October 22, 2020

If your business owns a large number of assets, you should consider getting commercial umbrella insurance. If your business maxes out its general liability coverage, umbrella insurance provides additional coverage for predetermined liability risk. And, one of the most common risks to your general liability is property assets. 

So, does your business present the level of liability that requires extra protection? Learn everything you need to know about commercial umbrella coverage for your business. Find out what it covers and when this coverage kicks-in. And, see if your business presents the kind of risk that is well-served by having umbrella coverage.

Commercial umbrella insurance is good to have if you have assets. The regular liability on your policy is usually enough, but bad things happen.

Commercial Umbrella Insurance: What is It and How Does it Work?

Commercial umbrella insurance is designed for liability coverage over that of your general liability coverage. It is especially useful for businesses at high risk of litigation, and those with a large volume of property assets. But, to acquire umbrella coverage, your business needs underlying coverage, as well. 

The nature of your business activities and assets determine its need for extra umbrella coverage. Some coverage providers require different levels of underlying coverage before an umbrella policy pays out. The underlying requirements almost always include general liability insurance and can include workers’ compensation coverage, commercial auto liability coverage, and other forms of coverage. 

How Does Umbrella Coverage Work?

Commercial umbrella coverage works by paying-out when your business’s underlying coverage runs-out. In this way, it is almost identical to personal umbrella coverage, which increases the coverage you receive in your home, renters, and auto insurance. But, commercial umbrella policies increase the amount covered in your underlying policies, for things like legal fees, costs of damages occurred, and medical bills.

What is Covered Under a Commercial Umbrella Policy?

A personal umbrella insurance policy extends the coverage in your underlying policies, but businesses present a different risk to insurance companies than that of individual homeowners. So, commercial umbrella policies provide extra coverage on specific types of liability. And, even umbrella policies can only offer coverage up to a point. 

In general, commercial umbrella policies extend a business coverage on certain types of liability, from $1 million to $2 million on top of your underlying coverage. So, if your liability exceeds your umbrella coverage limits of between one or two million dollars, you’re on your own.

As stated above, umbrella coverage does not cover every claim, across the board. Instead, it provides specific coverage on some of your existing liability covered under your general liability policy. Take the examples of a snow-plow driver versus a real-estate lawyer:

One day, the snow-plow driver is in a hurry to get home, so they forget to finish plowing a portion of their route. Someone slips falls and sues the snow-plow company for liability over the companies general liability coverage limits. In this case, umbrella coverage kicks-in to cover the additional damages that exceed the general liability. 

The real-estate lawyer, on the other hand, makes a mistake in an audit that values a property at $500,000, instead of $1 million, resulting in a liability lawsuit. If the lawyer’s professional liability insurance is exceeded by the cost of damages that occurred, umbrella insurance does not cover the balance. In this case, the law firm requires Errors & Omissions (E&O) insurance.

Does Your Business Need Commercial Umbrella Coverage?

How efficacious it is for your business to purchase commercial umbrella insurance is dependent on the level of liability risk inherent in your business’s activities. As a general rule-of-thumb, there is a high risk if your business engages in a high amount of interactions with customers or clients. The highest risk is reserved for businesses that engage in using heavy machinery and hazardous equipment – especially in dangerous environments, like deep-water drilling.

The more people that interact with your business, the more liability risk your business presents to an insurance company. Therefore, umbrella insurance can help in the event your general liability policy coverage is exceeded by the costs of damages that occurred. In the same way, it can help if your business operates on a property that is owned by a third party, like a landlord.

Retail stores, restaurants, industrial manufacturing facilities, and hotels present the most risk because of the high levels of customer interactions, and high-risk associated with the nature of the work.

Does your business present a high enough risk to validate getting commercial umbrella insurance? Talk to an insurance specialist today for a free consultation and liability risk assessment