An accountant sets a parameter in the software incorrectly, and ten clients' tax returns come out wrong. A plumber seals a joint badly, and four flats suffer water damage one after another. A manufacturer installs a faulty batch of components, and machines break down at fifty customers. Are these ten, four and fifty losses – or one? Liability insurance conditions answer this question with a separate rule, and the answer decides three things at once: how many limits are available, how many times the deductible is applied, and which insurance period the loss falls into. This is the serial loss rule, one of the most important yet least-known elements of limit sizing and temporal scope.
- Hungarian policy conditions typically treat several losses arising from the same cause that are connected in time or affect several injured parties as one insured event – this is the serial loss.
- One event means one per-event limit and one deductible: the sum insured does not depend on the number of injured parties, and if the claims exceed it, the injured parties – depending on the conditions – share it proportionately or are paid in the order of notification until the limit is exhausted.
- The date of a serial loss is the date of the first loss – this decides which insurance period and which contract bears the whole series.
What counts as a serial loss?
Hungarian policy conditions describe the serial loss in similar terms. According to one set of professional liability insurance conditions (listed under the sources), a serial loss is “several losses arising from the same cause, connected in time and possibly affecting several injured parties”, which “qualify as one insured event”. Another set, general liability insurance conditions, puts it this way: several losses arising from the same cause that are connected in time or affect several injured parties qualify as one insured event – so in neither of the conditions quoted is the involvement of several injured parties a precondition. The key element is the identity of the cause: the same incorrect setting, the same design or procedural error, the same faulty component. If you make two different errors for two clients in the same week, that is not a serial loss but two insured events. If, however, one error strikes in the same way over months, the connection in time may exist even if the losses occur far apart. What still counts as “connected in time” is typically not quantified in the conditions – it is a matter of interpretation and may differ by insurer and from case to case.
One limit – and the injured parties share it
A serial loss is one insured event, so the per-event limit applies to it – not one limit per injured party. The professional conditions mentioned state expressly that the sums insured do not depend on the number of injured parties, and they treat a serial loss as one loss event regardless of how many injured parties there are. If the total of the injured parties' well-founded claims exceeds the limit, two approaches appear in the conditions: the general conditions quoted provide for proportionate payment – each injured party receives compensation in the same proportion as the limit bears to the total of the claims – whereas the professional conditions quoted pay in the order in which the claims are reported and proven, until the limit is exhausted; which of these applies to you is determined by your own policy. And the difference does not disappear – the insured has to answer for it from its own assets. This is the most important practical lesson of the serial loss for sizing: it makes sense to measure the limit not against the average loss at a single client but against the chain reaction. The article on sizing the limit develops this line of thought in detail. It is also worth knowing that a serial loss also uses up the aggregate limit for the insurance period: after a large series, less cover remains available for other losses in that year.
One deductible – and that is the good news
The conditions set the deductible per event: according to the professional conditions, the deductible is “the part of the loss for which the Insured is obliged to answer itself in connection with each loss event”. Since a serial loss is one loss event, the deductible is typically applied once to the series as a whole, not per injured party. This matters for small losses. If each of the accountant's ten clients suffers a small loss and each one, taken separately, stays below the deductible, none of them would be paid as a separate event – under the conditions, the insurer does not pay for a loss that does not reach the deductible. Added together as one event, however, the ten losses may exceed the deductible, and the insurer pays the difference. This is why proving the identity of the cause is sometimes in the interest of the insured and sometimes in the interest of the insurer – where the line falls is decided by the wording of the conditions and the facts of the claim. The conditions typically do not provide for a separate serial loss deductible, but this may differ by insurer, so it is worth checking in your own policy. The article on deductible logic gives the general considerations for this decision.
The date of the first loss decides
The conditions designate the date of the first loss event, or of the first damage, as the date of the serial loss. This means far more than a date. First: the date of the first loss decides which insurance year's limit stands behind the series – later losses belong to that year even if they occurred in the following period. Second: if the first loss occurred before the start of cover or before the retroactive date, then by the logic of the conditions the later losses in the series are not covered either, since the whole event arose outside the cover. Third: when you switch insurers, the whole series may belong to the old contract, while the new insurer may reject the notification by referring to the date of the first loss. That is why it matters whether the temporal scope and the retroactive dates of the two contracts fit together without a gap – the articles on temporal scope and on switching insurers discuss this in detail. With professional cover on a claims-made basis there is one more layer: the claim must also be reported during the term of the contract or within the extended reporting period.
What to do if you suspect that one error is causing damage in several places
With a serial loss, time is not on your side. If you notice that an error may affect several clients, the conditions typically allow – or even require – you to report not only the specific claim but also a circumstance that may give rise to a claim; in this way the entire series that unfolds later can be linked to the date of the notification. Do not wait until all ten clients come forward: the primary route for notification is the insurer's claims line, and it is worth stating in the notification that the error may affect other clients as well. Document the cause: when the error arose, which jobs it affected, when the first loss appeared – these facts decide the date of the series and how the conditions apply. Do not make any statement to the injured parties admitting liability and do not enter into a settlement without the insurer's knowledge, as this may jeopardise your cover. As a broker, I see that the serial loss rule hardly ever comes up when a policy is taken out, yet it matters most when a loss occurs; if you have a question about sizing the limit, or about a serial loss case that has got stuck or is disputed, I help where I can.
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Sources
- Alfa Vienna Insurance Group – Professional liability insurance conditions (SZAF-SZ-230801, in force from 1 August 2023), points I.7, I.9, V.3–V.4, VI.1–VI.3 and VII.5 (serial loss and its date, sum insured and number of injured parties, deductible, order of payment once the limit is exhausted)
- Allianz Hungária Zrt. – Corporate liability insurance: general terms and conditions and customer information (AHE-43501/6, in force from 1 September 2022), point 1.8 (serial loss), point 5.4.10 (date of the serial loss) and point 12.2.1 (proportionate payment where there are several injured parties)
- Allianz Hungária Zrt. – Compulsory professional liability insurance for lawyers, general conditions (AHE-10474/3), points 1.5–1.6, 3.2–3.3 and 8.1 (date of the serial loss, limit, proportionate payment, notification of circumstances)
