Similar to commercial general liability and commercial auto liability insurance, commercial umbrella insurance will cover legal costs, medical bills, damages to other property, judgment-issued payments, and settlements. The difference is that umbrella insurance acts as additional coverage for businesses if they have exhausted the coverage limits on their primary insurance policies.
How Commercial Umbrella Insurance Works
Because commercial umbrella insurance acts more like a surplus coverage, it will only kick in if there is still an outstanding financial liability and the other insurance coverage limits have been depleted.
For example, let’s say that ABC Company has an umbrella policy for $5 million on top of its $1 million general liability coverage. Multiple customers at ABC’s store are injured in an incident that is going to cost the business $3 million in medical bills, legal fees, and damages. Its general liability insurance would cover the first $1 million, and the umbrella insurance would kick in and cover the remaining $2 million.
What Business Umbrella Insurance Covers
Because umbrella insurance is designed to supplement liability coverage, it will kick in to cover legal fees, medical bill payments, damages, judgment, and settlement costs that exceed your other policy limits. The main insurance coverages that an umbrella policy will act in excess of are general liability, commercial auto liability―as well as hired and non-owned―and workers’ compensation.
What Commercial Umbrella Insurance Doesn’t Cover
A commercial umbrella insurance policy isn’t going to cover any type of commercial property coverage for the insured like claims related to office space, equipment, or inventory. It will also exclude certain liability coverages such as errors & omissions (E&O), sometimes referred to as professional liability, and employment practices liability, which covers issues like employment discrimination and harassment.
In terms of specific claims, an umbrella policy won’t kick in if a liability claim is already fully covered by the underlying policies. It also won’t cover claims if you don’t already have the primary coverage in place at the time of the incident. So, if you have an umbrella policy but no general liability policy, and a claim arises that would ordinarily be covered under general liability, your umbrella insurance policy will not cover that claim.
Commercial umbrella policies are going to contain what’s called a self-insured retention. This is essentially the amount that the insured must pay before the insurance company pays any claims. It’s designed to prevent the insurance company from dealing with smaller claims as it leaves a small amount of financial risk to the insured.
A self-insured retention is generally only required if the umbrella insurance is being used to fill in a coverage gap as opposed to acting in excess of an underlying coverage.
Umbrella vs Excess Insurance
Umbrella and excess coverage tend to be heavily associated with one another. This is because both types of insurance provide additional coverage limits on top of underlying liability policies.
The main difference is that umbrella insurance can also fill in coverage gaps in terms of additional causes of loss and locations that aren’t covered by underlying policies. So, if an incident happens that results in an injury, but the cause or location of that injury were excluded from the underlying liability policy, the umbrella could kick in and cover that while excess insurance wouldn’t be able to.
Who Commercial Umbrella Insurance Is Right For
Even though it isn’t a required liability insurance, just about all businesses could benefit from umbrella insurance since it acts as a surplus to other liability coverages that businesses should already have.
Below are some scenarios of when umbrella insurance would be especially important to have:
- The business has many employees: Umbrella can act in excess of workers’ compensation policies, specifically for the employers’ liability portion.
- The business has property that is open to the public: General liability insurance is an underlying coverage to an umbrella policy. A common general liability insurance claim is that an injury occurred on company property.
- The business has several commercial vehicles: Umbrella insurance acts in excess of commercial automobile liability coverage.
- A contract requires very high liability limits: At times, it can be cheaper to purchase low limits of liability coverage with a high umbrella limit over the top of it. Assuming a contract stipulates that coverage limits can be fulfilled with an umbrella or excess policy.
Pros & Cons of Commercial Umbrella Insurance
|Covers gaps in coverage in terms of scope of the loss||Some carriers will require minimum underlying liability limits before writing an umbrella policy|
|Can be a more cost-effective option for getting higher liability limits||Umbrella can become much more expensive if it’s written with a different carrier than the underlying policies|
|Highly valuable in terms of coverage limits for the premium cost||Self-insured retentions can get expensive on an umbrella policy|
Business Umbrella Insurance Costs
Similar to other liability coverages, business umbrella insurance will use risk underwriting factors to determine eligibility. This could include prior claims history, risk management controls, and industry. The total requested umbrella limit will also be a factor in price. Additionally, costs may be increased or reduced depending on whether or not the umbrella and underlying policies are with the same carrier. An umbrella policy premium can range from $400 to $1,500 for smaller businesses.
How Industry Affects Cost
Because umbrella insurance is supplemental coverage for liability insurance, industries deemed higher risk for general liability coverage will also be considered higher risk for umbrella insurance. For example, a construction company is far more likely than an accounting firm to have a general liability claim due to the scope of work being conducted. So their underlying liability and umbrella policies are generally going to cost more.
Cost by Industry
Below is an umbrella insurance cost estimate breakdown by industry:
*Based on Insureon median umbrella liability premium estimates for $2 million aggregate umbrella limit.
Top Commercial Umbrella Liability Insurance Providers
Mid- to large-sized businesses
Small businesses that want flexible insurance solutions
Businesses engaged in high-risk activity
Businesses that want a quick underwriting process online
Small businesses that want umbrella bundled with their business owners policy (BOP)
While Chubb is a solid small business insurance carrier for other lines of insurance, its umbrella insurance policies are suited well for mid- to large-sized businesses. It can handle large limits (up to $50 million) and go even higher with layered programs.
Travelers covers many different types of businesses and can handle pretty much any type of coverage. It does especially well with policy customization, which extends to writing a commercial umbrella policy.
Hiscox is notorious for accepting higher-risk businesses for its insurance book of business. Its policies are underwritten by the Lloyd’s of London, an old insurance company that handles specialty risks and hard-to-place coverages.
The Insure321 platform was created to save time while offering robust insurance coverage to businesses. It uses an online quoting tool that makes shopping for business insurance super easy for all coverages, including umbrella coverage.
The Hartford makes it very easy for small business owners to purchase their umbrella with their business owners policy (BOP). It also offers discounts for businesses on underlying policies when umbrella coverage is purchased.
Commercial Umbrella Policy Coverage Example
ABC Trucking Company has five trucks in their fleet and decided to purchase a $3 million combined single limit commercial automobile policy and a $6 million umbrella policy over that.
One of the truckers of the company lost control and caused a huge pileup on the highway. ABC Trucking is deemed responsible, and a total of $4 million is due for medical bills, vehicle damages, and settlement costs.
ABC Trucking Company uses the auto policy to pay for the first $3 million and $1 million from the commercial umbrella to pay the rest. In this case, a self-retention was not required by the umbrella policy because it was used as excess coverage and not as a gap filler for the scope of loss.
Commercial umbrella insurance can be the saving grace in the event of a catastrophic loss. For example, if the worst possible incident took place that wiped out your business’ liability insurance coverages, an umbrella policy might be the difference between bankruptcy and continuing operations.
It’s relatively inexpensive when you evaluate how much coverage you get out of it. It also can fill in coverage gaps in terms of scope of loss and sometimes the geographic location of the loss that underlying policies are not covering.