As Risks Rise, You Need a Commercial Umbrella

As a responsible business owner, you no doubt make sure that you are properly insured for any liabilities resulting from damage to other parties.

But, imagine the following scenarios:

• What if a visitor trips and falls at your business, breaking a leg and is unable to work for a few months while they recover?
• What if a customer suspected of stealing later proves his innocence and sues for defamation of character?
• What if one of your employees, driving a company truck, rams into a passenger car severely injuring some of the occupants?

The costs of a large financial settlement could surpass the primary liability limits of your existing insurance policies, leaving your business responsible for the rest of those costs. And a high-cost accident or lawsuit could potentially put your company out of business.

To avoid any of these scenarios, it’s wise to carry a commercial umbrella policy, which will essentially pick up where your primary insurance leaves off — or runs out.

All of your policies have limits. Once those limits have been breached, the other party can sue and go after your firm’s assets. Breaching those limits is getting easier due to the increasing prices of vehicles as well as health care costs, should the other party suffer physical injuries.

An umbrella policy will also cover you for liability for which there is no primary insurance, or when a primary policy includes an exclusion that the umbrella policy doesn’t.

Unfurling the umbrella

An umbrella policy will kick in after limits are breached for:

• Commercial general liability (bodily injury, property damage, personal injury, defense costs and attorney’s fees, limited contractual liability).
• Business owner’s liability.
• Business auto liability.
• Employer’s liability.

Most umbrella insurers require you to purchase primary insurance coverage before selling you an umbrella policy — for example, general liability insurance, auto liability insurance, workers’ compensation or employers’ liability insurance.

Umbrella policy limits may range from $1 million to $10 million, depending on the policy and the insurance company underwriting the policy.

Excess liability

If your company operates in a business area that has potentially higher liabilities, you can secure an excess liability policy that kicks in after the umbrella policy is breached.

This coverage provides extra liability limits over an umbrella policy. It typically follows the terms of the first underlying insurance policy.

Higher limits may be necessary for businesses with high loss potential, high profile, sizable sales, numerous assets, large auto fleets, a worldwide presence, and/or significant public exposure.

The takeaway

Every business is at risk of being sued at some point, and some companies see more litigation than others. It’s important that you carry the appropriate amount of liability coverage to account for the most common risks your business may face.