What is the correct limit for your Commercial Umbrella/Excess Liability Policy?
Commercial umbrella insurance covers large, unexpected events that can have devastating impacts on your business, brand reputation and financial stability. While standard liability policies can help protect a company from a broad range of situations, there are certain times when losses may exceed what primary insurance can fully cover. From damaging multimillion-dollar lawsuits to auto accidents to product liability claims, protecting your organization means preparing and planning for the worst-case scenario. Commercial umbrella and excess liability solutions can provide you with extra security and peace of mind that your business is properly protected in the event of a catastrophe.
What are the benefits of commercial umbrella insurance?
A commercial umbrella liability policy supplements your existing policy’s general liability, auto liability and employer’s liability limits. The benefits of a commercial umbrella policy are increased limits in excess of standard primary policies, replacement of primary policies if limits are used up by covered losses and broader coverage than primary policies for certain losses.
Deciding how much extra liability coverage you need will depend on several factors, and an experienced independent insurance agent at Jos. Cacciatore & Co. Insurance can help you decide what you need.
The amount of commercial umbrella coverage you need depends on the types of risks that are common in your industry. Insurers write commercial umbrella insurance policies with aggregate limits ranging from $1 million to $15 million and are typically sold in increments of $1 million.
Exposures that create the need for an umbrella varies according to the type of business. A food manufacturer with sales of $200 million has a greater need for a higher limit than a small business such as a retail store.
Asking yourself the following questions may assist in what limit is sufficient for your exposure:
How risky is your business? A business that mass-produces a product, engages in advice or consultation, has a hazardous work environment for employees or frequently operates motor vehicles is likely at a higher risk of being sued. These types of activities provide good reasons for purchasing an umbrella policy.
What is the value of your business assets? Take a look at what your business owns – including real property, equipment, furniture and other possessions. Generally, the higher the value of those assets, the higher the umbrella policy limits your business will need in order to protect your finances. You should at least have enough insurance to replace your company’s total assets.
How would loss of future income impact you? It’s important to consider that a significant lawsuit could cost you more than your current assets. It could threaten your potential future income, too. Factor this in when deciding how much coverage you need on your umbrella policy.
Umbrella Policies cover
Umbrella insurance has two purposes. One, it increases policy limits on standard coverages such as general liability, employer’s liability, and auto liability. Two, this policy covers liabilities that aren’t included in standard policies.
General Liabilities
General liability insurance (also known as GL) can protect your business from third-party injuries and property damages. These expenses include medical expenses for injuries, legal fees, damages if you lose the case, and repair costs for property damages.
Example 1: Bodily Injuries
A client sustains injuries after slipping in the stairs of your business. These injuries resulted in a partial disability. The client sues you and wins the case.
When you have general liability insurance, the insurance provider will pay for the medical expenses and legal fees, including damages up to the extent of the covered limit. This is where the umbrella policy becomes useful.
Most often, general liability insurance has a $2M policy limit. The damages amount to $3M, including all medical expenses. The CGL covers the first $2M, and an umbrella policy pays the remaining $1M.
Sometimes, body injuries don’t manifest physically but could reduce a person’s capacity to work or function. For example, a tenant becomes ill because of molds in your apartment unit.
Example 2: Property Damages
Aside from body injuries, you can be sued for property damages. The principle is the same, except it involves properties.
With CGL, you can reimburse or claim payments on legal fees and repair costs. At the same time, the insurance provider may also shoulder the cost of replacing some inventories if necessary.
Still, the coverage depends on your policy term (CGL). You can include anything that is not covered in the standard policy in the umbrella insurance. However, there are other coverages that you might need to consider first.
In this insurance, a person must have inflicted damages on the property, whether intentional or not.
Employer Liabilities
In this insurance policy, coverage involves employee-related cases. Usually, a worker’s compensation can cover these costs. But, labor-related litigation is more expensive than other legal cases.
Example 3: Employee Lawsuits
The standard limit of worker’s compensation is $100,000 up to $1,000,000, depending on terms and your business location.
A worker sues you for extreme back pain due to constant strenuous activities which could have been prevented. Then, this employee wins a $3 million lawsuit. The $1,000,000 limit if selected will be exhausted and the umbrella takes stand.
For small businesses, this amount could easily be used up if the cause is employer negligence. But, with umbrella insurance, you can increase the limit to whatever an insured desires.
Commercial Auto Liabilities
This insurance should be related to the official activities of your business. You can still be sued and obligated to pay if the employee uses the company vehicle for a personal errand.
However, you can charge the employee for this kind of negligence. One caution, though! Make sure to ask the advice of your legal team about charging an employee for these costs.
Example 4: Company Vehicle
Your employee goes to a client’s place to install and uses the company vehicle to bring the product. On the way, he hit another car and caused a multi-car accident.
The other drivers sue your business and win more than $3M damages. The auto insurance will cover a part of the amount up to the extent of the policy limit. On the other hand, the umbrella policy absorbs the remaining amount if you have one.
Umbrella Policies do not cover these three policies:
Professional Errors
Professional liability can cover omissions by accident and professional errors. However, you can’t extend the limit to this policy by way of umbrella liability. Why? Because the risks of malpractice or omissions are too great.
Employment Practices
EPLI (Employment practices liability) is limited to employee-related discrimination issues. These issues include unfair treatment, unjust termination, and harassment.
Property Insurance
There’s a difference between property damage by liability and property insurance. Property insurance often covers damages brought by natural disasters or uncontrolled events.
Conclusion
Determining the limit of your umbrella policy could be difficult, and knowing if you need one is equally vexing. During the discussion with your agent, make sure to do two things.
First, be prepared for all the information needed, such as the policy limit of your auto liability, employer liability insurance, and commercial general liability(CGL). Prior to speaking with an insurance agent, it would be wise to talk with your accountant to determine your fiscal exposures and liabilities.