Excess Versus Umbrella Liability: layering risk transfers

Excess liability policies layer over underlying coverage like commercial automobile or general liability. These policies can be written as follow form, self-contained, or specific and aggregate.

Follow form excess policies do not broaden underlying coverage; they simply follow the form used by the primary carrier. These policies create a higher limit of liability than the primary carrier is willing to risk.

Self-contained excess liability forms independently define limits and conditions of coverage. The primary coverage dictates no terms of coverage to this form of excess, so the excess liability policy may be broader or more narrow than the primary.

Specific and aggregate excess policies resemble reinsurance more than excess coverage. These policies usually cover above self-insured retention, very common in workers' compensation self-insured or captive programs.

The specific excess policy addresses individual claim retention amounts. The excess pays over a prescribed individual loss.

The aggregate excess policy covers over a total claims retention amount, whether it occurs in one claim or one hundred.

The umbrella liability policy broadens underlying coverage to provide first dollar, less retention, coverage above underlying primary policies. For example, umbrella policies broaden general liability and automobile liability to worldwide coverage rather than the territorial restrictions of business automobile policies.

How do these distinctions help protect your business?

Choose the correct form of excess to fit your budget. If standard primary automobile and general liability represent the biggest exposures to loss for your company, a few million in excess liability might be cost effective.

If the sources of loss just cannot be predicted in your business, or if your business is international in scope, umbrella liability will be a better buy.

It's possible to combine two or more of these policies. Perhaps you want four million of excess and one million of umbrella.

Adequately high liability limits require some planning. Talk to your insurance professional and iron out the details.

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Further Reading
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