Excess Insurance and Umbrella Insurance Policy Definition
Excess liability insurance provides insurance when the limits of underlying liability policy has been reached. This type of insurance provides additional limits of insurance, that is, it extends the coverage of General Liability Insurance, even when it has reached its limits. A good example is seen in a case of a client who is expected to remit $2.5 million in damages, but General Liability Insurance for the client has a limit of $2, the client can access the Excess Liability policy to cover to payment left. However, Excess Liability has a downside, it can only be used for one insurance policy.
Just like the Excess Liability Insurance, Umbrella Insurance also provide an extra coverage when an insurance policy has reached its limits. However, unlike Excess Liability Insurance which cannot be used in any other policy except from the underlying policy, Umbrella Insurance can be applied to multiple policies, its coverage is extended to claims that are not in the underlying policy. However, for this to happen, the client is required to pay a self-insured retention (SIR), this is the money paid before an insurance company responds to the loss. Furthermore, the coverage of umbrella insurance reduces once the aggregate limits of underlying policies have been used.
A Little More on What is an Excess Insurance Policy
Quite a number of individuals regard Umbrella insurance and Excess Liability as similar policies but the fact is, they are not the same. Given that these terms are peculiar to certain types of insurance, there has been a misconception as regards their sameness. Both Umbrella insurance and excess LIABILITY are applied in General Liability Insurance (GLI), Employer’s Liability (ELI) and Commercial Auto insurance.
Although, both excess and umbrella policies are used interchangeably, they are not exactly the same. While excess policy raises a liability limit that a client has for claim, Umbrella insurable offers additional coverage for specific losses that might not be paid.
Also, the additional coverage provided by Umbrella insurance applies to personal injury coverage (libel and slander), auto coverage and some other coverage. However, one can regard an umbrella policy as a broader scope of the excess insurance.
Umbrella policies are applicable to underlying or existing policies such as homeowners insurance, auto insurance policies and other existing policies.
Despite that the coverage of the umbrella insurance policy cover existing (underlying) policies, this is done after certain rules are met.
Part of the rules may be that the company holding an underlying policy must merit a level of financial strength. Also, clients are required to prove that the additional coverage is not less than a specified amount.
In order to aid the understanding of how the umbrella policy works, the example cited here is need. For a client that has $1 million Umbrella policy, the rule might stipulate that the policy covers a homeowner insurance policy that includes a personal liability of $300,000. The client must however be able to provide a proof for the availability of $300,000 as personal liability.
Once an umbrella policy is initiated, the $300,000 personal liability in the homeowner policy must be reduced to $100,000. If after it is reduced, a client needs to pay a labor more than $100,000, the umbrella policy provides coverage for the remaining amount. However, an umbrella provider may not provide coverage if the client fails to meet up with the minimum requirement of $300,000.
References for Umbrella and Excess Insurance
Academic Research on Umbrella and Excess (Personal)
Excess Insurance: An Overview of General Principles and Current Issues, Marick, M. M. (1988). Tort & Ins. LJ, 24, 715.
Excess Insurance, Umbrella Insurance And Multi-Insurer Coverage Programs, Wells, B. (2010).
Excess Liability Insurance: Law and Litigation, Seaman, S. M., & Kittredge, C. (1996). Tort & Ins. LJ, 32, 653.
The Defense Obligation of Excess and Umbrella Liability Insurance Policies, Novak, T. S. (2006). Brief, 36, 12.
Brokers and Buyers Beware: Underwriters Are Nickel-and-Dimed by Strict Interpretation of Language in Excess and Umbrella Policies of Offshore Energy Companies, Coley, L. T. (2014). Tul. Mar. LJ, 39, 721.
Using umbrella general liability insurance policies to avoid getting soaked by nonexistent “suit” and “damages” exclusions, Lewis, R. P., & Wertheimer, R. (1999). Environmental Claims Journal, 11(3), 17-41.
Duties of a primary insurer to an excess insurer, Lanzone, A. M., & Ringel, S. G. (1982). Neb. L. Rev., 61, 259.
Insurance coverage for wrongful employment practices claims under various liability policies, Machson, R. A., & Monteleone, J. P. (1993). Bus. Law., 49, 689.
Rights and Responsibilities of excess Insurers, Richmond, D. R. (2000). Denv. UL Rev., 78, 29.
Coverage for Employment Practices Liability under Various Policies: Commercial General Liability, Homeowners’, Umbrella, Workers’ Compensation, and Directors’ …, Monteleone, J. P., & Grotell, E. P. (1999). W. New Eng. L. Rev., 21, 249.