(April 2013)
UMBRELLA POLICY
The commercial liability umbrella
coverage form is a complete policy. It has its own insuring agreements,
exclusions, conditions, limits, and definitions. It refers to the underlying
coverage forms or policies but the insurance it provides is based on the coverage
form itself.
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Example: Premium Auto Sales has a garage policy, employers’
liability coverage as part of its workers compensation policy, and a
watercraft policy. The garage policy has a number of amendatory and
manuscript endorsements. Premium purchases commercial liability umbrella
coverage. The umbrella underwriter reviews the various garage endorsements to
determine the ones he must include on the umbrella. If the underlying policy
provides a coverage that is not in the commercial liability umbrella coverage
form, its limits do not apply to that coverage.
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In certain cases, commercial
liability umbrella coverages are based on the coverages in the underlying coverage form or policy and
basically “follow form.” The commercial liability umbrella's coverage does not
apply unless the underlying coverage provides the same coverage. The coverage broadening
is generally limited to what the underlying coverage provides.
EXCESS POLICY
Excess policies are
dependent policies. They are based on the underlying coverage instead of having
their own insuring agreements, exclusions, conditions, and definitions. They do
not add to that underlying coverage.
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Example: Premium Auto Sales has a garage policy, employers’
liability coverage as part of its workers compensation policy, and a
watercraft policy. The garage policy has a number of amendatory and
manuscript endorsements. Premium purchases excess coverage. It refers to the
underlying policies but does not have any endorsements of its own since the
underlying coverage determines the excess coverage.
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UMBRELLA POLICY OR EXCESS POLICY–WHICH ONE IS BETTER?
Commercial liability umbrella
policies were originally designed to offer additional limits and cover some of
the gaps in the underlying coverage. They were not simply increased limits
silos. They also provided a canopy or an umbrella that offered the insured a
measure of protection from certain limitations in the underlying. If the
umbrella covered something that the underlying did not cover, the insured paid
a self-insured retention, usually in the range of $10,000 to $50,000, and then
had coverage up to the umbrella's limit. However, as primary commercial general
liability coverage forms and policies became broader, the umbrella's additional
coverage was reduced. It did not change but its coverage became narrower
because the primary commercial general liability coverage became broader.
From the insured's
perspective, there are no surprises or excitement in excess coverage forms and
policies. All coverage disputes arise from the underlying coverage. Once the
primary coverage is determined, the excess follows form by providing additional
limits up to its ultimate limit. Excess coverage allows easy comparisons based
purely on price and capacity.
From the insurance
company's point of view, excess coverage forms and policies can be very
exciting and this is one reason why they may be more difficult to obtain. The
insurance company must review and underwrite the underlying coverage and decide
if it wants to assume the coverage provided. This is a special problem when the
underlying coverage forms or policies are non-standard or have unique or
manuscript coverages and endorsements. Umbrella
underwriters are more confident when they price commercial liability umbrella coverage
because they deal with their own coverage form. They do not have to take the
extra step to research or analyze another carrier’s underlying coverage forms
or policies.
Related Court Case:
No Contribution Needed By Excess Insurer
Note: Many insurance
companies no longer provide “pure” excess because they want more control over
the coverage they provide at the upper limits. It is important to compare the
various coverage forms to determine the exact differences in coverage. The
coverage still depends much more on the underlying insurance than the umbrella.
For example, the Insurance Services Office (ISO) CX 00 01–Commercial Excess
Liability Coverage Form has a total of four exclusions while CU 00
01–Commercial Umbrella Liability Coverage Form has 21 Coverage A. exclusions
and 18 Coverage B. exclusions.
