Commercial Umbrella Insurance: Pros & Cons

Do You Need Commercial Umbrella Insurance?

With the ever-increasing prevalence of lawsuits, having sufficient commercial insurance coverage is essential to protecting your business. You know that. No doubt, you carry a general liability policy, often called business liability insurance. That general liability policy typically covers bodily injury, property damage, and “personal and advertising injury1,” for example, up to a certain dollar figure. If you have commercial vehicles, you probably carry commercial auto insurance, as well.

However, even with a full array of dedicated base policies, you may wonder if your coverage would be enough were you to face a high-stakes claim. You may be ever-vigilant and careful, but someone else may not be. Yet, you—your business—may still be held responsible, regardless of whether those damages exceed your coverage levels.

Commercial umbrella insurance might be that additional piece of security that can put your mind at ease as long as you understand what it can and cannot do. For a quick read, we’re walking you through some talking points regarding its pros and cons.

  • Commercial umbrella insurance policies are supplemental insurance products that can extend dollar coverage levels.
    • Pro—Umbrella insurance is designed to pick up where your general liability policy ends. For example, your general liability policy may cover you up to $1.5 million, but if damages from a large claim or multiple claims exceed that, umbrella insurance will pick up the remainder up to the umbrella policy’s limits. Ideally, you want your start and end dates between the primary policy and the umbrella policy to sync to ensure you always have full coverage.
    • Con—An umbrella policy pays out only once your underlying policy’s limits have been exhausted. In most cases, you must file a claim first with your underlying liability policy and then file an additional claim through the umbrella policy for the remainder. Umbrella policies are not standalone policies. They must be linked to a primary commercial policy. Optimally, start and duration dates should sync between the two policies to avoid any coverage gaps.
  • Commercial umbrella insurance policies can be used to supplement other types of commercial policies like commercial auto insurance, hired and non-owned auto coverage or employer’s liability insurance, for example.
    • Pro—Just as a commercial umbrella policy can extend your general business liability coverage, a commercial umbrella auto insurance policy can significantly extend your underlying policy’s coverage levels. Commercial umbrella policies can also provide additional limits for other kinds of underlying liability coverages, such as hired and non-owned auto insurance2, employer’s liability insurance (a type of coverage usually included in workers’ compensation policies3), and employment practices liability insurance4.
    • Con—While commercial umbrella insurance policies can cover many liability risks, umbrella policies typically will not extend or expand commercial property insurance for a business. The classic example of a commercial property loss is if your business property were to experience fire damage.  In such cases, you will usually be limited to the coverages available under your commercial property policy. In addition, commercial umbrella policies are typically not available to supplement certain kinds of underlying liability coverages, such as professional liability or errors and omissions policies and directors’ and officers’ liability policies, although excess liability coverage may be available. You may need to carry specific policies to address those liability risks and be aware of their terms, conditions, and limitations.
  • Umbrella policies can expand coverages beyond your underlying commercial policy.
    • Pro—Depending on the policy, umbrella insurance may cover certain types of claims excluded in your underlying policy or provide broader coverage than the underlying policy. However, commercial umbrella policies can vary substantially from insurer to insurer, so when comparing umbrella policies from different insurers, you should read the policies carefully and consult with your insurance professional.
      Note that umbrella insurance is different from excess liability insurance, as the latter offers essentially the same coverages as the underlying general liability policy but with additional dollar coverage limits. Umbrella insurance sometimes expands areas of coverage while also offering significant dollar amounts of coverage.  On the other hand, excess liability coverage may be available for underlying coverages for which an umbrella is not, such as professional liability and directors’ and officers’ liability.
    • Con—Claims that an umbrella policy will cover but that are excluded in the underlying liability policy may be subject to a self-insured retention (SIR). Much like a deductible, an SIR requires that you pay a certain amount of the loss before the umbrella policy takes over. Whether a policy carries an SIR depends on the individual terms and conditions of the policy.
  • Commercial umbrella policies can protect both small businesses and large ones.
    • Pro—Commercial umbrella insurance policies usually start at $1 million of coverage and can go as high as $15 million or more. The recommended value all depends on the size and scale of your business, the type of business, the types and levels of exposure you have to clients and employees, for example, and the levels of risk involved. These types of policies can be especially advantageous for industries vulnerable to catastrophic losses—construction and oilfield contracting, for example. They’re also beneficial to businesses that deal with the public or use or work on others’ property.
    • Con—As with any insurance policy, cost correlates with risk and the number and likelihood of claims. Umbrella policies may be less expensive for some businesses while more expensive for others. Coverage and fees are usually based on $1 million increments.

Commercial umbrella insurance promises an added level of protection against catastrophic losses. It can mean the difference between you having to raid your company’s finances and being able to continue with business without a hiccup. At worst, it’s a safety net that you might never use. At best, it just might be the safeguard that keeps your doors open and your bottom line in the black for years to come.

If you’d like more information on how adding umbrella policies to your existing commercial liability insurance policies might look for your business or company, reach out to the experienced consultants at Dwight Andrus Insurance. We can help you obtain appropriate base policies as well as supplemental umbrella policies to ensure that you’re properly covered for the projects or ventures you undertake.

This post is subject to our Terms of Use. The foregoing information is not intended as insurance or legal advice and is offered as a general summary, for informational purposes only.  It is not a substitute for professional insurance or legal advice.

For further reading, see:

1 Personal and advertising injuries are typically infringements on a person or business’s personal or intellectual rights. Examples include libel, slander, false arrest, wrongful eviction and copyright infringement.
2 Hired coverage means your business has coverage when you or employees drive a rented, leased or borrowed car for business.  Non-owned auto applies to employees using their own cars for business.
3 This coverage provides the business owner protection if your company is blamed for an employee injury or illness.
4 EPLI covers businesses against claims by workers that their legal rights as employees of the company have been violated.