Excess and Umbrella Liability Insurance

These policies offer additional liability limits beyond the underlying General Liability, Auto Liability, and Worker’s Compensation policies. Sometimes, these policies can be endorsed for additional coverage beyond the underlying policies.

Excess Liability, and Umbrella Liability contracts are confusing. The market is often confused because the terms are frequently used interchangeably. Technically these coverages can be very different. Each umbrella and excess form can have different retention limits. This is the deductible. Usually referred to as SIR self-insured retained. This deductible is usually $10,000 if the policy has one.

If that’s possible, the umbrella policy usually covers a wider area than the excess policy. The excess policy will usually state that it is a follower form. This means that the excess policy covers the same as the primary general liability insurance policy. The excess policy will be covered if the primary general liability policy has exclusions or limitations. Sometimes, the excess policy can even be written as a standalone policy. This means that each excess policy has its own clause in the contract. It can contain its own coverages, limitations and exclusions. This can make it difficult for consumers to mix a primary liability and excess policy with their own exclusions, coverages or limitations. All of that can make it very difficult to sort out at claim time and lead to gaps in coverages. True umbrella policies can sometimes be dropped to the self-insured limit in order to cover certain liability claims not covered by the primary coverages.

Many policies on the market today are written on an excessive basis, and not on true umbrella bases. Consumers should assume that, even if it says umbrella policy, it will most likely be an Excess Policy that follows the primary liability policies coverages, limits, exclusions.

These excess and umbrella policies often have an insuring arrangement that promises to cover the “ultimate lost” which exceeds the limits for the primary policy. It is important that the carrier defines the ultimate net loss in the policy. It is usually the insured’s total legal liability for a claim. The limits may or not cover defense costs. The majority of excess and umbrella policies are written on an occurrence basis. This means that they are triggered by an accident that involves the continual or repeated exposure to the same harmful conditions. Sometimes, the coverage on the primary policy may be exhausted in terms of the defense cost. The umbrella and/or excess policies might be reduced to provide additional defense coverage, but not necessarily cover damages.

It is crucial that the excess and umbrella policies be in conjunction with the primary policy. They should both have the same expiration and effective dates. If they have different start or finish dates, this can lead to gaps in coverage. All policies include coverage territories limits and exclusions. It is important to remember that both the primary liability and umbrella/excess policies cover the same territory.

It is prudent for you, the insured to be aware in advance if there are any excess policies or umbrella policies in your portfolio. It is important to ensure that your underlying policies and excess/umbrella policy are in sync on the policy dates. Also, ensure that the primary and excess/umbrella insurance have complementary coverages and exclusions to avoid coverage gaps.