Restoration Insurance: Do I Need an Umbrella Policy?
An umbrella policy provides liability coverage over and above the coverage afforded by your basic general liability policy. If you have also purchased commercial auto liability or employers liability coverage, your umbrella should apply excess of that coverage as well. To understand how an umbrella works try thinking of it in relation to a building. Your basic (primary) policies are the building floor and the umbrella is a roof with overhangs. The height of the building represents the umbrella policy limits. The overhangs represent coverage afforded by the umbrella that is not covered by the basic policies. An umbrella protects your firm against potentially devastating lawsuits. Here are some things to consider before purchasing a policy:
Limits
The limits your restoration company needs largely depend on the nature of your operations. For instance, roofers and pharmaceuticals manufacturers are subject to catastrophic losses. Thus, they are likely to need higher umbrella limits than say, a retail store.
Coverages
The umbrella should provide coverages that are not afforded by your basic liability policy. Some umbrellas cover humiliation, or discrimination that is unrelated to employment as part of advertising injury.
Cost
Umbrella premiums vary depending on the carrier, the limits, and the coverage extensions you purchase.
Variation
The amount and scope of coverage afforded by an umbrella can vary widely from one insurer to the other. Thus, it is important to shop around and compare policies. A good place to start is to obtain an umbrella quote from the insurer that issued your basic policy. Once you have a quote you can use it as a basis for comparison.
Pitfalls
There are a few things to keep in mind when shopping for an umbrella. First, many umbrella insurers have replaced the old “legalese” in their policies with simplified language like that found in most primary policies. This has made umbrellas easier to read. However, some umbrellas are so similar to the basic policy that they do not provide much broader coverage.
A second thing to consider is that an umbrella policy may contain exclusions not found your basic policies. Alternatively, an umbrella may contain the same type of exclusion as your primary policy, but the exclusion in the umbrella may be broader. For example, the pollution exclusion in your basic liability policy may retain some pollution coverage while the exclusion in the umbrella retains no coverage at all.
Thirdly, some umbrellas contain a self-insured retention or “SIR.” It represents the amount your firm will pay out of pocket for each occurrence that is covered by the umbrella but not the basic policy.
Policy Period
Finally, when buying an umbrella, make sure that it begins and ends on the same dates as your basic policies. Policy dates are important because many umbrellas limit coverage to damages that result from injuries or damage occurring during the policy period of the umbrella. Here is an example of what can happen when the dates don’t match.
Capital Construction is insured under a primary general liability policy with a Per Occurrence limit of $1 million, a General Aggregate limit of $2 million, and a policy period of January 1, 2013/2014. Capital is also insured under an umbrella policy that runs from March 1, 2013/2014. In 2013 three people are injured in separate accidents at Capital’s job sites, and each files a suit against Capital Construction. The claims are settled on the dates and for the amounts shown below.
January 20: $1,000,000 February 20: $800,000 April 10: $900,000
Capital’s primary liability policy pays the first two claims in full; each resulted from a separate occurrence and generated damages that did not exceed the Each Occurrence limit. However, the policy pays only $200,000 for the third claim because the General Aggregate limit has been used up.
The umbrella insurer refuses to pay the remaining $800,000. Why? Only the third claim arose from an injury that occurred during the umbrella policy period. The underlying aggregate has not been exhausted by settlements paid for injuries or damage that took place during the umbrella policy period. Thus, the umbrella pays nothing.
