Do I need an umbrella policy or an excess policy? Is there a difference and does anyone care?
There are a few reasons that an insured may need (or want) more liability coverage than certain policies will provide.
- The limits available for the primary liability policies may not be enough to appropriately cover the insured’s exposure.
- The insured may be taking on a project for a customer and the contract requires limits that exceed the primary liability policies.
What’s the solution? It might be an umbrella policy. It might also be an excess policy. What’s the difference?
An umbrella liability policy is designed to pick up where the underlying liability insurance policies leave off. This might mean that once the underlying coverage is exhausted due to the payment of a claim, the umbrella policy can begin to pay on the balance that is owed to the claimant. It could also mean that the loss was excluded on the underlying liability policy, and the umbrella can pick up coverage because there is no exclusion for the loss.
An excess liability policy is similar to an umbrella in that it picks up where the underlying liability policies cease making payments, but it is designed to pay claims in the same way that the underlying policies pay the claim. That tells us that claims that would be excluded by an underlying policy are also excluded by the excess policy.
What does this mean to the insured? All that they want is a policy that will pick up an extra million dollars in liability coverage so that they can get the contract. This is so they can do the work for their customer. The answer is in the details of all of the policies.
An umbrella policy, especially one issued by a different company than the one that issued the underlying coverages, might have different coverage terms, conditions, and exclusions. The excess policy, by design, should have the same coverage terms, conditions, and exclusions as the underlying policies.
This is where you find the obligatory warning to read every policy, because I’m making generalizations, and those only go so far. Go read the policies to make sure that you understand what each one covers, excludes, and how they interact.
Commercial Excess Liability Coverage
Let’s look at the ISO CX 00 01 04 13 Commercial Excess Liability Coverage Form. Anywhere that we make a comparison to an umbrella policy, we are referring to the ISO CU 00 01 04 13 Commercial Liability Umbrella Coverage Form.
The first difference you might see between these two forms is length. The umbrella coverage form runs up to 18 pages, while the excess coverage form only runs up to five pages. That’s a big difference. Why the big difference?
The umbrella coverage form provides specific coverages that mirror the ISO CG 00 01 04 13 Commercial General Liability Coverage Form, with the notable exception of Coverage C – Medical Payments. It also lists the specific exclusions for those coverages in several of those pages. This coverage form was designed to provide coverage similar to the underlying coverages and to provide first-dollar coverage on certain losses that would be excluded by the underlying policies. That’s why the form gives its coverage details and exclusions.
For losses that are not covered by any underlying policies, but are covered on the umbrella, there is a self-insured retention amount. Here’s the definition from the form:
“Self-insured retention” means the dollar amount listed in the Declarations that will be paid by the insured before this insurance becomes applicable only with respect to “occurrences” or offenses not covered by the “underlying insurance.” The “self-insured retention” does not apply to “occurrences” or offenses which would have been covered by “underlying insurance” but for the exhaustion of applicable limits.
In its own words, the self-insured retention is the amount that the insured will have to pay toward the loss if there is no underlying coverage.
This term doesn’t appear in the excess coverage form because it’s not designed to come down and assume first-dollar coverage. It’s designed to provide excess liability coverage over other policies. We made the point that this form is considerably shorter than the umbrella coverage form.
Here’s how it happens. We are reading from the beginning of the excess liability coverage form, before SECTION I – Coverages:
The insurance provided under this Coverage Part will follow the same provisions, exclusions and limitations that are contained in the applicable “controlling underlying insurance,” unless otherwise directed by this insurance. To the extent such provisions differ or conflict, the provisions of this Coverage Part will apply. However, the coverage provided under this Coverage Part will not be broader than that provided by the applicable “controlling underlying insurance.”
By design, from the beginning of the coverage form, you’re aware that this intends to follow almost exactly the coverages provided by the “controlling underlying insurance.” This defined term means any insurance policy (or self-insurance program) that’s listed on the declarations. There are a few places where this insurance differs. Most notably, it excludes medical payments coverage. This policy will also never provide coverage more broadly than the underlying policies will.
Before this policy gets into the coverage section, it makes another important point about the underlying coverages that should be addressed here.
There may be more than one “controlling underlying insurance” listed in the Declarations and provisions in those policies conflict, and which are not superseded by the provisions of this Coverage Part. In such a case, the provisions, exclusions and limitations of the “controlling underlying insurance” applicable to the particular “event” for which a claim is made or suit is brought will apply.
If two different underlying policies have a conflict related to a particular claim, the policy that the claim is made under will prevail over the other policy as long as this policy doesn’t speak to it as well.
This takes us back to our original question. Which policy does the insured need? That’s up to them.
The umbrella might provide broader coverage for the insured and that might be just what they need. It might also provide more restricted coverage and the insured needs to be aware of that.
The excess will provide them with more limits with essentially the same terms and conditions that their underlying policies provide. This is what they may want, but that’s not the question at hand.
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