Commercial Umbrella Insurance

What Is Commercial Umbrella Insurance?

Commercial umbrella insurance or excess policies provide additional limits of liability for several coverages businesses and organizations purchase through standalone or package policies. The umbrella or excess policies are typically offered in increments of $1M in coverage.

Depending on the risk, carriers typically will only offer limits up to $5M or $10M for an individual umbrella policy.

If additional coverage is needed, higher limits can be split between multiple carriers.

This can be done by building a tower of coverage where one carrier writes the first layer of coverage and a second carrier (or multiple carriers) write additional layers. For example, one carrier may offer a $5M primary layer and a second carrier would offer an additional $5M (for $10M total) that would only pay out if a claim erodes the entire $5M primary layer.

Another common structure is called a quota share, where two or more carriers offer a combined limit and split claims equally until the limit is eroded. For example, two carriers may share a $10M layer and each pay 50% of a claim equally until the full $10M in eroded.

Underlying Policies and Coverage

It is common for umbrella or excess policies to provide additional limits of liability above the limits in general liability, automobile liability, and employers liability (workers compensation) policies.

Typically, a general liability policy will provide a $1M or $2M per claim limit for bodily injury and property damage claims with a $2M, $3M, or $4M annual aggregate limit. Auto liability policies usually have a $1M per claim liability limit to respond in the event of a claim causing injuries to another driver or damage to another vehicle or structure. Employers liability (workers compensation policies) typically have $500K or $1M limits for injuries to workers.

The umbrella or excess would give additional coverage in increments of $1M above these underlying or base policies. If you had a general liability policy with a $1M per claim limit and $2M annual aggregate limit along with a $1M umbrella, you would have $2M per claim and $3M for all claims in one policy year.

Similar to general liability and workers compensation policies, many umbrella policies do not have a policy deductible. Some carriers do require a deductible (ex: $10,000 or $25,000) for tougher or more complex risks.

Other Underlying Coverages

An umbrella or excess policy can also provide supplemental protection for employee benefits liability, sexual abuse and molestation, employment practices liability, and directors and officers liability coverages, depending on how the primary policies are structured.

Certain carriers offer package policies that are tailored towards specific industries or groups. For example, a package policy for a school may include employment practices and educators legal liability (directors and officers) within one combined policy along with the general liability coverage. The umbrella can provide additional limits for all three different coverages.

Underlying Schedule of Insurance

Umbrella policies show a list of underlying policies to confirm if the coverage would apply to a claim from one of these base policies. This is called the underlying schedule of insurance. It is very important to understand how the primary policies are structured, and to include all applicable policies on the umbrella schedule so there is no gap in coverage.

Commercial Umbrella Insurance Summary

We work with several insurance carriers who write umbrella and excess policies. Sometimes it is better to keep the umbrella with the carrier who writes the other lines of coverage. Sometimes it is better to get a standalone policy with a separate carrier. We can provide recommendations on how best to structure these policies.

Have any questions or want to discuss umbrella and excess coverage in more detail? Let’s chat!

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