Lawsuits today can mean big money, more than the limits found in a typical insurance policy. Most package policies or even primary liability policies provide liability limits of $1 or $2 million or less. That’s why businesses also need umbrella insurance, which is also called excess liability. These policies provide additional limits, layering $1-5 million or more on top of your primary liability, or “underlying” policies, such as package, commercial automobile liability, workers compensation and most other primary liability policies.
But they also provide coverage for gaps in liability protection not necessarily covered in primary liability policies.
The additional coverages provided by umbrella policies may include advertising liability such as wrongful use of a trademark name, liability from watercraft used for business, and injuries to employees in tort not covered by workers’ compensation. A self insured retention or SIR, which is like a deductible but applicable to defense costs as well as damages, applies to claims from these kinds of additional coverages.
Umbrella policies are relatively inexpensive compared to the underlying policies they supplement and they provide excellent “sleep” insurance. Remember that an umbrella policy can never be a substitute for underlying liability policies and in fact will not be valid in the absence of the underlying policies.