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Drop Down Coverage

A method of structuring an insurance or reinsurance placement so that in the event of a loss (or series of losses) which exhausts the policy limit in a nominated lower (or primary) layer, the unexhausted limit of the highest upper layer will “drop down” to respond to subsequent loss(es) during the same policy period, as a replacement for the lower layer. Common in umbrella liability, and a variety of reinsurance contracts.