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Excess Insurance, Umbrella Policies and Why Your Business Needs Them

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Isaac Bock

Getting basic business insurance is obvious.  Getting umbrella or excess insurance is not.

So you’ve done the right thing by getting your company an insurance policy. You feel comfortable with the plan you purchased; limits, pricing and terms are all on point and you think everything is squared away, but for some reason, you have a nagging feeling that something is slightly off. There are three issues that might be causing this unease:

1)  You signed a new contract that requires higher limits than you currently purchased

2) You are worried that a single catastrophic event would exhaust your per occurrence limits

3) You are worried that a group of smaller claims exhaust your aggregate limit

The answer? Look to an umbrella or excess insurance policy.

 

What are these Policies?

The purpose of umbrella and excess policies are to provide extra limits of coverage that sit on top (in excess) of your policy.

Example 1: You have a general liability policy with a $1,000,000 occurrence limit and a $2,000,000 aggregate limit. You move into a new office space, where the landlord is requiring higher limits of $5,000,000 per occurrence and aggregate. You can get to those higher limits by purchasing either an excess or umbrella policy that fills the gaps between your program and your contractual requirements.

Example 2: You are worried that your general liability policy will not fully cover you in case of a catastrophic event, so you would like higher limits. The problem is your underwriter will not increase the limits on your current policy. A great choice would be to purchase an umbrella or excess policy, which provides an additional layer of coverage should the underlying limits be exhausted.

You’re probably curious why you should choose umbrella or excess liability insurance when they sound like they do the same thing. The reality is they are actually quite different.

 

Excess Insurance

Excess insurance will increase limits over and above those of the primary insurance policy. While this is also the case for an umbrella policy, excess policies will only provide coverage for loss or damage caused by specific hazards specified in the underlying (primary) policy. In other words, it is no broader than the terms of the policy it is supplements.

Example: You purchased a general liability policy as well as an employment practices liability insurance (EPLI) policy. You need to have higher limits on the general liability portion of your insurance program to meet the conditions of a contract. You decide to purchase an excess liability policy. This excess policy will provide higher limits only for claims that would be covered by your general liability policy, but had exhausted the original limits. It would not cover a claim against the EPLI policy, because this claim does not fall in the scope of your original general liability policy.

 

Umbrella Insurance

Underwriters design umbrella insurance policies, like excess insurance policies, to provide coverage against a catastrophic loss that exhausts the limits of the underlying policy.  An umbrella policy differs from an excess policy in several of ways:

1)   It can provide additional coverage over multiple policies.  I.e. adds an additional limit for a general liability policy as well as an EPLI policy.

2)   It can also provide coverage against some claims not covered by the underlying policies. I.e. claims brought against you for slander or invasion of privacy, which may not be covered in the primary policy.  This type of coverage is provided on a first dollar basis, however, and it is subject to a retention.

 

Both of these types of policies are extremely useful ways of increasing protection and limits for underlying coverage however, it is important to realize that they are not interchangeable. Excess policies are a great resource for small to midsize companies who are not purchasing a full insurance package, while the umbrella policy is usually geared to a larger and more mature insurance purchaser. As your business continues to grow, so will your insurance needs!

If you need guidance on what might be best for your company, please reach out!

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