THE TRUE UMBRELLA VS. EXCESS LIABILITY POLICY

Umbrella and Excess Liability coverages are not standardized as is typically true with the underlying coverage forms offered by most insurance companies. Without a standardized form, the coverage specifics will vary from carrier to carrier and sometimes even from year to year, depending on whatever coverage amendments have been decided on by a given company. In the general context of non-standardized forms, the following should illustrate some of the more probable differences in these two coverage approaches.

Fundamentally, a straight "Excess Liability" policy is distinguished from an "Umbrella" policy in that the Umbrella policy affords broad blanket excess liability coverage and applies to certain areas that are not covered by underlying policies. Generally, Excess Liability coverage is not broader than the underlying primary coverage and may be even more restrictive depending on the specific insuring agreements, exclusions, conditions, etc.

Excess Liability coverage may be provided by either a "stand alone" form or a "following" form. A "stand alone" policy relies exclusively on its own policy terms, conditions, and exclusions. The "following" form policy literally honors the specific terms of the underlying coverages it supplements.

One of the outstanding features of the true Umbrella policy is the fact that its coverages go beyond the scope of the underlying coverage, thereby giving the insured coverage in many instances where there would be no primary coverage at all! In some Umbrella policies this broadened coverage is subject to a self insured retention (SIR), usually varying anywhere from nothing to $25,000 per claim depending on the policy.

Some more specific coverage features that should be considered when weighing Excess Liability versus true Umbrella coverage are discussed below. Again, not all of the following features are unique to one form or the other -- depending on the specific insurance company involved and the current form being used there could be a mix of the following points -- but they are important nonetheless.

1. Does the insurance company "pay on behalf of" or does it "indemnify"? Typically an "indemnify" policy requires that the insured first pay for defense and judgment with later reimbursement by the company.
2. What is the insurance company's obligation to provide defense coverage? Will the policy pay defense costs in addition to its limits, or as part of its limits? Some Excess Liability policies provide no defense benefits -- just their limits applicable to a judgment or agreed settlement. Furthermore, this can lead to severe coverage gaps as respects defense costs.
3. How extensive is the coverage definition of "personal injury"? Many Umbrella policies give a very broad definition of personal injury, which may include mental anguish, shock, mental injury, discrimination, and/or humiliation. Imagine what could happen with a claim if you had an Excess Liability policy and it did not grant coverage to this extent! In the case of Condominium insurance, unit owners would probably sue the condominium board of directors for the uninsured loss!
4. What is the policy territory? Most Excess Liability policies limit coverage to only the United States and Canada. True Umbrella coverage typically extends coverage to anywhere in the world.
5. What is the contractual liability? Does the policy demand that the contract be in writing, or will coverage be granted for oral agreements?
6. Is there a fellow employee exclusion? Many Excess Liability policies have an exclusion that typically reads as follows:

   This policy does not apply to claims against any employee with respect to personal injury or death of another employee of the same employer injured in the course of such employment.

   A well-written Umbrella policy will not have this exclusion.
7. Is there an additional insured coverage extension? Frequently contracts demand that others be added to a policy as additional insureds (e.g., contractors, lifeguards, real estate managers, etc.) A true Umbrella policy will grant this extension automatically without additional cost. An Excess Liability policy normally won't extend to additional insureds unless you specifically declare the additional exposure, endorse the policy, and pay the extra premium.
8. What are the policy's cancellation specifications? Some Excess Liability policies are automatically terminated if the underlying coverage is canceled or non-renewed. Furthermore, the Excess Liability carrier often imposes a stringent requirement to notify of any material change in premium or coverage within the underlying policies. Failures to discharge this obligation could result in coverage difficulties. Again, a well-written Umbrella policy will either not impose these requirements or, if they are imposed, they are usually less stringent.

Additionally, many underwriters will only offer Excess Liability coverage on what they consider a "troubled risk." They simply don't want to be too generous in granting broad coverage when they suspect there may be any problem.