apartment building insurance cost?
Apartment building insurance typically costs $500 to $3,000 per unit annually, depending on the property's size, location, age, and coverage needs.
What does general liability insurance cover for apartment buildings?
General liability covers bodily injury and property damage claims from third parties, such as a tenant or visitor injured in a common area.
Do I need flood insurance for my apartment building?
If your property is in a FEMA-designated flood zone, your lender almost certainly requires it. Even outside flood zones, flood coverage is worth considering.
What is loss of rents coverage and how does it work?
Loss of rents coverage replaces rental income lost when units become uninhabitable due to a covered property damage event, such as a fire or major storm.