Insurance Frequently Asked Questions: Umbrella Excess Liability

A business owner will need to consider their business operations and the risks they face not only daily but also worse case scenarios. Unless your underlying insurance limits, you’re general, auto, and employers liability limits are capped as high as they can go (usually $1,000,000 for each) you won’t be eligible for an umbrella policy. If you are getting this Umbrella or Excess Liability policy solely because it is required by a client contract, you will have to get the limit required in the contract.

Consider the “worst-case scenario”. If you have company-owned vehicles, one bad at-fault accident with injuries, $1,000,000 will not go very far. Regardless of your business industry, consider how your work, product or premises could be dangerous to people or property. If a sky bridge (between two buildings) with people walking on it collapsed, is $5,000,000 enough? Is $10,000,000 enough?

Insurance agents don’t have crystal balls and cannot determine this limit for you, unfortunately. By discussing with your agent who intimately knows the ins and outs of your business, a good discussion should bring you closer to knowing what your level of protection should be, it should be high enough that you don’t have to worry about that “worst-case scenario” occurring. 

1. Trucking firm’s employee hits an icy spot on the interstate and slides into a vehicle which then hits the vehicle in front of them and so on.  Multi-vehicle pile-up, many people injured and vehicles damaged. The trucker's liability limit of $1,000,000 is exhausted quickly, luckily this trucking firm had a $25,000,000 Umbrella.

2. Manufacturer's rechargeable battery component, in the laptop computers they build, is defective. The batteries can cause the laptops to catch on fire.  One client’s computer caught on fire in the middle of the night, burning down his house and injuring his family. The manufacturer’s product liability in the primary general liability of $1,000,000 was not enough to pay the jury awarded a judgement of $5,000,000 to the family. The manufacturer had also purchased a $10,000,000 umbrella which paid the additional amount of judgment.

3. A demolition contractor takes a job to renovate an older building that has asbestos present. He sends his crew to start tearing out walls & fixtures, without providing any type of personal protective equipment as he also is unaware of the asbestos. The employees later get very ill, with breathing issues, pulmonary distress, and the beginning manifestation of lung cancer all caused by the exposure to asbestos. The employees sue the employer for gross negligence and win. The $1,000,000 employer liability limit included on the worker's compensation policy is not enough to pay the awarded damages. An Umbrella policy would contribute to pay the rest of the damages in this type of situation.

While both policies provide an additional layer of insurance above the underlying policies, and Excess policy will only pay if the underlying insurance covers the loss and exhausts policy limits. An Umbrella policy will also pay under the same circumstances; however, it also could “drop down” and cover claims that are not covered under the primary policy.

These are the basic differences but since most carriers do not use a standardized umbrella or excess liability coverage form, you or your agent will need to closely review the coverage form to determine the coverage intended for a specific circumstance.

Any business that has maximum limits on primary liability policies (general, auto, and employers liability) should be eligible for an umbrella or excess policy. With auto insurance claims on the rise, if your business has any company-owned vehicles, we highly recommend additional limits. It may not be as expensive as you thought but keep in mind, the more costly the Umbrella the more potential for excess claims in your industry.