What Does Commercial Umbrella Insurance Cover?
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What Does Commercial Umbrella Insurance Cover?

Umbrellas cover everything underneath them, right? Their whole purpose is to provide a relatively broad area of protection from rain or sunshine. But if you step out from under the umbrella during a rainstorm, you’re still going to get wet.

So when it comes to Commercial Umbrella Insurance, it’s important to know what the “umbrella” covers. Certain claims or insurance policies fall outside of a Commercial Umbrella policy's reach. On the other hand, certain claims and policies can benefit immensely when supplemented with Commercial Umbrella coverage. Let's explore both cases so you understand what this type of business insurance can and can't do.

Rain or Shine: What Commercial Umbrella Insurance Can Cover

Commercial Umbrella Insurance can be applied when a covered claim exceeds the limits of an eligible liability policy. Say your policy has already paid out $1 million for a claim, and that's as much coverage as the policy can offer. However, you’re still liable for another $100,000. Your Commercial Umbrella policy can cover the remaining cost.

But this doesn't mean you can put your Commercial Umbrella coverage toward every type of insurance policy. Just like a real umbrella, Commercial Umbrella Insurance can only cover a certain area. There are three underlying liability policies that fall under the protection of this policy:

This is important to keep in mind if you’re thinking about purchasing a Commercial Umbrella policy. Umbrella Insurance can only be applied to a claim if…

  • You have the appropriate underlying policy.
  • That policy's limits have been reached.

Additionally, be aware that you might not be able to purchase a Commercial Umbrella policy unless the underlying policy has a certain limit.  

To illustrate how Commercial Umbrella Insurance works, consider this scenario: a few visitors are injured on your business property. They all require trips to the hospital and expensive surgeries. They sue your business to recoup medical expenses and other damages. Luckily, you have General Liability Insurance and Commercial Umbrella Insurance.

Sure enough, your General Liability policy exceeds its $1 million limit after all the attorney fees, settlement expenses, and court costs are tallied. But you have Commercial Umbrella Insurance, which provides another $1 million in coverage. After your General Liability policy is exhausted, your Umbrella coverage takes care of the remaining expenses, sparing you from dipping into your business's bank account.

Look Elsewhere: What Commercial Umbrella Insurance Can't Cover

You can’t cover everything with Commercial Umbrella Insurance. For example, it can't be applied to:

Additionally, keep in mind that Commercial Umbrella Insurance isn't a standalone policy, so it can't cover expenses if you don't have the appropriate underlying policy already in place. In other words, you can't put your Umbrella coverage toward a General Liability claim if you don't have a General Liability policy.

For insurance policies that Commercial Umbrella Insurance can't supplement, the only way to procure more coverage is by raising policy limits. Talk to your insurance agent about your options if you feel your E&O or Property Insurance doesn’t provide enough protection.

Umbrella Liability Insurance: Further Reading