Excess and Umbrella

Liability Insurance
Agenda
• Introduction
• Difference between Excess and Umbrella Liability Insurance
• Excess Liability forms
• Umbrella liability Insurance
• Self Insured retention
• Policy definition
• Ultimate net loss
• Underlying limit
• Defense Coverage

• Structure of Liability program

 Introduction
Liability policies are purchased to pay losses against Third party claims.

 Difficulty in estimating maximum possible loss (could range from $0 to millions)

 Layering of liability coverage
 Effect of aggregate limits

Excess / Umbrella liability insurance is required to provides additional protection when your
business exceeds insurance limits on an underlying policy.

Excess Liability • Excess coverage over the primary policy limits

• Excess Coverage over the primary policy limits

Umbrella Liability • Also provides Additional coverage not available in primary
/underlying policy subject to self insured retention
 Difference Between Excess & Umbrella
Umbrella Liability
Excess Liability

Limits Limits provide coverage above the limits

provide coverage above the limits
of the underlying coverage of the underlying coverage

It offers no broader protection Coverage Provides coverage not provided in

Coverage than that provided by the
underlying coverage underlying coverage subject to SIR

Exclusions more restrictive than the Exclusions Less restrictive than the underlying
underlying coverage coverage

Defense Defense
Cost Cost
May not present Provides defense cost

Underlyin This is in excess of one Underlying Underlyin Excess over several primary
g policy policy i.e. excess auto liability on g Policy converges i.e. umbrella over CGL,
primary auto policy EPL, APD etc.
Not applicable. If coverage not Applicable in Umbrella. If coverage
Drop agreed in Underlying policy, no Drop covered not in underlying policy,
Down claims will be paid from Excess Down than claim can be paid from
policy umbrella policy

INSURERS USE THE TERMS INTERCHANGEABLY

 Excess Liability - Coverage formats
There are 3 basic forms Exceptions

Following Form Excess Liability

• Covers a claim in excess of underlying limit only if the loss is covered by Underlying
insurance . Excess policy take precedence over Underlying
• All provisions and conditions are same as in underlying policy. policy (could result in narrower coverage if
• No Conflict with Underlying policies. Excess policy not covering a coverage
• No Coverage gaps between Underlying and Excess policy. Underlying policy does.

Self Contained Excess Liability

• It has its own provisions described in policy

• Doesn’t depend on Underlying policy for scope of coverage Self Contained policy sometimes provide
• Independent from Underlying policies coverage in excess of reduced or exhausted
• There are coverage gaps between Underlying and Excess policy aggregate limit subject to provisions of
• Coverage to be covered against any loss needs to be specifically mentioned in Self Underlying policy. Results in claim payment
contained excess policy. even if coverage is excluded in Excess but not in
Underlying policy.
Combination Excess Liability

• Combination of Following form and Self contained policies

• Same provisions as underlying policy with modification done by adding conditions or Self Insured retention provision is not present in
exclusions.
Combination excess policy and differs it form
• Similar to umbrella policy however without any obligation to drop down Umbrella policy
Excess Liability – Aggregate & Specific Excess
Common in SELF INSURED workers compensation plans. In these policies, base layer is self
insured by the insured rather than getting insured as primary layer of commercial insurance.
Consider the below values :
Maximum limit $1,000,000
Losses from separate occurrence $25,000
$75,000
$90,000
$35,000
----------------
Total Losses $225,000

Aggregate Excess Combination Aggregate

Specific Excess
Per Occurrence retention
Aggregate retention $100,000
$100,000
• Insurer will pay $125,000 • Insurer will pay nothing
& Specific Excess
Aggregate Retention $200,000
Per occurrence retention
$100,000
• Insurer will pay $25,000

WHY AND HOW????????????????????

 Umbrella Liability

Key features
• Type of broader excess liability insurance than ordinary excess liability insurance
• Provides excess coverage over several primary cover ages like CGL, AUTO, EPL.
• Provides primary coverage for certain occurrences that would not covered in underlying policy
(unlike Excess policy)

Functions
• Provides additional limits above each occurrence limits of underlying policy
• They take place the underlying insurance when underlying aggregate limits are reduced or
exhausted.
• Provide primary coverage for certain occurrence that would not covered by underlying policy
subject to SELF INSURED RETENTION.
Umbrella Liability - SIR
Self Insured Retention:

 Is the amount of loss insured retain when Umbrella policy drops down to cover a claim that is not at all covered
by underlying policy.
 It doesn’t apply when umbrella is
 Paying in excess of claim covered by primary policy
 Or Dropping down to pay claim due to exhausted primary aggregate limit
 SIR does not apply to Defense Cost.
 SIR is similar to deductible however
 Insured handles all claims falling with in SIR. Claims with deductible initially paid out by Insurer to third party
claimant and then reimbursed by Insured.
 Insured need not to report claims falling with in SIR to insurer (unless policy requires). All claims falling
within deductible limit needs to be reported to Insurer.
 Umbrella Liability
Consider an example to understand how Umbrella liability works

Underlying Policies Umbrella Policy

CGL Policy Each Occurrence limit $5 million
Each Occurrence limit $1 million Aggregate limit $10 million
General Aggregate limit $2 million SIR $25,000
Products-completed $ 2 million
aggregate limit
Commercial Auto
CSL $1 million

Claims covered by Underlying and Umbrella

Property damage claim $1.5 million

Underlying policy will pay $ 1 million

Umbrella will pay $0.5 million

Claims involving depleted Aggregate Limit in Underlying policy Claims excluded by Underlying policy but covered by Umbrella
Property damage claim $1.2 million Pollution claim $200,000
Aggregate reduced to $400,000 (due to earlier claims)
Underlying policy will pay Nothing
Underlying policy will pay $ 400,000 million Umbrella will pay $200,000 – SIR ($25,000)
Umbrella will pay $800,000 million
Umbrella Liability –Policy definitions
Depending upon
agreed provisions
Insuring agreement “to pay ultimate net loss in in insurance
agreement, it
excess of Underlying limits that insured legally could apply on In addition
to limits
liable to pay” Limits
May Defense
Included
within limits
include Cost
Ultimate Net or may In addition
Underlying Limits Ultimate
Loss be not Net loss Included
with in

Total amount insured Umbrella insurer only obliged to pay defense

Limits of Underlying SIR in respect of cost:
is legally obliged to
policies under coverage not covered --Either Underlying limits exhausted and duty
pay as damage for
Umbrella in Underlying policy
covered claim of Underlying Underwriter ended
--OR if Coverage not covered by Underlying
policy

Umbrella exclusions same as Underlying policy Exclusion – similar to Following form excess policy
Exclusions:
Umbrella Underlying policy exclusions omitted from umbrella policy – Unneeded or to Broaden the coverage
insurers can take
combination of Less restrictive exclusion than Underlying policy – i.e. water craft and aircraft exclusions
either
More restrictive than underlying policy- i.e. Pollution coverage, Punitive coverage and Cross liability coverage
 Umbrella Liability –Other provisions

Maintenance of
underlying Insured have to maintain all Underlying coverage in full
insurance force and effect during policy period

• Have to notify insurer if any modification to Underlying layers

• If Underlying layers not maintained, Umbrella policy will only apply as though
Underlying had been maintained. No Drop down coverage will be provided.
• Policy period for umbrella and Underlying needs to be same (concurrent)

Coverage Umbrella Policy provides World wide coverage.

Territory
 Structuring a Liability Insurance Program

1st layers as
Working Excess
Layers

1st layers as
umbrella
Layers
Primary layers

Primary layers
Thanks