What Is Commercial Umbrella Insurance?
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Commercial umbrella insurance is an insurance policy that provides additional liability coverage on top of other business liability policies. For example, if a business’s liability exposure totals $150,000 but its policy covers only $100,000, umbrella insurance would cover the excess $50,000.
A commercial umbrella policy can cover a wide range of liability exposures, including personal injury, property damage and advertising injury. Designed to protect businesses from financially ruinous liability claims or judgments, umbrella insurance is useful for businesses in high-risk industries, such as construction and manufacturing.
How Does Commercial Umbrella Insurance Work?
To understand how commercial umbrella insurance works, let’s start by understanding how standard liability insurance functions. Standard liability insurance provides coverage for businesses in the event that they are sued for causing injury or damage to someone else. These policies are subject to coverage limits — the highest payout for an approved claim. However, losses can sometimes exceed the limits of a standard liability policy.
This is where commercial umbrella insurance steps in.
Consider this example: Let's say that a business has a standard liability insurance policy with a coverage limit of $1 million. The business is sued and the settlement awarded to the plaintiff is $1.5 million. The standard liability policy would pay $1 million — its maximum limit. Umbrella insurance would pay the remaining $500,000.
Without an umbrella policy, the business owner would be responsible for paying the remaining $500,000 out of pocket. For some businesses, that could be financially devastating, forcing them to shut their doors.
Coverage territory for umbrella policies can extend to multiple types of liability policies. If you have general liability insurance, product liability insurance and commercial auto liability insurance, umbrella coverage will kick in if losses exceed the limits in any of these three policies.
What Does Commercial Umbrella Insurance Cover?
Commercial umbrella policies will pay for legal defense costs that exceed the limits of a standard liability policy. Umbrella coverage will activate when your covered liability policy’s limit is reached, whether it’s for general liability (e.g., bodily injury, property damage), product liability or some other coverage.
- Causing bodily injury or emotional distress to a third party
- Damaging a third party’s property
- Claims of defamation, libel or slang resulting from advertising activities
- Employee claims of wrongful termination or discrimination
- Defective or faulty products
- Car accidents in a company car
- Employee workplace injuries
What Isn’t Covered?
Commercial umbrella insurance policies do not cover all types of liability exposures. Generally, commercial umbrella policies do not cover claims arising from intentional acts or criminal behavior or damage to the business's own property. They also typically do not cover damage or injuries caused by pollution or environmental contamination.
Commercial umbrella liability insurance policies do not cover damage to the business's own equipment or property. This type of coverage is typically provided by a commercial property insurance policy. Commercial property insurance covers damage to a business's physical assets, such as buildings, equipment and inventory.
It's important for businesses to carefully review their commercial umbrella insurance policy to understand the types of exposures that are covered and those that are excluded. This will help them to determine if they have sufficient liability coverage and to identify any potential gaps in coverage.
How Much Does Commercial Umbrella Insurance Cost?
According to Nationwide, business owners can expect to pay a few hundred dollars per year for $1 million in additional liability coverage. Coverage usually starts at $1 million and business owners can buy additional liability coverage, usually in increments of $1 million, up to $5 million.
Keep in mind that umbrella insurance must be purchased as a supplement to an existing liability policy. If you do not have general liability, product liability or some other type of liability policy, you won’t be able to buy commercial umbrella insurance.
Who Is Commercial Umbrella Insurance Best For?
Commercial umbrella insurance is ideal for businesses that have a higher risk of being sued, especially if they operate in industries with high liability exposure. Examples of these types of businesses include:
- Construction companies: These businesses often face a higher risk of liability claims due to the nature of their work, which can involve working with heavy machinery and equipment and working at heights.
- Property management companies: These businesses may be at risk of being sued for property damage or for causing injury to tenants.
- Manufacturing companies: These businesses may be at risk of being sued for product liability if their products cause injury or harm to consumers.
Businesses in these industries and others with high liability exposures would benefit from having a commercial umbrella liability insurance policy if they face an exorbitantly expensive liability claim.
How To Get Commercial Umbrella Insurance for Your Business
If you're interested in purchasing commercial umbrella insurance for your business, here are some steps to help you get started:
- Determine your coverage needs: Consider your business's unique risks and exposures, as well as the limits of your standard liability insurance policy. This will help you to determine how much umbrella insurance you need. If you’re in a high-risk industry, like manufacturing or construction, you should consider higher coverage limits.
- Shop around: Compare quotes from multiple insurance providers to find the best coverage and price. Make sure to compare policies from reputable insurers with a track record of financial stability. You can also ask for recommendations from other business owners, professional associations or your insurance agent.
- Review policy terms and conditions: Carefully read and understand the policy terms and conditions, including the exclusions and limitations of the coverage. This will help you to understand what is and is not covered under the policy.
- Purchase the policy: Once you've found a policy that meets your needs and budget, you can purchase it and begin enjoying the added protection of a commercial umbrella insurance policy.
- Review your coverage needs regularly: As your business grows and changes, your insurance needs may also change. It's important to review your insurance coverage regularly to ensure that it still meets the needs of your business.
Commercial umbrella insurance is just one part of a comprehensive insurance plan for your business. You should also consider purchasing other types of insurance coverage, such as commercial property insurance and workers' compensation insurance, to provide protection for all of your business's physical assets and employees.