Umbrella Liability: Why It's Important To Contractors

General liability forms now contain some detailed and extensive exclusions of coverage, particularly for contractors. The automobile exclusion is a few sentences while the environmental exclusions or personal injury wording can exceed a full policy page.

We draw a distinction here between excess liability and umbrella liability. Excess follows the underlying coverage form, it extends limits, not coverage. Umbrella liability extends coverage and limits.

So, how does umbrella coverage help contractors?

Scenario 1: Conflicting Liability Exclusions: inland marine or automobile

Liability for operating inland marine equipment, in this scenario, a truck mounted drill rig, falls under operations liability under the general liability policy.

In this case, the drill rig is mounted on a highway approved vehicle, a pick up truck.

If the truck were in an accident on the highway while carrying the rig to a site, no doubt the business automobile policy would cover the damage.

If the drill rig bit broke while operating and flew through a windshield on site, general liability would pay the damages.

Now, suppose with the rig tower up, the pickup truck rolled in the project parking lot injuring the project owners. Business automobile might decline since the rig tower was extended,
 use; and general liability might deny the claim since the vehicle was on a travel surface and simply transporting the rig.

The umbrella carrier would have to respond in either case. That coverage will unify the liability limits even if they need to subrogate both other policies.

Scenario #2: No Underlying or Excluded Coverage

Employment Practices Liability (EPL) or environmental issues are the best examples now. Some general liability policies exclude personal injury liability, which overlaps EPL. Very few umbrellas exclude either coverage.

Most general liability policies have lengthy and detailed exclusions for environmental liability. Umbrella policies do not have detailed exclusions so some area of coverage exists.

You would pay a retention ($1000 to $25,000 typically negotiable) and turn the claim over to your umbrella carrier.

So much liability language aims to exclude contracting scenarios, it pays to capture broader and unifying coverage like umbrella liability. 

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