Most General liability policies issued today have an occurrence limit of $1,000,000.00 or $2,000,000.00 and commercial auto policies typically have limits of $500,000.00 to $1,000,000.00, but is that sufficient in today’s litigious environment?

As a business owner if you don’t feel these liability limits are adequate based on a myriad of variables an umbrella policy or excess liability policy may be the answer. Excess liability and umbrella policies are typically offered in layers per million dollars, 1,2,3 etc. with some insured purchasing limits as high as $50,000,000.00!

The starting point for an excess or umbrella policy is the underlying schedule of policies. The schedule lists all of the liability policies, the insurer, and the limits of liability. An umbrella or excess policy are similar in that after the underlying liability insurance has been exhausted the umbrella or excess policy kicks in and will pay the additional liability loss that has been incurred.

How do the two policies differ?

In an excess policy if there is not an underlying policy addressing the specific liability exposure there would be no coverage. With an umbrella policy if there was not an underlying liability policy for the exposure the umbrella policy may provide some coverage for the loss. A term that does not appear in the excess liability policy is a self-insured retention (SIR). Self-insured retention” means the dollar amount listed in the declarations that will be paid by the insured before this insurance becomes applicable only with respect to “occurrences” or offenses not covered by the “underlying insurance.” The “self-insured retention” does not apply to “occurrences” or offenses which would have been covered by “underlying insurance” but for the exhaustion of applicable limits. Typically, SIRs start at $10,000.00 and the Umbrella carrier will not become involved in a claim until the insured has satisfied the SIR. Another common difference is that an excess policy may have a deductible where an umbrella policy will not.

Which policy is right for you?

While excess liability policies tend to be less expensive, they could leave a gap in your insurance and risk management program. An umbrella policy may be giving you a false sense of security if you can’t afford to pay the SIR in the case of a loss that is not covered by underlying insurance.

If you are interested in learning more about commercial excess liability policies or commercial umbrella policies contact the Trusted Choice Insurance Agents at Richey-Barrett.