Once a policy’s limit is reached, commercial umbrella insurance provides additional coverage for liability claims made on general liability, commercial auto, or employer’s liability insurance.
Business owners who purchase commercial umbrella insurance usually need it to fulfill a contract that requests higher than standard policy limits.
Commercial umbrella insurance offers extra liability coverage for the most expensive lawsuits. For example, if a covered lawsuit maxes out your general liability insurance policy but you still owe money for damages, business umbrella coverage can provide additional funds to make up the difference.
Umbrella liability insurance can supplement your coverage provided by:
Commercial umbrella insurance can boost coverage for any (or all) of these policies. Before you can purchase umbrella liability insurance, however, an insurer will require you to carry a certain amount of coverage for the underlying policy.
Commercial umbrella insurance policies have the same terms and cover the same risks as the underlying business insurance policy.
Specifically, umbrella insurance can help provide additional coverage for the following:
When you add commercial umbrella insurance (or excess liability insurance) to your general liability insurance, it can cover your legal expenses if someone injures themselves on your business’s property.
When you add commercial umbrella insurance to a general liability policy, it helps pay legal bills related to destroyed or damaged third-party property.
When you add commercial umbrella insurance to a commercial auto insurance or hired and non-owned auto insurance policy, it helps cover costs if someone sues for damages caused by your vehicle.
When you add commercial umbrella insurance to employer's liability insurance (typically included in workers' compensation insurance), it helps pay for employee lawsuits over work injuries.
Commercial umbrella insurance costs about $40 per month for each $1 million of additional coverage. Several factors affect umbrella policy costs, including:
Think of commercial umbrella insurance coverage as a safety net. Your other liability policies are your first line of defense. When you need an added layer of protection on a claim that exceeds the limits of your primary policy, your business umbrella insurance can pick up the slack.
Let's say you have a commercial general liability policy with a $2 million per-occurrence limit, which means it can pay up to $2 million toward your legal expenses.
Should a client suffer a serious injury after tripping and falling at your business, and a drawn-out legal battle follows, the medical expenses, legal fees, and damages could add up to $2.5 million. After hitting your general liability limit, you would still have a $500,000 bill.
An umbrella liability policy can help cover the expenses that exceed your underlying policy's limit. For the case above, a business umbrella policy can cover the additional $500,000.
Basically, you can make a claim on umbrella insurance when each of the following occurs:
Commercial umbrella insurance used to be a policy that only big businesses bought. These days, more small businesses invest in commercial umbrella insurance due to the rising cost of lawsuits.
You might consider an umbrella liability policy if:
Umbrella coverage helps close the gap on contract requirements over $2 million.
For example, if a general contractor is bidding for a project and the client contract required a general liability policy with a $5 million per-occurrence limit, an umbrella policy of $3 million would be added to the contractor's existing $2 million general liability policy.
The more foot traffic a business has, the greater its liability risks.
For example, if a customer trips on an uneven step at your restaurant and sustains serious injuries that leave them with a chronic health problem, they could decide to sue for $3 million in damages to recoup the cost of medical expenses.
If your restaurant's general liability policy has a per-occurrence limit of $2 million, umbrella insurance would cover damages beyond the initial $2 million, up to the umbrella policy's limits.
A business with a fleet of vehicles might want coverage to protect against the cumulative costs of minor vehicle accidents.
For example, if a window installer driving a company van to a job site accidentally causes a pile-up, the other drivers could decide to sue for damages.
An umbrella liability policy could cover the window installation business's legal defense costs once the auto policy is maxed out. It would also cover damages paid to other drivers in the form of a settlement or court-ordered judgment.
The more hazardous the work, the greater the risk of employee injury – especially in industries such as construction or installation.
For example, a long-time employee at an HVAC installation company sues her employer over a chronic back injury from lifting heavy equipment.
An umbrella liability policy added to employer's liability insurance guards against these types of employee claims, and can cover the cost of hiring a lawyer or any resulting settlement after the underlying policy's limits were reached.
While umbrella insurance does expand coverage limits for a number of policies, it does not provide all the protection that a small business might need.
For instance, an umbrella policy does not cover:
Umbrella liability insurance does not become active until the underlying policy has reached its limits. And as with any policy, it does not provide coverage beyond its own policy limits.
The commercial property insurance portion of a business owner's policy (BOP) or commercial package policy (CPP) can help pay for repair or replacement when your business property is damaged by fire, theft, or covered weather-related events. Business umbrella insurance can only be added to liability policies, not property insurance.
Professional liability insurance, also called errors and omissions insurance (E&O) or malpractice insurance, can cover lawsuits over professional mistakes, including undelivered services and missed deadlines.
You can boost the limits on this policy with excess liability insurance, also called excess E&O, which is very similar to umbrella insurance.
Commercial crime insurance, a type of fidelity bond, will be required to financially protect your business from criminal acts committed by employees against customers or clients.
Unlike insurance, bonds only reimburse damages up to the size of the coverage that was purchased. Umbrella insurance could not be used to provide coverage beyond that limit.
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Before getting commercial umbrella insurance, it's important to find the underlying insurance policies that meet the needs of your small business.
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Businesses usually purchase an umbrella policy to fulfill contracts calling for limits of more than $2 million. Contracts of up to $5 million are not uncommon. In that case, an umbrella policy with a limit of $3 million would be added to a policy with a $2 million limit to meet the requirement.
Otherwise, the amount depends on your industry and your business needs. For example, you may want to secure more coverage to protect a team of construction workers.
As you compare umbrella insurance quotes and consider your options, keep these three things in mind:
If you're unsure how much coverage you need, chat with a licensed insurance agent.
You may see the terms commercial umbrella insurance and excess liability insurance used interchangeably, but they’re not the same.
Excess liability insurance provides additional coverage for just one of your business liability policies, usually general liability insurance or errors and omissions insurance (E&O).
Commercial umbrella insurance provides coverage across several liability insurance policies when there’s a claim against your business that exceeds its limits.