September/October 2020 Volume 31, Number 5 | |||||
Don't Forget Your UmbrellaIf your business is the typical small or mid-sized business, you probably have somewhere between $500,000 and $2 million in liability coverage under your business owner policy (BOP) or commercial general liability policy. How does umbrella coverage work with these policies to provide extra liability protection?
In addition to your BOP, you might also have liability coverage under other policies, such as an automobile liability policy or employers liability policy. Sometimes, a liability claim will exceed the limits of these policies. When that occurs, you’ll be glad to have an umbrella liability policy. Umbrellas provide coverage when you exhaust the limits of your "underlying" liability policy.
Although you might hear the terms "umbrella" and "excess" used interchangeably, these two types of policies differ significantly. Excess insurance simply provides higher limits than your underlying policy. An umbrella policy not only increases your limits, it increases the scope of your coverage as well. In other words, an umbrella policy can protect you from some losses excluded by your primary policy. Policy terms vary, but umbrellas can cover claims filed outside the U.S. or Canada; claims of contractual liability (for both written and oral contracts); liability for items in your care, custody and control; and watercraft or aircraft liability — all excluded by the standard commercial liability policy. What to Look for in Umbrella Policies
Most umbrellas furnish broader coverage and fewer restrictions than general liability policies, but if yours doesn't, consider adding "broad as primary" or a "following form" clause in the contract. This will indicate that your underlying policy's conditions will automatically be included in the umbrella coverage. When possible, amend the language to go beyond the underlying policy's conditions, by agreeing that exposures not covered by the underlying policy will be picked up by the umbrella after your claim costs exceed the SIR. Anniversary dates of all underlying and umbrella coverages should coincide, to avoid potentially damaging coverage gaps or overlaps. |
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Operating Your Business During the Pandemic Get Ready for Parametric Insurance
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