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 keep you safe and dry. In fact, Umbrella insurance, 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 you meet the policy limits on those commercial plans, you’ll be left to pay out-of-pocket for any claims that go above and beyond the benefit cap.
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 benefits that go above and beyond your primary policy’s limits. A big “but” to remember is that Excess Liability only protects you for the same things your primary plan does. Excess Liability will not cover any exposures that aren’t covered under the first insurance plan. There are even some Excess Liability policies that will cover fewer risks than your primary insurance.
Another important point to remember: Excess Liability coverage can only be linked to one primary plan. For instance, if your business has a General Liability (GL) policy then you can buy a corresponding Excess Liability to cover you beyond your GL’s liability limits. Going forward that Excess Liability plan will only be useful in coordination with your GL insurance. So if you have a commercial auto claim, you can’t file that under this same Excess Liability policy. You would need to already have an Excess Liability plan that’s linked to your commercial auto coverage.
Many business owners buy one Excess Liability plan to complement each of their business policies.
Umbrella policies are also Excess Liability plans but more robust. That’s because Umbrella coverage is broad (much broader than a basic Excess Liability plan) and more likely to protect you from things that your primary policy will not.
Unlike Excess Liability, you’ll find one Umbrella policy can be applied to many different underlying commercial coverages. If you invest in an Umbrella plan then you can use that same plan in conjunction with your general liability or commercial auto.
Shop carefully for umbrella or excess liability
Be aware there aren’t standard insurance forms for Umbrella and Excess Liability insurance. This allows insurance companies to call the coverage what they want and write the plan however they prefer. So even though you’re shopping around for Umbrella coverage, you may be surprised to find the insurance carrier is actually selling you an Excess Liability plan marketed as “Umbrella”.
You’ll also want to remember that neither an Umbrella nor Excess Liability plan can cover expenses if you don’t already have an underlying policy. In other words, you can’t apply your Umbrella benefits toward a general liability claim if your business doesn’t already have an effective GL policy. It’s the same deal with your Excess Liability.
Working with an experienced commercial insurance agency can help keep your shopping focused on the specific 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 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. This will keep you from dipping into the business accounts and your personal savings.
Umbrella/Excess liability: Common exclusions
Same as any insurance coverage, there are definitely exclusions (or exceptions) to what your Umbrella/Excess Liability insurance will cover, including:
- Any claim you haven’t already submitted for coverage via the underlying policy.
- Any claim already covered in full by your underlying insurance policy. If there are any excess damages that go beyond the primary plan’s liability limits, then and only then can you file an Umbrella claim.
- Commercial property insurance claims are not covered including those for inventory, equipment, or office space.
- Employee discrimination lawsuits are excluded.
- Professional liability (aka errors and omissions or malpractice) claims are excluded from Umbrella policies. This means any professional errors or oversights will not be covered under a commercial Umbrella.
Umbrella/Excess Liability: Premium Cost
Same as with all insurance, both Umbrella and Excess Liability premiums will vary depending on several factors. Insurance carriers quote different pricing in general. Plus the benefit limits and coverages you pick will influence the final premium. Finally, insurance companies will evaluate the type of business you do when assessing your risk and ultimately your premium price tag.
Many small businesses pay anywhere from $500 to $1,500 annually for a commercial Umbrella/Excess Liability plan. However, depending on the size of the business and its industry risks, commercial Umbrella/Excess Liability insurance can exceed $2,500 per year depending on the industry and the benefit amounts selected.
No matter the weather, carry your umbrella
Buying commercial Umbrella or Excess Liability coverage is really just insurance for your insurance. If your primary plan doesn’t cover the full liability cost then your Umbrella/Excess Liability is on standby to cover the remaining balance. Or if your main coverage has low benefit limits then you can rely on the Umbrella/Excess Liability to kick in the rest of the money.
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 insurance agency that’s familiar with business coverage.