About Commercial Umbrella Liability Insurance
Umbrella insurance is also known as “excess liability” insurance. Umbrella Liability applies excess over primary liability policies and provides additional limits of liability in a cost effective fashion. The primary policies are called “underlying” policies and are specifically scheduled, along with their limits, on the Umbrella policy.
The underlying policies are typically the primary General Liability and Auto Liability policies. The Employer’s Liability section of the Workers’ Compensation policy is also a common underlying coverage.
Primary General and Auto Liability policies commonly have limits ranging from $500,000 to $2,000,000. In the litigious climate of the U.S., those limits are often insufficient to adequately protect a business from a serious premises claim, product liability lawsuit, or auto accident.
Umbrella policies are intended to cover a variety of liability losses that are also covered by the primary policies. The Umbrella coverage attaches at a predetermined level of liability limit, i.e., when a covered loss exhausts the primary policy’s per occurrence limit.
For example, assume the primary General Liability per occurrence limit is $1,000,000 and the Umbrella liability policy limit is $5,000,000 excess $1,000,000. There is a covered loss of $3,000,000. The primary General Liability policy will pay the first $1,000,000 (the policy limit) and the Umbrella policy will pay the remaining $2,000,000.
Some Umbrella policies will also “drop down” and apply on a primary basis, excess of a Retained Limit (deductible), for claims not covered by the primary policies. This is called Coverage B on the Umbrella policy. However, generally speaking, most Umbrellas will respond only to claims that are covered by the primary policies.
What Isn’t Covered?
An Umbrella policy is strictly third-party liability coverage; it does not apply excess of property, crime, or other first-party coverages. Most Umbrella policies will exclude Employment Practices Liability, Professional Liability, Product Recall, Asbestos, Pollution, War and Terrorism. All Umbrella policies exclude Workers’ Compensation.
What Affects the Cost of the Policy?
Underwriting for Umbrella Liability insurance is customized for each individual policyholder. As with primary General Liability, the more hazardous the Insured’s operations, the higher the Umbrella premium will be.