Lindsay operates an upscale salon on the Upper East Side of Manhattan, catering to a wealthy clientele. On a fateful Friday evening, she was about to close when a long-standing client called her frantically, begging for a last-minute hairstyling. The client rushed in wearing high heels and tragically slipped, hitting her head on a glass door and suffering permanent paralysis. Lindsay soon found herself facing a $50 million lawsuit. Her $5 million business insurance policy was far from sufficient to cover the damages.
The Construction Site Mishap
In another scenario, a general contractor’s team left the construction site without securing the fencing. That same evening, three local boys decided to explore the site. One of them tripped over some tools, breaking his leg. Soon enough, the general contractor was facing a lawsuit. But unlike Lindsay, he had in place a comprehensive general liability insurance policy that took care of the lawsuit and settlement.
Excess Liability Insurance Explained
Excess liability insurance provides additional coverage that goes beyond your base business insurance policy. Suppose you have a $1 million general liability insurance policy, and you buy an excess liability insurance policy for another $1 million. Now, you effectively have $2 million in general liability coverage. Excess insurance can also be layered on top of other policies such as commercial auto or cyber insurance.
Umbrella Insurance Coverage
Umbrella insurance, on the other hand, is broader and can overlap multiple policies simultaneously. You could have a single umbrella policy that provides extra coverage for your general liability, commercial auto, and cyber insurance policies. However, acquiring an umbrella policy can sometimes be challenging due to industry-specific limitations. For example, construction companies often find it difficult to get umbrella policies that also cover worker’s compensation and commercial auto insurance.
When opting for excess liability insurance, it’s vital to understand the concept of “Follow Form.” This ensures that the excess policy adheres to the same conditions and limitations as your underlying policy. Failing to maintain Follow Form can create gaps in your coverage and could even put you in breach of contract.
In a word, everyone.
Standard liability insurance limits, often around $1 to $2 million, are frequently inadequate given the scale of potential risks and damages. Many contracts, especially in big cities like New York, require far higher limits. Industries like construction, retail, healthcare, and food service usually need at least $5 million in coverage. High-income areas may require even more due to the possibility of more significant lawsuits.
However, there are certain things commercial umbrella and excess does not cover.
Certain sectors, like professional liability and specific malpractice cases, may not be eligible for umbrella or excess coverage. This limitation is generally because some insurance companies do not offer excess policies for nonrated or low-rated admitted and non-admitted insurance companies.
Admitted vs. Non-Admitted Insurance Companies.
Admitted insurance companies are authorized to operate within a specific jurisdiction and are subject to strict regulatory oversight. Non-admitted companies operate outside such regulations, often domiciled abroad, enabling them to offer more flexible, albeit riskier, policy options. For instance, non-admitted companies like Lloyds of London can offer coverage to entities or individuals considered too high-risk for admitted companies.
For very high coverage requirements that single providers won’t fulfill, businesses can “layer” multiple excess policies from different providers to reach the needed amount. This process involves stacking one policy on top of another until the required coverage level is met.
In today’s litigious society, even a $1 million liability insurance limit often proves inadequate. Whether you’re a tech startup or a property landlord, adequate coverage is essential. This means that beyond a standard liability policy, an excess or umbrella policy becomes increasingly important to mitigate risks effectively.
General liability insurance is a basic necessity for businesses, but it’s rarely enough to cover all possible scenarios. Every business owner should seriously consider complementing their primary policy with either an excess or an umbrella insurance policy.
Consulting with a specialized insurance agent can help you navigate the intricate details of matching your excess or umbrella insurance to your basic policy, ensuring you are adequately covered for any contingencies.
