What a Commercial Umbrella Policy Is and How It Fits Into Your Insurance Needs
A commercial umbrella policy is a type of policy that provides financial protection for a business above and beyond the liability limits of its other policies. If a business faces a massive claim that exceeds the limits of one of their other insurance policies, such as a general liability or commercial auto policy, the umbrella will kick in and extend the limit up by the face amount of liability there is on the umbrella. Umbrella policies start with a face amount of $1,000,000 and increase in $1,000,000 increments from there.
In order to buy a commercial umbrella policy, the insurance company will require certain limits on the underlying policies liability limits. This typically takes the form of requiring at least $1,000,000 in liability being the limit on both the company’s general liability policy as well as its commercial auto policy, if applicable.
If a company faces a claim that exceeds their liability limits and doesn't have a commercial umbrella policy, they will be without any further coverage beyond what is stated on the policy. The business will be exposed to paying its own legal fees as well as the other party’s medical bills or other damages for whatever exceeds that liability limit.
If a business does have an umbrella policy it will provide protection for the business in the event of an excessive claim. If a business has $1,000,000 in general liability and a $1,000,000 commercial umbrella policy, if they are successfully sued for $1,500,000 then their general liability policy will pay for $1,000,000 and the umbrella policy will cover the additional $500,000.
The Types of Claims A Commercial Umbrella Policy Might Cover
Commercial umbrella policies are provided in order to provide additional coverage in the event of a catastrophic claim. A common type of claim on a commercial umbrella policy is one where the driver of one of the company’s insured vehicles hit multiple other cars or caused a number of medical injuries or especially death. This type of event can quickly exceed the $300,000 or $1,000,000 in liability that the typical small business has on their commercial auto policies.
Other types of claims that might exceed an underlying policy’s limits include a customer slipping and seriously injuring themselves on the company’s premises or the company making an advertising error that results in several lawsuits against them.
While the commercial umbrella policy is often issued by the same insurance company as the underlying policies, that is certainly not always the case. For cases like this, there is a provision in the commercial umbrella policy that allows it to participate in defending against a claim regardless of who the insurance carrier is for the underlying policy. This helps to get everyone defending the claim being able to assert their legal rights, assists in everyone working on the same team, and helps their ability to successfully resolve a claim. When applying for a commercial umbrella policy, every insurance policy that the company has needs to be documented on the insurance application including the company the policy(s) is with, their policy numbers, and what the limits of liability are on each policy.
Some companies, such as subcontractors, need to have additional insured’s listed on their general liability policy. These additional insured’s are automatically covered on their umbrella policy which provides additional protection to both parties.
What Types of Companies Would Benefit From Having A Commercial Umbrella Policy
Any type or size of business can benefit from having a commercial umbrella policy. Every business can be exposed to a claim or lawsuit that will exceed their other policies limits of liability.
Companies that have multiple underlying insurance policies in particular benefit from an umbrella policy. It’s more feasible and less expensive to put the additional liability coverage on an umbrella policy then try to increase the individual liability limits on each of their underlying policies. These other insurance policies can include general liability, commercial auto, marine insurance, or garage liability for car repair shops.
There are limits on what a commercial policy does and does not cover which should be a consideration before purchasing a policy for any business. Commercial property insurance cannot be added to a commercial umbrella policy and so doesn’t increase coverage for the building(s) or property the business owns. Error and Omissions policies, including both Professional Liability Insurance and Malpractice Insurance, are also excluded.
There are other exclusions that are common on commercial umbrella policies such as pollution, product recalls, and liquor liability. It’s important to read through all of the endorsements on the policy in order to insure any of your businesses activities aren’t excluded. If they are, it’s possible that some of these can be added to the umbrella with an increase in premium depending on the insurance company underwriting the policy.
Another caution depending on business activities is sub limits on a commercial general liability policy. A common one is a limit on damages to premises rented by the insured business, such as a $100,000 limit on a policy that otherwise has $1,000,000 liability coverage. The umbrella will not drop down to cover everything beyond $100,000 in damages in a case like this which is an additional consideration for business owners to keep in mind.
How Much A Commercial Umbrella Policy Costs
While providing great protection against excessive claims, umbrella policies tend to not be that expensive in comparison to the underlying policies. The cost is going to determine by the types and coverages of what the underlying policies have on them. A business that just has a general liability policy will pay less for a commercial umbrella policy than another business that has several vehicles to insure.
The type of business that is being operated also influences the cost of a commercial umbrella policy. Some businesses have a higher exposure to excessively large claims which will reflect in the amount of how much they will pay for a commercial umbrella policy.
Cost of business umbrella insurance varies based on several factors including the liability of the buisiness, deductibles and coverage options. Most small businesses, those earning less than $1,000,000 a year in revenue, can expect to pay between $400 to $$1,000 a year for a commercial umbrella policy with $1,000,000 in coverage. Going up to a $2,000,000 umbrella would increase the premium to around $800 – $1,600 a year. These rates are if the umbrella is only on top of a general liability policy. If there are commercial auto's also to be insured the cost of the umbrella policy will depend on the number of vehicles and drivers on the commercial auto policy; a typical small business with two vehicles to insure would increase the cost of a $1,000,000 commercial umbrella policy by about $200 – $300 a year.
Where To Buy A Commercial Umbrella Policy
Every insurance agent that sells commercial insurance policies, which is most agents, have access to selling a commercial umbrella policy. All of the major insurance companies offer these types of policies including Hartford, Allstate Insurance Company, Farmers Insurance, and State Farm.
In order to develop a quote, the insurance agent will need to be provided all of the information about the underlying policies, unless those policies are handled by that agent already. This includes information such as your company’s annual revenues and payroll. They’ll also need to know about any prior losses up front which may or may not affect the premium of the commercial umbrella policy. They will also need to know the business experience of the owners of the company as those that worked in their field longer are less likely to have a claim which can reduce premiums.