Commercial umbrella insurance is a special policy a small business owner can purchase that adds additional protection to existing commercial insurance. Similar to commercial general liability and commercial auto liability insurance, it covers legal costs, medical bills, damages to other property, judgment-issued payments, and settlements. Commercial umbrella policies can run anywhere from $300 to $1,500 annually for small businesses.
How Does Commercial Umbrella Insurance Work?
A commercial umbrella policy works in two ways:
- It acts as surplus coverage. This means it can only be used if there is an outstanding financial liability from an existing loss and the other applicable insurance coverage limits have been exhausted.
For example, your business has a general liability policy with $1 million in coverage. Thankfully, your business purchased an umbrella policy for $5 million, too. On a rainy day, the manager on duty neglected to make sure the floor remained dry and did not display a “Wet Floor” warning sign, causing multiple customers at your store to slip, fall, and injure themselves.
The total cost of the combined losses, including medical bills, legal fees, and damages, are in excess of $3 million. The general liability insurance would cover the first $1 million and the umbrella insurance would then cover the remaining $2 million.
- It can help small business owners when trying to bid on a job that requires higher-than-normal liability limits.
Let’s say you have a general liability policy for $1 million and a commercial umbrella policy for $5 million. Your company bids on a construction job that requires a liability policy of $6 million. Thankfully, the combined limits of both of your policies meet that requirement, so you don’t need to purchase additional coverage to bid on the project.
What Business Umbrella Insurance Covers
Because umbrella insurance supplements liability coverage, it will kick in to cover legal fees, medical bill payments, damages, judgment, and settlement costs that exceed your other policy limits. A commercial umbrella policy can only be purchased to supplement an existing policy, and it will include specifications on what type of policy it can supplement. An umbrella policy supplements:
- General liability insurance
- Commercial auto insurance
- Product liability insurance
- Employer’s liability insurance (workers’ compensation)
The employer’s liability insurance supplement can be confusing. While it sounds like umbrella insurance is the same as employment practices liability insurance (EPLI), it isn’t. As a reminder:
- EPLI protects employers from claims related to hiring or interviewing a candidate or events like harassment that occur during employment.
- Employer’s liability insurance supplement is solely intended to protect an employer from an employee suing them if they become injured on the job and is a part of workers’ compensation insurance.
What Commercial Umbrella Insurance Doesn’t Cover
Because a commercial umbrella insurance policy is a type of liability coverage, it won’t cover any type of commercial property for the insured, such as claims related to office space, equipment, or inventory. It also will not cover all types of liability. For example, an umbrella policy does not cover professional liability or employment practices liability losses.
In terms of specific claims, an umbrella policy cannot be used in a liability claim if it is already fully covered by the underlying policies. It also will not 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 Insurance Costs
While the cost of umbrella insurance varies for each business, many carriers offer the average cost its customers can expect to pay. I analyzed these cost ranges and found the cost of an umbrella policy premium can range from $300 to $1,500 annually for smaller businesses.
Similar to other small business policies, insurers will draw on multiple data points to determine the cost of the premium for commercial umbrella insurance. This data could include prior claims history, risk management controls, and industry.
The total requested umbrella limit also plays a role in price. Costs may be increased or reduced depending on whether the umbrella and underlying policies are with the same carrier.
Expect to call a provider or work with an agent to get a quote for umbrella insurance. Remember that it is highly unlikely a carrier will issue a quote for a commercial umbrella policy if your business doesn’t already have existing insurance.
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 instance, a construction company is far more likely to have a general liability claim than an accounting firm because of the scope of work being conducted. Another example is a cleaning company where employees are frequently on customers’ property can expect a higher premium rate. This means the company’s underlying liability and umbrella policies generally will cost more.
Who Commercial Umbrella Insurance Is Right For
Most businesses can benefit from umbrella insurance because of the surplus coverage it provides.
Below are some scenarios of when umbrella insurance would be especially important to have:
- The business has a lot of employees: Umbrella insurance can act in excess of workers’ compensation policies, specifically for the employers’ liability portion.
- The business has property open to the public: General liability is often called “slip and fall” coverage because slipping- and falling-related injuries are common. Umbrella insurance can supplement general liability and give small business owners peace of mind by providing additional coverage above their normal limit.
- The business has a lot of commercial vehicles: Umbrella insurance acts in excess of commercial automobile liability coverage.
- The job contract requires very high liability limits: If you work in an industry where you need to bid on a job, some jobs require higher-than-normal liability limits. Assuming the contract stipulates that coverage limits can be fulfilled with an umbrella or excess policy, using an umbrella policy can be an affordable option to have a liability policy with lower limits but maintain higher limits at the same time
Umbrella Insurance vs Excess Liability Insurance
A common misconception is that a commercial umbrella policy is simply excess liability insurance. While a relationship exists between the two, excess liability is a separate, distinct policy:
- Excess liability insurance extends coverage for only one type of liability policy
- Umbrella insurance can fill in coverage gaps for more than one type of policy
This means that an umbrella policy and an excess liability policy could both provide additional coverage on top of the underlying policy.
A commercial umbrella policy can also help cover 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, then the umbrella insurance could kick in and cover the additional loss. In contrast, excess insurance could not cover the loss because it only covers one type of liability.
Commercial umbrella insurance can be the saving grace in the event of a catastrophic loss. For example, if one terrible incident wiped out your business’ liability insurance coverages, an umbrella policy might be the difference between bankruptcy and continuing operations.
Umbrella insurance is relatively inexpensive when you evaluate how much coverage you receive. Plus, it can fill in coverage gaps in terms of the scope and, sometimes, the geographic location of the loss that underlying policies don’t cover.
The Hartford is an experienced small business insurance provider that writes commercial umbrella insurance with a business owner’s policy (BOP). Do you want to learn more? Click on the button below.