Standard liability insurance policies are not sufficient to protect your business in all situations. Many general liability, auto liability, professional liability, and similar policies are limited to $1,000,000 per occurrence *. Thus, if a claim arises that exceeds that amount, umbrella liability insurance is needed.
Each client best knows the risks associated with their unique operations and how their products or services may lead to liability claims. Some businesses’ highest risk is damaging property, but the largest liabilities usually come from 1) injuring people, or 2) damage to property that results in another business losing income. Here are a few examples illustrating how an umbrella liability insurance policy is a vital protection.
Heating, Ventilation, and Air Conditioning (HVAC)
An HVAC contractor installs a new air handling unit for an office building. Four days later, the building catches fire and is declared a total loss. Worse, two tenants were injured in the blaze. The contractor is sued by three separate entities for $1,000,000 each (one event/occurrence, but $3m total claim).
A courier runs inside a tape measure manufacturing plant for their daily delivery of a specialty top coating from a local supplier. While inside, his truck’s parking cable snaps due to salt corrosion and the vehicle rolls downhill into a semi-truck at the loading dock. Although damage to the truck and its contents totals only $25,000, the resulting cleanup requires HAZMAT intervention and shuts down the factory’s shipping for three days, resulting in $1,500,000 in lost revenue.
A networking firm installs new components in a call center. While testing the updated gear, the call center’s main server fails and will not respond for three hours, resulting in twenty of their clients losing revenue. Although causality is difficult to ascertain, nonetheless the networking firm faces lawsuits totaling $2,250,000.
Umbrella Liability Insurance Coverages
Commercial umbrella liability insurance provides additional coverage when a claim exceeds the limits of underlying coverages named on the policy. Commonly named underlying coverages are general liability, auto liability, and workers’ compensation. However, other liability coverages can be named such as professional liability, directors and officers liability, and employment practices liability. Umbrella liability insurance begins paying when those named underlying coverages are used up. Thus, if an underlying general liability coverage is limited to $1,000,000 per occurrence and the umbrella liability insurance limit is $4,000,000, total coverage is now $5,000,000 for general liability claims.
What Is Not Covered by Commercial Umbrella Insurance?
Two primary types of umbrella liability insurance exist and their names are often used interchangeably: 1) umbrella and 2) excess. However, they are not the same. The nuances between these is beyond the scope of this article and we advise you to ask your insurance agent which is best for you. But what is important to remember is that what many call “umbrella” policies today are technically excess policies. Excess policies pay out only if the claim is covered by a named underlying policy. For example, if a claim arises for professional liability, the excess policy will provide coverage only if the professional liability policy exists, is listed as an underlying coverage, and covers the claim. This works well for many clients, but ensure you are informed which type of policy you need.
Businesses also cannot expect commercial umbrella insurance to cover items excluded from underlying policies. Pollution is a good example. Pollution damage is excluded from most general liability insurance policies, therefore standard commercial umbrella insurance will not cover it (unless specifically designed to do so). Again, options exist, so talk to your insurance agent.
Which Businesses Should Purchase an Umbrella Liability Policy?
We recommend all businesses purchase commercial umbrella liability insurance. The policy limits begin at $1,000,000 and can go up to almost any limit needed. When determining insurance levels, clients should consider the risk inherent in their industry as well as those specific to their individual business operations. Next, they should consider the value of all business assets needing protection. Limits of $10m, $25m, or even $200m are available depending upon circumstances.
Commercial umbrella liability insurance is currently increasing in price and becoming more difficult to obtain. This change is the result of an increase in claim size, frequency, and uncertainty. In 2020 not only did the number of claims increase, but the claims proved larger, and many reasons those claims were filed were new and unforeseen. Nonetheless, this is still one of the most requested coverages and a part of any complete commercial insurance package. If a business has proper controls in place or liability risk is low, pricing is still quite reasonable. But businesses with greater risk exposure are seeing increases in pricing over last year. Read More…
Pricing is where the power of Bankers Insurance is useful to our clients. Not only are we contracted with over four hundred insurance companies, but our size provides our clients increased bargaining power.
Contact your Bankers Insurance agent regarding questions on commercial umbrella insurance or any underlying coverages. Not a client of ours? Let us earn your business! Each client is assigned a personal agent in our office and provided a phone number that rings right on their desk.
* Do not confuse your liability policy’s aggregate limit (usually $2,000,000 or $3,000,000) with the limit per occurrence. The per occurrence limit is the most the policy will pay for each event (occurrence). The aggregate limit is the most the policy will pay during the policy term, thereby providing additional coverage but only for multiple events.