Protect Your Business from Rainy Days: Umbrella or Excess Liability Insurance

Rain or shine your business needs to keep running. When the dark storm clouds roll in and your business is going through a challenging time, you’ll be glad to have an umbrella to protect your business. In fact, Umbrella Liability or Excess Liability, may be the insurance policy you need most. 

Perhaps you already have workers compensation, general liability, and other commercial coverages. However, once the policy limits on those policies are exhausted by paid claims and lawsuits, your business will be left to pay the damages that are in excess of the underlying policy limits. 

Umbrella and Excess Liability are Actually Different

You might hear people using the terms “Umbrella” or “Excess Liability” interchangeably but that’s not quite correct. Both of these insurances are similar but not the same. 

To clear up any confusion, here’s what each policy is really all about. 

Excess Liability Insurance

Excess Liability policies give you additional limits to your primary policies’ limits. A big “but” to remember is that Excess Liability only protects you for the same things your primary (also called “underlying) policy covers. An Excess Liability policy will not cover any exposures that aren’t covered under the primary liability insurance policy. There are even some Excess Liability policies that will cover fewer risks than your primary insurance.

Excess Liability coverage can be used as secondary insurance for multiple liability insurance types. For instance, you can get Excess Liability as secondary coverage to General Liability, Commercial Auto Liability, and Employers Liability. The claim or accident always needs to be reported to the primary insurance carrier first and if the claim is anticipated to exceed the underlying policy’s limit it should be reported to the excess carrier as well.

Umbrella Insurance

Umbrella policies are also Excess Liability plans but more robust. That’s because Umbrella insurance may provide more comprehensive coverage and may protect you from claims that your primary policy will not as opposed to an excess liability policy.

An Umbrella, like an Excess Liability policy, can be over different underlying liability policies. If you invest in an Umbrella policy then you can use the excess limits in conjunction with your General Liability, Employers Liability, and Commercial Auto policies when those limits are exhausted by paid claims or settlements.

Shop carefully for umbrella or excess liability

You’ll also want to remember that neither an Umbrella nor an Excess Liability plan can cover claims if you don’t already have an underlying liability policy. In other words, you can’t apply your Umbrella limits toward a general liability claim if your business doesn’t already have an effective General Liability policy. It’s the same deal with your Excess Liability. The umbrella or excess only kicks in above the required underlying policy limits, usually $1,000,000 per occurrence. If the primary general liaibility lapses, your excess could start paying claims above $1,000,000, which leaves a hefty gap in coverage.

Working with an experienced commercial insurance agent can help you focus on getting the protection your business truly needs.

Umbrella/Excess Liability: Claims Example

Let’s imagine you have a Commercial Umbrella policy, as well as a General Liability policy. You run a neighborhood coffee shop. A regular customer falls on the premises and is seriously injured. Your customer has surgery and needs ongoing medical treatment. Plus, they miss quite a few work days. The injured person then sues the cafe to recoup all the expenses associated with this injury. 

First, you file this claim with your general liability insurance company. There are costly attorney charges, court fees, and a large settlement payout. This exceeds your $1M general liability limit. Now you can file a claim with your Umbrella insurer to cover the remaining expenses, protecting your bottom line. 

Umbrella/Excess Liability: Common Exclusions

As with any insurance coverage, there are exclusions to what your Umbrella/Excess Liability insurance will cover. Some standard exclusions include:

• Any claim you haven’t already submitted for coverage via the underlying policy. 
• Any claim already covered in full by your underlying insurance policy. 
• Commercial property insurance claims are not covered.
• Employee discrimination lawsuits are excluded. 
• Professional liability (aka errors and omissions or malpractice) claims are excluded from Umbrella policies.
• Cyber Liability, Network Security & Privacy Liability claims are not covered under an excess or umbrella policy.

For Employment Practices Liability, Professional Liability and Cyber Liability policies, you can usually purchase higher limits on those policies directly, since they are not included under the umbrella and excess policies.

Umbrella/Excess Liability: Premium Cost

Umbrella and Excess Liability premiums will vary depending on several factors. Insurance carriers may quote based on different exposures, but in general, the underlying limits and exposures of revenue, number of vehicles, and payroll are all factors of the premium cost. Plus, the umbrella or excess policy limit you pick will influence the final premium. 

Many small businesses pay anywhere from $1000 to $3,000 annually for a $1,000,000 commercial Umbrella/Excess Liability policy. However, depending on the size of the business and its underlying exposures, commercial Umbrella/Excess Liability insurance can far exceed $3,000 per year, per million-dollar layer.

No matter the weather, carry your umbrella

Buying commercial Umbrella or Excess Liability coverage is really just buying higher limits for your liability policies. If your primary plan doesn’t cover the full amount of the liability claim, then your Umbrella/Excess Liability is on standby to cover the excess amount. 

Getting the right Umbrella or Excess Liability policy will simply give your business extra financial protection. If you have any questions or want to learn more about expanding your existing business insurance portfolio, you can certainly talk with a knowledgeable business insurance agent.