What is Umbrella Insurance?

With litigation being so commonplace in our culture, business owners are faced with more worries than just making profits and retaining their best employees. If your product injures a consumer, your business may face a devastating lawsuit, significant damages and a ruined reputation. Purchasing commercial umbrella insurance on top of standard commercial general liability (CGL) insurance policies will assist with the financial burden of potentially damaging claims.


Umbrella coverage protects your business against substantial liability claims that could potentially destroy your company because of a large financial judgment. An umbrella insurance policy typically serves the following purposes:

  • Provides you with coverage for potential damages and court defense fees that exceed your other insurance policies (such as CGL policies).
  • Gives you coverage in situations that are not covered by underlying insurance policies, but are not excluded from an umbrella policy. This benefit is subject to a self-insured retention (SIR), which is similar to a deductible, in which the policy holder is responsible for losses up to the SIR amount.
  • An umbrella policy applies to claims where the aggregate limit of the underlying policy has been met. The policy covers 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 example, if at the time of a claim your CGL policy has $500,000 remaining and the claim in question is $1.5 million, the CGL policy will cover the initial $500,000 – then the umbrella policy covers the remaining $1 million.


In most instances, a CGL policy has an aggregate limit that, once exhausted, will not cover any other excess claims. It’s important for business professionals to understand that the litigious nature of our society – combined with surmounting liability judgments – provide a viable reason to purchase additional coverage. 

It is quite common for lawsuits to impose multimillion-dollar penalties on businesses – and this is far beyond the coverage usually provided by CGL policies. Because of this, common losses such as employment claims, vehicle accidents and hazardous substance spills can result in a serious financial threat to your business.

It’s important to understand that businesses are also liable for the health and safety of their employees – as well as their employees’ behavior. For example, your business could be held liable if your company’s holiday party results in property damage to a rented banquet hall. Or you could face litigation if your business office has a carbon monoxide leak that results in employees becoming ill. Purchasing commercial umbrella insurance protection is a must in order to protect yourself against claims similar to these examples.


Umbrella policies typically offer the following features: 

  • Offers coverage for:
    • Personal Injury
    • Worldwide
    • Blanket Contractual Liability Protection
    • Care, Custody and Control
    • Explosion, Collapse and Underground (XCU) Liability
    • Non-owned Aircraft Liability
    • Watercraft Liability
    • Liquor Law Liability
    • Advertisers Liability
  • Offers an extension of insurance protection for additional insureds.
  • Policies follow form (this means they abide by similar provisions and cover similar losses as the underlying policy). If claims are not covered by an underlying policy, the umbrella policy makes the business responsible for the loss if it exceeds SIR limits. In addition, the damage must  involve personal injury, property damage or advertising injury.
  • The insurer has the right to investigate all claims not covered by any underlying insurance.
  • Policies either cover all individuals or cover parties that gain insured status within the contract. Policies also protect a company’s executive officers, regular employees, directors and stockholders who are acting on behalf of the organization. Protection for additional insureds is usually excluded when claims involve motorized vehicles, aircraft or watercraft.

In addition to these stipulations, a commercial umbrella policy requires that an organization must hold an underlying insurance policy during the term of the umbrella policy.


Managing insurance coverage for a business can feel complicated. With so many moving parts, keeping track of policies and having guidance to make the right decisions is paramount. Luckily, the business insurance experts at Dwight Andrus are here to support you every step of the way. Our team is dedicated to making insurance easier by providing you with all of the coverage, services and personalized attention you need to protect the things you love. Learn more about how our team can solve your insurance needs by contacting a consultant today.