Commercial Umbrella or Excess Liability Policy is designed to provide protection against catastrophic losses. It generally is written over various primary liability policies, such as the Business Auto Policy (BAP), Commercial General Liability (CGL) Policy, Business Owners Policy (BOP), Watercraft and Aircraft Liability Policies, and/or Employers Liability Coverage. The Umbrella/Excess Policies serves three purposes: it provides excess limits when the limits of underlying liability policies are exhausted by the payment of claims; it drops down and picks up where the underlying policy leaves off when the aggregate limit of the underlying policy in question is exhausted by the payment of claims; and it provides protection against some claims not covered by the underlying policies, subject to the assumption by the named insured of a self-insured retention (SIR).
Umbrella and Excess Liability policies are designed to provide coverage above the limits of underlying coverage. The two policies are often mentioned interchangeably by insurance professionals; however, there is a difference between the policy forms. The basic distinction between Umbrella and Excess Liability coverage is:
Umbrella policies are a type of excess liability that not only provides additional limits (as excess liability policies do) but also provides coverage not available in the underlying coverage. When additional coverage is provided by the umbrella policy, it is usually subject to the insured’s assumption of a self‐insured retention or retained limit.
Excess Liability policies provide coverage above the limits of the underlying coverage. It offers no broader protection than that provided by the underlying policy. In fact, the excess liability coverage may even be more restrictive than the underlying coverage.
Most Umbrella and Excess Liability policies are not written on standardized forms, so it is always important to read your policies to see what they actually cover. In actual practice, the line between Umbrella and Excess Liability is often blurred. As previously alluded to, many Excess Liability policies are referred to as Umbrella policies. Since coverage definitions are developed by individual carriers, Umbrella and Excess Liability policies may vary in what they actually cover.
Another thing to note is that most policies are written as a self‐contained policy; however, some are written on a follow‐form basis. In follow‐form policies, the coverage is not defined and simply states that it applies only if the loss is covered by the underlying insurance.
1. Umbrella policies provide additional limits over the underlying liability. They usually provide broader coverage than an Excess Liability policy.
2. Excess Liability policies also provide additional limits over the underlying liability; however, they are more restrictive and do not provide coverage which is unavailable in the underlying policy.