Keep Your Business from Getting Soaked with an Umbrella Policy

Umbrella liability insurance protects you when accidents happen and your existing liability insurance limits have been exhausted, to cover expenses. Standard business liability coverage will take care of you in most situations, but when serious situations arise, umbrella liability insurance will help ensure that your business is protected. While no one wants accidents to happen, they do - and people sue. .

How Does an Umbrella Policy Keep Me Dry from all the Rain?

An Umbrella/Excess Liability Policy provides an additional layer of protection over the limits of your primary, underlying policies (general liability, automobile liability and sometimes even employers liability or professional liability).  This provides protection against catastrophic liability claims.  Umbrella limits are typically available in $1,000,000 increments and can exceed up to $100,000,000.  Most policies pay the ultimate net loss (total amount in excess of the underlying, primary limit) for which the insured is legally obligated to pay subject to the self-insured retention (amount the insured must pay before the umbrella policy will respond), similar to a deductible.   
A typical commercial umbrella liability policy offers features such as worldwide coverage; personal injury coverage; blanket contractual liability protection (for both written and oral agreements); care, custody, and control coverage; non-owned aircraft liability; watercraft liability; advertisers liability; liquor law liability; excess liability; and an extension of protection to additional insureds.

Umbrella liability insurance indemnifies the insured for loss in excess of the total applicable limits of liability stated in the schedule of underlying primary insurance policies.  The umbrella liability policy is typically a "following form," meaning that it tracks with the provisions of the underlying insurance.  For losses that are not covered by underlying insurance, the umbrella policy generally does not apply.
With respect to any occurrence not covered by underlying insurance, or damage that is not covered by underlying insurance but that results from an occurrence covered by underlying insurance, the umbrella policy indemnifies the insured for its ultimate net loss.  The loss must exceed the insured's self-insured retention limit ($10,000 or $25,000, for example), and must involve damages that the insured is legally obligated to pay by reason of liability imposed by law or assumed by the insured under contract.  Further, the damage must involve personal injury, property damage, or advertising injury (all as defined in the Definitions section of the policy) caused by an eligible occurrence.
When a loss that is eligible for umbrella coverage is either not covered or only partially covered by underlying insurance (including incidents where no other insurance exists), the umbrella insurer has the right and duty to defend any suit against the insured.  It is also permitted to investigate any loss and settle any claim or suit as it chooses.  In case an insurer is prevented from defending an insured, the insurer will reimburse any defense costs and expenses.  However, the expenses must be incurred with the insurer's written consent.  This last provision allows the insurer to exercise some control over its loss exposures.
Besides the named insured, other parties that gain insured status under an umbrella liability policy are any person or organization that a named insured agrees to protect under a written contract.  The policy also protects an insured business' executive officers, regular employees, directors and stockholders, at least for losses occurring while these individuals are acting within the scope of their duties.  Note that protection for additional insureds does not apply when a loss involves motorized vehicles, watercraft or aircraft.
Like many other policies, a commercial umbrella policy defines a number of terms to clearly express how coverage applies.  Some defined terms are advertising injury; completed operations; hired aircraft, hired automobile, and hired watercraft; immediate underlying insurance; named insured's products; non-owned aircraft, automobile, and watercraft; occurrence and personal injury.
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