What is the difference between umbrella and excess liability

 

Excess Liability Insurance in the USA

Did you know that umbrella liability and excess liability are not the same thing? At first, this can be confusing since they are listed together in the same section of the 25 COI agreement form, but they are actually two different policies.

What is the difference between umbrella liability and excess liability?

Both of these policies are designed to provide coverage beyond the limits of basic insurance. Umbrella policies provide increased limits over basic insurance and may also provide coverage unavailable in the primary policy, whereas excess policies only provide coverage when the underlying policy responds to an event.
Umbrella liability insurance is a policy designed to protect against catastrophic losses. It is typically written over various primary liability policies, such as a commercial auto policy, CGL policy, watercraft and aircraft liability, as well as employers’ liability insurance.

What does this mean? The policy kicks in when the aggregate limit of the relevant primary policy is exhausted by claims, and the umbrella provides protection against certain claims not covered by the underlying policy, provided the named insured assumes the obligation of self-insured retention.

The umbrella policy is coverage that comes into play after commercial general liability or auto liability in any other policy it sits over has been exhausted.

The differences between excess liability policies and umbrella policies are subtle but important to understand.

Excess liability, also known as an excess casualty policy, is designed to cover liability beyond the limits of a primary policy, whether it’s a general liability or commercial auto policy. If the provided limit is insufficient, the excess liability policy can come into play.

An excess liability policy is designed to provide additional insurance limits to protect against losses on specific policies. In many cases, this may be only one policy, such as CGL. If the excess liability policy is a specific excess over CGL, then in the event of a claim under an employer’s liability or auto policy that exhausts their limits, the excess liability policy cannot step in and cover losses because they are not considered primary coverage.

To correct this, specialized excess liability policies can be purchased to cover employers’ liability, auto liability, etc.

A general excess liability policy sits atop several policies, such as GL, auto insurance, and workers’ compensation insurance. The main difference between an excess liability policy and an umbrella policy is that excess liability implies exceeding the primary insurance coverage but does not provide broader coverage than the base policy. An umbrella policy, in some cases, may provide broader coverage than the basic insurance.

A typical example: an umbrella policy may cover auto liability in a foreign country, even if the commercial auto policy does not extend to foreign countries. The umbrella policy is typically written to cover excess liability for CGL, auto, and employer liability and may include other policies such as foreign liability, media liability, manufacturer’s liability, etc.

Excess liability and umbrella liability are not the same. These two coverages are sometimes confused. Excess liability is a policy that sets higher limits for a primary policy, such as general liability or auto insurance.

The sole purpose of an excess policy is to provide additional limits to the primary insurance, offering a broader financial safety net for the insured. In some cases, excess coverage may have additional limitations compared to the primary coverage.

Umbrella liability is a policy designed to protect the insured from potentially large losses. Umbrella coverage is a type of excess liability that applies only to additional limits. It does not provide base policy coverage.

Let’s take an example to clarify. If you have a CGL policy, general liability policy, or commercial auto insurance policy, you have an aggregate limit of, say, $1 million. If you also have an excess liability policy, which is an additional policy, it covers costs beyond the primary limit. For example, the CGL policy would cover $1 million, and an additional $0.25 million would be covered by the excess liability policy. The excess liability policy only provides additional limits, but does not increase or change the terms of the primary policy. All it does is increase the limit of the primary policy. This is excess liability, also known as excess casualty insurance.

The umbrella provides additional coverage over the limit of the primary policy and also provides coverage unavailable in the primary policy, subject to self-insured retention.

Let’s look at what is meant by self-insured retention in this example. Take a CGL policy, which many are familiar with. The CGL has premises and operations coverage as well as completed products coverage. The CGL provides $1 million in premises and operations coverage but does not include completed products.

Now, you have an umbrella policy that extends to both premises and operations as well as completed products. Comparing these policies, the umbrella provides more coverage than the base policy. In this case, the CGL covers premises and operations for $1 million, and the umbrella covers premises and operations for $1 million, plus $2 million for completed products.
Each time you choose an umbrella policy, there is a concept of self-insured retention, which is similar to a deductible: when the client or insured pays a certain amount, the rest is covered by the insurance company. In this example, the self-insured retention is $0.5 million.

Now let’s assume that there is an increase in completed products and operations, resulting in a claim amount of $1.5 million. Most people understand what completed products are, but to clarify, it’s when a product sold to a client is used by them, such as electronics (a refrigerator) or creams that caused side effects. This is what we mean by completed operations. In this case, a claim arises for $1.5 million.

The base policy does not cover the full product cost, and only the umbrella policy provides full product coverage with a limit of $2 million. Your loss amounts to $1.5 million, of which $0.5 million you pay as self-insured retention, and the remaining $1 million is paid out under the umbrella policy.

This is the main difference between umbrella and excess liability. Excess liability increases the coverage limit while maintaining the structure and terms of the base policy, whereas the umbrella policy provides not only a limit increase but also additional coverage beyond the base policy.

Frequently Asked Questions (FAQ)

The main difference between an umbrella policy and an excess liability policy is that an umbrella policy provides broader coverage and can cover losses not included in the underlying policy, while an excess liability policy simply increases the coverage limit of the primary policy without providing additional coverage. An umbrella policy kicks in after the limits of the primary policy are exhausted and may offer protection from losses not covered by the primary policy.

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