By Stephanie Mitchell, CPCU, CIC, CRM, Socius Insurance Services

It is an all too common short fall of many agents and brokers to casually use the terms umbrella and excess liability in a similar or transposable fashion. Truth be told, there are some glaring coverage differences amongst the numerous similarities that are important to note and identify, especially when agents are confronted with specific wording on certificates of insurance and lender’s requirements. Both types of policies are essentially accomplishing the same goal of extending the current limits available under the CGL, commercial auto or other primary liability policy. The need for an excess or umbrella liability policy can be because additional higher limits are required by contract or a lender. Or the insured may wish to purchase additional limits due to the long tail exposure of their operations or high hazard environment that they operate in. Unlike property exposures, liability losses are difficult to estimate from the standpoint of a maximum probable loss.

An excess liability policy can be either follow-form or a self-contained policy. A follow form policy is subject to the same terms as the underlying policy. A loss is only covered if the underlying policy would also respond and primary limits have been exhausted. A self-contained policy may have additional exclusions on the excess policy and would not respond to a claim if the subsequent exclusion was applicable. Similar to an umbrella policy, the excess liability policy can be excess of one or more underlying policies (GL/Auto/WC).

Umbrella policies have historically offered broader coverage than excess liability insurance and can include drop-down coverage which may cover some claims that are not included by the primary policy. An SIR may apply to the umbrella policy if a loss is covered by the umbrella, but not by the primary. An umbrella policy typically schedules more than one line of business in the underlying. 

When reviewing quotes and policies for these lines of coverage, below are some important items to review and note:

• Requirement of underlying limits to be maintained
• Concurrency of effective dates
• Difference in insuring agreements on primary and excess 
• Occurrence and claims-made coverage triggers
• Claims notification to excess/umbrella carrier
• Check the schedule of underlying for accuracy

Sources:

https://www.irmi.com/articles/expert-commentary/excess-follow-form-versus-umbrella https://www.trustedchoice.com/insurance-articles/excess-or-umbrella/ https://www.irmi.com/articles/expert-commentary/top-10-problems-with-follow-form-coverage

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