Does Your Business Need Commercial Umbrella Insurance?

 

Also sometimes known as an “excess liability” policy, in its most basic form a commercial umbrella policy is an extension of the standard business general liability policy. To best understand it, one must first have a basic understanding of the general liability policy. A commercial GL policy protects a company against financial loss it may occur from mishaps it may be liable for, such as an injury that occurs on its property or injuries caused by one of its finished products. Contractors, especially those who work in construction-related fields, need to show proof of GL coverage to work on many jobs.

 

GL policies are typically available in coverage amounts up to $1 million. It is important to note that professional liability is almost always excluded in GL policies. Examples of professional liability include medical malpractice and errors and omissions (E&O). Professionals who may be subject to E&O claims include architects, attorneys, insurance agents and real estate agents, among others. This risk must be insured separately from the GL policy.

 

This is all well and good, but what if one needs more than $1 million in liability coverage? This is where the commercial umbrella policy comes in. Like the personal umbrella policy which supplements one’s homeowner’s and personal auto policies, the commercial umbrella policy picks up where one’s GL and commercial auto leaves off.

 

Typically bought in increments of $1 million, the umbrella policy supplements the underlying GL and commercial auto by increasing the effective liability limit. For example, if one has a general liability policy limit of $500,000 and a $3 million umbrella policy, one’s effective GL coverage is $3.5 million. Extending the example, if the commercial auto policy owned by the same company carries a combined single limit (CSL) of $100,000, that same umbrella policy may increase that liability limit to $3.1 million. It is possible to buy an umbrella policy for a professional liability or E&O policy, but again this is separate from the GL and commercial auto.

 

In comparison to the underlying policies, umbrella policies are relatively inexpensive because they carry less risk exposure in and of themselves. However, it is not possible to write a commercial umbrella policy on your company by itself. It must accompany an underlying GL or commercial auto policy, and that policy must carry a sufficient underlying limit.

 

In addition, umbrella policies are usually (but not always) issued by the same company that underwrites the underlying commercial policies. Make sure your umbrella policy will supplement what you intend it to before you sign anything. A good insurance agent who specializes in commercial policies can help you along the way.