Although the word “umbrella” sounds like its covering everything you own and operate don’t feed into that false sense of security without understanding the fine print. I hear this phrase so often from clients and prospects that it makes me wonder if they know exactly what they’re buying. For starters, the Umbrella is not a “catch-all” policy. It doesn’t fill in the gaps that a home or business policy may have in it. It does not give you added protection from claims that are very rare and usually not covered under traditional policies. And most importantly, it doesn’t provide coverage for things that you forgot to tell your insurance agent about! Do I have your attention yet?
Traditional Umbrella policies are only designed to provide you with higher limits. Umbrellas do not give you coverage for additional perils or causes of loss. They are specifically designed to provide higher limits over the same perils that are covered by the underlying liability policies. In short, if a claim is not covered by your General Liability policy then it’s probably not covered by your Umbrella either. The Umbrella is designed as a more cost effective way for clients to buy higher limits of liability over and above what is provided on the primary policies such as General Liability, Auto Liability, and Employer’s Liability etc.
Professional Liability policies have a tendency to be more complicated as they relate to an Umbrella and buying higher limits of liability. In most cases, it is very difficult to buy an Umbrella on top of a Professional Liability policy. The reason being, professional liability exposures are more intricate and they require more detailed underwriting, specialization and design. There are some instances where an Umbrella will provide coverage over a Professional Policy such as with Alarm Contractors/Monitors and Technology companies however, each insurance company is different. Whatever industry, it is very important that you understand how your Umbrella policy is written and exactly which policies it is covering.
As I am writing this article, I am reminded of a recent warehouse fire in Oakland, CA in which 36 people lost their lives. I wonder if the owner of the building purchased an Umbrella Policy. If they did, I wonder how high the limit was and was it properly written. These catastrophes remind us of the reason we buy insurance and manage risk in the first place. Of course, we all think of the low probability and low severity of an accident but when a terrible catastrophe does occur we need to be prepared.
About the Author: Tom Krug, CIC specializes in managing risk and insurance for Commercial Real Estate of all different types including Office, Multi-Family, Retail, Industrial and Commercial.