Why is Commercial Umbrella Insurance Important?

In today’s climate, lawsuits from liability incidents are becoming more common and costly, even as the total number of claims declines. One contributing factor is legal system abuse, where tactics are used to drive up the severity, frequency, and cost of insurance claims beyond what is typically expected. Examples include frivolous lawsuits, exaggerated claims, prolonged litigation, and third-party investors funding lawsuits for profit.1

What does this mean for your business?

A significant loss resulting from a lawsuit could exceed your liability coverage limits, the maximum amount your insurer will pay toward a claim. This puts businesses at risk for higher out-of-pocket expenses, long-term financial strain, or even closure.2

While you can't control litigation trends, you can proactively manage risk. Effective strategies include guided risk management, thorough documentation, and choosing the right commercial insurance to reduce exposure and strengthen your response if a claim arises. 

Commercial umbrella insurance is a good place to start.

What is commercial umbrella insurance?

Commercial umbrella insurance is coverage that can help cover losses after primary liability policy limits have been exhausted.

What does commercial umbrella insurance cover?

Commercial umbrella insurance can help supplement various types of policies, including general liability insurance, commercial auto coverage, and employers’ liability insurance.



Here’s an example of what this might look like:

John Doe’s Construction Company experiences a covered loss under its commercial auto policy, but the claim results in a $1.7 million loss, exceeding the policy's maximum coverage of $1 million. Fortunately, commercial umbrella insurance can help cover the remaining $700,000 in expenses.

Commercial umbrella insurance typically covers losses resulting from liability-related lawsuits. This usually includes legal defense costs and damages such as court-awarded compensation, settlements, and reparations.

And it can certainly provide peace of mind knowing your business has an extra layer of protection.

How much coverage can a commercial umbrella insurance policy offer?

Policies are sold in $1 million increments ranging from $1 million to $15 million. Your trusted insurance broker can help you determine the right level of coverage based on your unique risks, industry, and exposures.

Should I increase my primary coverage or add a commercial umbrella insurance policy?

Many business owners are surprised to learn that adding a commercial umbrella policy is often less expensive than increasing the limits on primary liability policies. A commercial umbrella policy also provides a safety net across multiple liability policies, including general liability, commercial auto, and employers’ liability insurance. In some cases, it can also cover losses excluded by other liability policies.

What are common industries that purchase commercial umbrella insurance?

• Contractors and construction firms
• Manufacturers
• Transportation and trucking companies
• Retailers and restaurants
• Property owners and managers
• Healthcare organizations
• Schools and nonprofits
• Businesses with vehicle fleets
• Businesses that regularly interact with the public

Take Note

Umbrella policies usually require businesses to maintain certain minimum limits on their underlying policies. If these limits are not met, the business may need to pay the difference out of pocket before umbrella coverage applies

What is the difference between a commercial umbrella policy and an excess liability policy?

Commercial umbrella policies may be somewhat broader than the underlying coverage. Excess liability policies do not provide broader coverage than the policies they excess, and they generally follow only the terms of the underlying policies.

Here’s a simple way to look at it:

Picture a building:

• Primary liability policy = the first floor
• Excess liability policy = adds another floor with the same floor plan
• Commercial umbrella policy = adds another floor and may include a few extra rooms that weren't on the original floor plan (subject to the policy's terms and exclusions)

Take the next step

Commercial umbrella coverage depends on the insurer and policy wording. If you are a business leader who wants to explore whether a commercial umbrella policy is right for you, please reach out. We are more than happy to explain what the coverage capabilities can look like for your specific business, so you can make a confident decision moving forward.

Contact us today.

Sources:

1: Claims Journal: Tackling The Growing Threat of Legal System Abuse

2: Zywave Coverage Insights: The Value of Commercial Umbrella Insurance

3: IRMI: Commercial Umbrella Policy—A Few Things To Consider