Umbrella & Excess Liability Policies: What you Should Know
No one expects to experience a catastrophic loss. However, it’s crucial to have appropriate coverages in place if and when these losses arise. Umbrella and excess liability policies increase limits of insurance over primary general liability, auto liability, and employers’ liability policies. These policies offer coverage in the event you experience that large-scale loss that you never expected.
In this blog, we’ll help you understand the state of the excess liability market, why you should have an umbrella policy (both personal and business), and look at some real-life claim judgments from scenarios that could really happen to anyone.
State of the Market
The umbrella and excess liability insurance marketplace has been a challenging environment in recent years. Policy limits are being cut, even for accounts with no recent claims activity. While policy limits are being cut, pricing is continually increasing; so buyers pay more for less. There has also been a significant reduction in capacity and in terms and conditions, making procuring appropriate coverages extremely difficult.
There are several reasons for this difficult insurance market for umbrella and excess liability. Nuclear verdicts, generally defined as verdicts and settlements of $10 million or more, are on the rise across all industries. In just 5 years, the median cost of large jury awards increase 35%. Several societal trends have created increasingly anti-corporate juries; these trends are often called “Social Inflation.”
We get asked often what limits we recommend an insured carry. This question is often best answered with a question first – “What is the catastrophic claim you expect you might be involved in and how much will that claim cost?” We can also provide information on judgments that are being awarded for a variety of types of claims.
Personal Umbrella Policy
In the event that someone is injured on your property or you are involved in an auto accident and you are found legally responsible, you could be faced with a costly financial burden. In fact, without a personal umbrella policy, any expenses beyond the limits of your standard policy are your responsibility. This applies to your homeowners, renters, automobile, and watercraft insurance policies.
Personal umbrella liability insurance provides an extra layer of protection over your personal assets for when your standard liability coverage is exhausted.
Businesses are also liable for the health and safety of their employees and for their employees’ behavior. For instance, your business could be held liable after your holiday party results in property damage to a rented banquet hall. You may also face litigation if your business office has a carbon monoxide leak that causes a number of employees to get extremely ill. To protect against an unforeseen claim similar to these, commercial umbrella insurance protection is a must.
Purpose of Umbrella Coverage
Umbrella coverage is designed to protect an organization against monumental liability claims that can demolish a business through a large financial judgment. Typically, an umbrella policy serves the following purposes:
- Provides coverage for potential damages and court defense fees that exceed underlying insurance policies (typically CGL policies).
- Provides coverage in situations that are not covered by underlying insurance policies but are not excluded from the umbrella policy.
- Applies to claims where the aggregate limit of the underlying policy has been met. The umbrella policy will cover the portion of the claim that cannot be paid with the underlying policy because there are not enough funds available in the policy to cover the entire claim. For instance, if at the time of a claim your CGL policy has $500,000 remaining and the claim in question is $1.5 million, then the CGL policy will cover $500,000 and then the umbrella policy will cover the remaining $1 million.
A commercial umbrella policy ascertains that an organization must hold an underlying insurance policy during the term of the policy.
Again, some real verdict examples:
Verdict #1
Following a head-on collision involving a heavily intoxicated driver, two people injured in the collision have agreed to $5.5 million in confidential settlements with two bars that served the drunk driver. The driver, whose blood alcohol level was 2.5 times the legal limit, caused both plaintiffs to sustain fractures to the femurs and tibias as well as concussions and broken toes.
Verdict #2
A $10 million settlement has been reached to compensate 13 victims who suffered injuries or property damage during a 2018 condominium fire. According to the lawsuit, the association failed to equip the complex with sufficient fire safety equipment following a 2013 fire that destroyed more than 20 buildings. The victims, some of whom were forced to jump from their third-floor balcony to escape the fire, will share the settlement.
Verdict #2
A $26.6 million settlement has been awarded to a construction worker who was seriously injured while working on the Longfellow Bridge in Massachusetts. The worker fell over 5 feet onto hard concrete due to the scaffolding not being fully planked. The jury found the contracting company and its joint venture partners negligent for failing to fulfill its contractual and legal duties to maintain and inspect the safety of the platforms.
