What is Umbrella Liability Insurance?

Umbrella insurance is a policy designed to provide protection against catastrophic losses. It generally is written over top various primary liability policies, such as the business or commercial auto policy, commercial general liability (CGL) policy, watercraft and aircraft liability policies, and employers liability coverage. It protects the insured from unknown contingencies over and above the normal coverages, to provide excess insurance.

The Purpose of Umbrella Liability Insurance

Sometimes Brokers will look at Umbrella Insurance to gain extra limits that a client needs. For example, if a particular insurer can only offer $2,000,000 CGL limit for a particular industry, we can look to purchase an Umbrella Insurance policy to pick up the difference when higher limits are needed. 

In other cases, having an Umbrella Liability Insurance policy may serve to provide cost savings when there are multiple policies, although this is more usual to bigger companies. eg. If a Moving company has a $5,000,000 CGL and $5,000,000 Auto liability on 10 vehicles – it may save money for them to look at a $2,000,000 CGL and $2,000,000 Auto limits with a $3,000,000 or even $8,000,000 Umbrella.

Umbrellas can provide excess limits when the limits of underlying liability policies (or aggregates) are exhausted by the payment of claims;  eg. if you have a $2,000,000 CGL and a $3,000,000 Umbrella – the Umbrella only comes into play when a claim hits the $2,000,000 mark. 

An Umbrella is a broad wording that provides protection against some claims not covered by the underlying policies, called a drop down feature, subject to the self-insured retention (SIR) or deductible.

What is Excess Liability Insurance?

An Excess Liability policy is similar to an Umbrella in that it provides excess limits when the limits on the underlying policy are exhausted.  In this case though, it is specifically written to follow the exact wording of the underlying policy below.  As such there are no drop down features.   

An Excess policy may be used rather, than an Umbrella Insurance Policy, for a few common reasons.  The insurer does not want to offer increased limits on one of the underlying policies.  Eg. In the example above, perhaps the insurer doesn’t want to offer $5,000,000 or $10,000,000 auto liability to the client, but will agree to the CGL limits; This leaves the client continuing to pay for $5,000,000 Auto liability thought the Auto insurer.

Alternatively, this client may have specific exposures that the Insurer does not want to offer an Umbrella with any drop down features. Or that there are specialty coverages that the insurer doesn’t want to to have coverage over. eg. $250,000 in Abuse Liability.

The Excess Liability can be written over other specific types of liability policies.  Eg. For increased limits in Professional Liability or even Cyber Liability.   


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