Deductible Clause – Liability

Purpose

Where a deductible has been specifically agreed, the policyholder, under AHB clause 6.4, bears a fixed amount stated in the policy of the indemnity payment for each insured event. The clause is intended to give the policyholder a stake in smaller, frequently occurring losses, encouraging more careful risk behaviour and reducing the premium.

Effect and limits

Even where the established liability claims from an insured event exceed the sum insured, the deductible is still subtracted from the amount of the established claims, without increasing the insurer’s maximum liability. Importantly for the policyholder, the insurer remains obliged to defend against unfounded claims even for losses below the deductible threshold, so legal protection against unjustified demands is unaffected by the deductible. In German D&O insurance, section 93 (2) sentence 3 AktG mandates a statutory minimum self-retention for management board members that may not be covered by insurance.

Negotiation and practice

Outside any statutory minimum, the level of the deductible is freely negotiable and depends on the policyholder’s risk appetite, loss history and premium budget. In larger programmes, aggregated deductible structures are increasingly used, capping several individual deductibles at an overall annual amount.