Umbrella Insurance: Liability, Programs, Costs & More
March 19, 2021
Umbrella is a perfect word to describe the excess liability component of commercial umbrella insurance programs. That's because an umbrella policy sits atop and extends liability coverage across other policies in a client's portfolio. Umbrella coverage is in wide use in commercial and personal line applications. This guide to Umbrella Insurance Programs puts the focus on how it applies to commercial lines.
What is Umbrella Insurance & Who Needs It?
Insurance policies always have limits. It would be impossible to rate without them. In some cases, policy limits produce loss exposure when payouts for claims exceed their limits. This high-end loss exposure creates a need for additional coverage. Umbrella insurance complements specific liability insurance policies, including commercial general liability (CGL) and commercial auto insurance, by extending their upper limits. When a primary liability policy reaches its limits, an umbrella policy kicks in to cover losses up to its limits.
When you ask, "Who needs umbrella insurance?" the answer is businesses large and small that perform work offsite, deal with customers directly, or work on others' property should consider and most likely need umbrella insurance. Any size business with products or services that risk bodily injury to its customers, vendors, and visitors needs the excess liability protection a commercial umbrella insurance policy provides. In some cases, due to umbrella risk management considerations, companies letting bids require the winning contractor to purchase high liability umbrella insurance coverage to fulfill their contract.
How Does Umbrella Insurance Work?
Insurance policies must have limits to be affordable. When an insured has exposure to risks with losses greater than the policy limits, the excess loss can bankrupt the business. When legal fees and settlement costs run over the limits of standard liability coverages, umbrella insurance absorbs costs up to its limits. High net worth individuals purchase personal umbrella insurance. Businesses buy commercial umbrella liability insurance. An umbrella policy stands between them and devastating losses, which is why this coverage is so valuable and essential to policyholders.
Understanding how umbrella insurance works require knowing the intent is not to cover all the insured's costs and losses. Umbrella insurance intends to help pay legal defense and settlement expenses for damages assessed when the insured is found at-fault in a lawsuit or legal settlement. Also, an umbrella policy only covers items included in the underlying policies; it extends limits on existing policies and never creates new coverage classes.
What Does Umbrella Insurance Cover?
In general, a commercial umbrella insurance policy extends the limits of a business's liability policies. It is not an umbrella over all policies the company owns. You can read about the exclusions in the next section. Commercial auto insurance, general liability, and employers liability (aka Workers Comp) are usually found in an umbrella policy. Depending on the business's nature, examples of other forms of liability insurance under a commercial umbrella policy include:
● Liquor liability
● Hired and non-owned auto liability insurance
● Employment practices liability insurance
Directors and officers liability insurance
Here's an insider view of one of the best umbrella insurance programs from the Program Business Market Directory. The Umbrella Liability product from Program Brokerage Corporation (PBC) allows for Follow-Form Lead and High-Excess policies with limits from $1 million to $10 million. Admitted and non-admitted coverage.
● General Liability – $1,000,000/$2,000,000/$1,000,000
Liquor Liability – $1,000,000/$1,000,000
● Apartments: 1,500 units
● Dwellings: 500
● Land: 10,000 acres
● Payroll: $7.5m
● Real Estate: 3 million square feet
● Restaurants: up to 60% liquor
● Revenue Exposure: $20m
● Revenue Exposure for all Contractors: $5m
● Vehicle Fleet: 40 vehicles with no more than 15 extra heavy trucks
● NY, WA, CO, SC Contractor Risks
● Exterior Work Above 4 Stories
● Energy Risks
● Medical Exposure or Devices
● Cosmetics Manufacturing
● Nightclubs or Adult Entertainment
● Bars and Taverns
● Internet Retailers
● Toy Stores or Manufacturers
● Camps or Day Care Facilities
Products imported from China
* Can consider higher exposure on a referral basis.
Underlying coverage must write on an occurrence basis. Defense costs must be outside of the underlying limits.
Underwriting adequate and profitable umbrella liability policies require extensive market knowledge and experience. That's why you find Targeted Class and Avoided Risks lists above. The message from the above lists and other available information is that you will receive highly qualified, top-notch professional service and products when you work with a broker like PBC from the Program Business Market Directory.
What Does Umbrella Insurance NOT Cover?
As valuable as umbrella insurance programs are, they have limits and exclusions as with all insurance policies. While they extend higher limits to offset losses beyond underlying policy coverages, they have set upper limits.
Commercial umbrella policies come with exclusions. For illustration, any risk not protected by an underlying policy eligible for umbrella insurance is not covered. As a form of commercial liability insurance, an umbrella policy does not cover damage to the insured's property. Other exclusions include:
● Criminal and intentional acts are not covered. Harmful behavior or unlawful acts that result in injuries and claims are not covered under umbrella insurance.
● Business losses are not eligible for liability claims and are excluded in umbrella insurance programs.
● Losses related to war and armed conflicts are standard exclusions from insurance policies, including commercial umbrella coverages.
● Libel, slander, and defamation claims are exclusions.
Contracts, whether written or oral, are not subject to umbrella insurance policies.
Umbrella Insurance Costs (and what factors affect the price)
Every business is unique, making its needs for umbrella insurance specific. As such, policies can have commercial umbrella insurance have limits starting at $2 million and ranging to $100 million or more. Limits are a primary determining factor.
Other considerations in the coverage cost are the insured's claims history, creditworthiness, and the type of risk covered by the policy. Here are other factors that affect insurance premiums.
● Businesses with fleets of commercial vehicles with heavy use
● A company that is open to the public with considerable foot traffic
Industry classification that is known to have stressful or dangerous working conditions
In the cost of commercial umbrella example from above, PBC shows minimum annual premiums of $600 for low hazard and $900 for medium hazard risks. On the high end, yearly costs for umbrella insurance can exceed $1,500. Insureon reports the median premium for commercial umbrella insurance is $75 per month or $900 annually.
Market conditions are a significant cause of overall insurance premium pricing. The past few years' hard markets have tightened markets for coverage and made it more expensive. The current conditions indicate the rise in prices may have stabilized for now but show no signs of turning competitive in 2021.
Best Umbrella Insurance Programs
Our mission with the Program Business Market Directory is to connect wholesalers, MGAs/MGUs, program administrators, and carriers with independent agents looking to place business. We intend to provide our users with a robust platform that enables agents to quickly contact and begin the underwriting, quote, and submission process.