Umbrella Insurance is a type of liability coverage you may have seen before. It may have been a part of your contract requirements or as an additional coverage option on your policy. Umbrella Insurance is a source of protection that sits over the limits of any of your qualifying underlying policies. These could be policies like general liability, commercial auto liability, and employers liability. Umbrella insurance policies can also protect from exclusions and gaps that exist in your primary liability insurance. The covered causes of loss that are not normally included in primary policies are subject to a self-insured retention (SIR). This is the responsibility of the insured to pay. An SIR in the amount of $10,000 is the most common. The coverage of an umbrella policy is triggered when the limits of the underlying insurance have been exhausted. The umbrella liability policy has a critical requirement. You must maintain the policies listed in the schedule of underlying insurance. They must be kept in force, without alteration of terms and conditions, during the term of the umbrella liability policy.
Now that you have the basic understanding of what an umbrella policy is, lets look at why it can be important. The area I am going to focus on is in regards to lawsuits. Lawsuits seem to be more common place than they were 20 years ago. They could be from a slip and fall, or giving out a wrong phone number resulting in a large number of calls to another business. Lets look at an example:
A repairman arrives at your location to fix the phones, computers, system, HVAC, etc. It is a rainy day outside. He makes a few trips in and out of the building. On one of the trips he slips and falls in a hallway. The repairman claims that he had no warning about water in the hallway. From the fall he has a back injury along with a broken arm and neck stiffness. The injury requires a few surgeries to help the ailing back and it is determined he will always have an issue. This issue will affect his ability to work and his way of life. The repairman files a lawsuit against your company for not having the hallway marked notifying of the wet conditions. The case goes all the way to trial and a jury rewards the individual $1.5 million. The problem with that amount of money is your general liability policy has a $1 million per occurrence max on it. This leaves you exposed for the remaining $500,000.00. Thankfully your business had an umbrella policy that will then provide coverage over the excess amount. This will take care of the $500,000.00 difference. If your business had NOT had an umbrella policy then your business would have been on the hook for the $500,000.00.
The cost of adding an umbrella policy to your coverage is generally not that expensive. Hopefully you will never end up needing it, but over the course of time insurance claims happen. Whether you have been in business for 1 year or 75 years an incident will eventually occur. It is important to always consider how well your business is protected and make sure there are not any holes in your insurance coverage. If you have not thought about adding umbrella insurance, now may be the time to sit down with your agent to discuss the benefits it could provide your business. In order to make an informed decision you need to think about if your business might ever be in a situation where you may need additional coverage on top of your existing liability coverage. If you do need additional coverage then a Commercial Umbrella Policy might be right for you.