Some small business owners and independent professionals may face higher-than-average liability risks that could lead to expensive claims that could exhaust their existing business insurance coverage.
A claim that exceeds a policy’s coverage limit, or businesses with exposure to risks that their existing policies may not cover, may land in dire straits if their policies don’t fully cover an expensive claim. These business owners may need either commercial umbrella insurance or excess liability insurance to strengthen their protection and safeguard their finances.
Commercial umbrella liability insurance and excess liability insurance are closely related, but they’re not the same thing. Let’s review what the differences are:
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What Is Commercial Umbrella Insurance?
Commercial umbrella insurance provides an added layer of security that broadens coverage. This comprehensive policy extends protection when liability claims exceed the limits of a business owner’s existing liability coverage.
Example: A delivery driver for a bakery accidentally hits a pedestrian, causing the injured person to suffer a severe leg injury, lost wages, and requiring long-term rehabilitation. They subsequently file a claim against the bakery for $2.4 million.
In this scenario, the bakery’s commercial auto insurance policy, which has a $1 million coverage limit, would respond first to this third-party bodily injury claim. The bakery’s commercial umbrella policy provides an additional $2 million in coverage, and it would pay the remaining $1.4 million.
What Is Excess Liability Insurance?
Similar to commercial umbrella insurance policies, excess liability insurance provides additional coverage in excess of an existing, underlying insurance on a per-occurrence basis and is based on the same terms and conditions of the underlying policy. Think of it as having more of the same coverage.
Excess liability insurance increases the payout limit of an underlying policy (like commercial general liability, commercial auto liability, or employers’ liability insurance). It does not provide broader coverage for situations or claims that are not already covered by the primary policy.
Example: A business owner with a commercial fleet automobile policy that has a $5 million coverage limit may require a higher coverage limit to account for their total liability exposure. If they purchase excess liability insurance with a $2 million limit, they now have a $7 million coverage limit, but only for claims their existing fleet automobile policy would cover.
Types of Businesses That May Need Commercial Umbrella Insurance
Businesses with multiple liability sources or those requiring coverage that exceeds or fills gaps in their underlying policies will benefit most from umbrella liability coverage, such as:
- Customer-facing businesses: Retail shops, restaurants and cafes, bakeries, gyms and fitness studios with heavy foot traffic and face third-party slip-and-fall bodily injury risks and product liability risks.
- Contractors and skilled trades: Plumbers, electricians, landscapers, snow removal contractors, and HVAC professionals, where there’s a greater risk of third-party bodily injury or property damage claims.
- Businesses with employees doing high-risk tasks: Warehouses, manufacturers, and machine shops, where there may be a higher risk of third-party bodily injuries or where business owners may face employers’ liability risks.
Types of Businesses That May Need Excess Liability Insurance
Excess liability is recommended when a business already has adequate underlying policies but may require higher limits, not broader coverage, to address one main liability risk, such as:
- Professional service firms: Accountants, consultants, architects, and engineers carrying professional liability insurance can add excess coverage to strengthen their protection.
- Medical or allied health practices: Chiropractors, dental hygienists and dentists, physical therapists, and registered massage therapists, where the primary concern is allegations of malpractice.
- Light manufacturing businesses: Organizations with a primary risk, such as product liability, like small-batch manufacturers, fabricators, or tool and die shops, can benefit from adding excess liability coverage to their existing policies.
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