Why do I need umbrella insurance?
For the same reason you need any other insurance: to protect against the worst case scenario. In this case, we’re talking about the worst of the worst.
The trouble with general liability, auto liability and employers liability policies is that no one policy covers everything. Limits of liability only go so high and insurance carriers sometimes won’t want to take on all of the risk that a company presents. On top of that, there are some claims businesses face that are costly but also extremely rare. Is it worth spending the money on a dedicated policy to cover that risk?
Perhaps. But depending on your business, it may be wiser to protect several policies with one, over-arching safety net. Umbrella insurance serves this purpose. It’s no surprise, then, that umbrellas are some of the most commonly purchased commercial insurance policies.
Contracts with vendors and landlords often encourage businesses to look into umbrella insurance. For good reason too, since these third party “additional insured’s” can be sued in many cases because of activities of your company. These third parties need to know that, should the need arise, you have the backing of a massive financial institution to cover legal costs, judgments and settlements which they may be on the hook for if your insurance runs out.
What is it?
An umbrella policy is an excess policy that supplements some of your other policies, including general liability, auto, employers liability, and liquor liability. These policies are referred to as “underlying” insurance. An umbrella can cover one policy or several, it’s completely up to you.
If certain claims aren’t covered by the underlying policies — or if the limits of one the underlying policies are exhausted — and there are still outstanding costs, the umbrella policy is an affordable solution that will jump in to start covering you.
Like its underlying policies, an umbrella will cover a wide range of risks by paying for the costs of litigation as well as restitution for the injury. These costs can include court-awarded damages, settlements, and medical costs.
While several different policies fit underneath the umbrella, the origins of the claims covered by umbrellas are shared in common:
- Bodily Injury: physical injury or illness to a person, caused by your business activities.
- Property Damage: the damage, destruction, or theft of property belonging to a third party.
- Personal and Advertising Injury: false arrest, detention, or imprisonment, malicious prosecution, wrongful eviction, slander, libel, and invasion of privacy. When in connection with advertising material, copyright infringement and misappropriation of advertising ideas.
- Contractual Liability: only as respects “insured contracts” like leases and easements, legal expense arising out of you taking on the tort liability of another party who may be required to pay damages from bodily injury or property damage to a third party. When companies sign office leases, they often assume the landlord’s tort liability if someone, for instance, slips on a wet floor within the office space.
How do I protect my company and myself?
Want to read more on the subject? Check out our other blog posts!
Read about other types of coverage