Waiver of Restoration

Example

“Thanks to the waiver of restoration clause in their liability policy, the law firm maintained their full $2 million coverage limit even after paying a $500,000 malpractice claim earlier in the year.”

Memory Tip

Think 'WAIVE THE WAVE GOODBYE' - this waiver prevents your coverage limits from waving goodbye after each claim.

Why It Matters

Without waiver of restoration, businesses face decreasing protection throughout the policy year as claims are paid, potentially leaving them vulnerable to catastrophic losses near policy renewal time. This provision ensures consistent protection levels, which is crucial for businesses facing ongoing liability risks or operating in high-claim frequency industries.

Common Misconception

Many policyholders assume their coverage limits automatically restore after each claim payment, not realizing this typically requires a specific waiver provision that may cost extra. Others think the waiver applies to all types of coverage, when it's most commonly found in liability and professional indemnity policies rather than property coverage.

In Practice

A medical practice carries $3 million in malpractice coverage with waiver of restoration. In March, they settle a claim for $800,000, which would normally reduce their remaining coverage to $2.2 million. However, the waiver maintains their full $3 million limit. In October, they face another lawsuit seeking $2.5 million. With the waiver, they have full coverage available; without it, they would face $300,000 in exposure above their reduced limit, potentially requiring personal assets to cover the shortfall.

Etymology

Developed from traditional insurance practices where policy limits were 'consumed' by claims, with the waiver concept emerging as insurers began offering options to maintain full coverage throughout the policy term.

Common Misspellings

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