Professional Insurance Programs

Commercial Insurance: How Umbrellas Work with ‘Underlying’ Policies

Maybe it’s because you want to make every possible effort to protect your business. Or maybe it’s because you have a contractual obligation. Regardless of your primary reason for purchasing a commercial umbrella insurance policy, it could save your business from financial ruin.

What is an umbrella liability policy, and how does it differ from other policies you have as a business owner? It’s aptly named, because it functions very much like a rain umbrella: It extends your protection. In this metaphor, rain equals risk. Say you’re wearing a rain hat, rain boots, and a rain jacket. These standard rain protections are similar to your primary commercial policies. But if you add an umbrella, you lower the risk of getting wet. And the bigger the  umbrella, the better protected you are from risk. By definition, then, umbrella liability insurance protects your business against claims above and beyond the amount covered by your primary policies and in some cases against claims that your primary policies don’t cover.

There are no boilerplate or standard commercial umbrella policies. They are unique to the insurers offering them. It’s essential that you review any umbrella policy you are considering with your Trusted Choice® Independent Insurance Agent to determine its true value should your business need to survive the storm of a liability claim against your business.

Many commercial umbrella policies are designed to apply toward three general types of underlying insurance policies. “Underlying” is a term used to describe the type of insurance policy addressed by the umbrella policy. It’s important to note that:

  1. It’s not necessary for your business to have all three types of “underlying” insurance for it to benefit from having a commercial umbrella.
  2. There’s no guarantee that a commercial umbrella will cover every claim filed against an underlying policy.

3 Types of Underlying Policies

1. Commercial general liability (CGL). Most businesses have general liability insurance to address claims that allege the business is responsible for causing:

• Bodily injury to a third party.
• Damage to a third party’s property.
• Personal injury (such as libel or slander).
• Advertising injury (such as an infringement of someone else’s copyright when used in an advertisement for the business).

If a claim against your business is covered by the CGL, or if there’s a chance it might be covered after the facts have been determined, a CGL insurance company has a duty to defend you as
the policyholder (and possibly other parties) even if the allegation proves groundless. This duty to defend is often seen by policyholders as the most valuable feature of a CGL due to the high
cost of retaining counsel and defending a lawsuit — costs that are prohibitive for many businesses.

A commercial umbrella policy can significantly increase the amount of money your business would have available to pay for damages resulting from a claim should the limits of the CGL
prove insufficient. Furthermore, some commercial umbrella policies may be broader in scope than the coverage provided by the CGL. Should this be the case, the commercial umbrella policy
may provide money to cover your claim and also contribute much needed money toward the cost of your defense.

2. Employer’s liability. Typically obtained by the business as part of a workers’ compensation insurance policy, employer’s liability insurance is designed to address certain allegations that
are not covered by a CGL.

For example, if your employee suffers an on-the-job injury, workers’ compensation laws in most states prevent the injured employee from suing you, the employer, directly. But if the nature of
the injury creates damages for the employee’s family by causing the need for dependent care (for example, services for the children that the injured parent can no longer provide), or
damages claimed by the spouse due to a loss of consortium (meaning the rights of companionship and association with one’s husband or wife), the family or spouse may sue you
for those damages.

As is the case with the CGL, a commercial umbrella policy may offer additional financial help to protect your business from the potentially devastating expense of an employer’s liability claim.

3. Commercial auto. If your business owns vehicles, it’s likely you have insured those vehicles with a commercial auto insurance policy. Also, many businesses don’t own vehicles, but they
still purchase insurance specifically for an exposure often called “hired and non-owned auto liability.” This would create coverage for your business should it be included in a liability claim
resulting from an employee’s use of a personally owned vehicle on behalf of the business.

Should a vehicle accident occur, a commercial umbrella policy may offer additional financial help to protect your business from the potentially devastating expense of a liability claim.

Know Your Policies
Understanding your underlying insurance policies is as essential as knowing what a commercial umbrella policy will (or won’t) do in response to a liability claim against your business. To
understand how to best protect yourself from the storm, contact your Trusted Choice® Independent Insurance Agent.


Source: Trusted Choice®