Commercial Umbrella Insurance

Umbrella and Excess Liability Coverage for Your Business

Commercial umbrella insurance protects business owners from financial losses that their commercial business policy cannot cover due to its limit. For instance, primary policies like commercial auto and general liability have limits to their liability coverage. When the cost of claims exceeds these limits, commercial umbrella insurance (or excess liability insurance) increases the limits of primary policies. As a result businesses do not have to pay out of their pockets.

Commercial umbrella liability and excess liability are two different lines of insurance that share an almost identical purpose. Unlike other insurance policies, you can only buy these policies once you have already secured one or more primary insurance plans. Furthermore, we will discuss which form of insurance best covers your insurance needs.

In this article

What is commercial umbrella insurance?

In simple terms, a commercial umbrella insurance policy provides additional liability protection over and above the coverage limits of primary policies.  In other words, when the cost of claims exceeds your policy limits, an umbrella insurance policy can add an extra layer of coverage. Consequently, umbrella insurance covers for the extra expenses. These include costs such as:

  • Legal expenses
  • Medical payments
  • Damage costs

Moreover, you can only purchase umbrella insurance for your business once you have specific primary policies. The three most common primary plans that umbrella liability insurance policy applies to include:

Therefore, business umbrella insurance adds coverage to fill in the gaps between your existing plans and replace them in case of exhaustion. Certainly, businesses that need to extend their current liability coverage can opt for business umbrella insurance.

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Why do businesses need an umbrella liability policy?

A commercial umbrella liability policy is a form of risk management for businesses to protect themselves from catastrophic losses. As a result, these losses are mainly costly liability lawsuits that are not fully covered by your liability policies and could potentially lead to bankruptcy. In 2016, for instance, total commercials filings for bankruptcy amounted to 37,771 as per the American Bankruptcy Institute’s survey 

Businesses can face lawsuits of all kinds. According to Lisa A Rickard, president of the US Chamber Institute for Legal Reform, “America is known as the land of the free, but it is also the land of unnecessary lawsuits. As the U.S. experience has shown, excessive litigation creates enormous costs for businesses, workers, consumers, and the overall economy. 

For instance, a study for the SBA Office of Advocacy revealed that 36%-53% of small businesses are likely to be involved in one litigation at any given time. Likewise, your business can unexpectedly face lawsuits anytime, and not having preparation against it can put your business at stake 

Your business can, therefore, benefit from holding extra liability coverage with an umbrella insurance plan. In conclusion, having commercial umbrella insurance to back your company protects you from worst-case scenarios that can lead to bankruptcy.  

Example of need for commercial umbrella insurance

Your advertising agency faces two lawsuits. One of them is a $2 million claim for using a copyrighted image for one of your ads. Another one is also a $2 million lawsuit from your employee against an injury on a company negligence claim. On the other hand, your liability policy for general liability and employer liability has a limit of $1 million each. Therefore, having a commercial umbrella policy covers for the extra $1 million for both of the claims. 

Commercial umbrella liability vs. Excess liability insurance:

While people use commercial umbrella liability and excess liability insurance interchangeably, both are two different lines of insurance. The similarity lies in the purpose of these plans. Even though. both increase the limits of the liability coverage if the claims exhaust their standard limits. The main difference between these two policies, however, lies in their coverages.

What is excess liability coverage?

Excess liability coverage increases the underlying limits of a plan without additional broad coverage. In most cases, excess liability coverage restricts more than the existing underlying limits. This coverage only covers underlying policies that are scheduled with the carrier. The three most common underlying plans include employer’s liability, commercial auto, and commercial general liability insurance. Excess liability coverage is not applicable for:

  • Multiple lines of policies
  • Additional endorsements

Commercial excess liability covers whatever the scheduled underlying policy covers simply by increasing their limits. This also means that excess liability does include any additional coverage for your business. The primary purpose of this plan is to close the coverage gaps and add an extra layer of financial protection when underlying insurance runs out of funds.

Business excess liability insurance can provide coverage for:

  • Bodily injuries and property damage such as slips and falls
  • Legal lawsuit expenses involving your business
  • Extra protection for your commercial auto policy
  • Addition excess liabilities above your primary underlying policy

Excess liability offers the same coverages you have on your existing underlying insurance plans. The only difference is the amount of limit increased by the coverage.

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What is umbrella liability coverage?

Commercial umbrella insurance has broader coverages than that of excess liability. This policy offers extra protection to primary plans rather than specifying and scheduling underlying policies. If an existing policy excludes a specific coverage, an umbrella policy can include that coverage. The business is then protected under this coverage after paying the self-insured retention (SIR) amount. 

Business umbrella liability coverage addprotection when the cost of claim exhausts the policy limits. Its role is to provide an extra payout for the exceeded amount. This coverage can safeguard your company from liability claims, including but not limited to: 

  • Libel and slander against the business
  • Legal defense costs
  • Reputational damage
  • Auto accidents
  • Product liability
  • Customer bodily injury and property damages

Commercial umbrella extends the underlying coverage based on ‘follow form’. The policy will pick up the coverage that the underlying plan doesn’t cover. Umbrella insurance also supplements coverage for commercial auto, general liability, employers’ liability, and in some cases, product liability insurance. Backing up multiple policies with an umbrella policy is the most cost-effective way to obtain higher liability coverage.

What does commercial umbrella insurance cover?


An umbrella coverage protects the plan with excess claims on:

  • Commercial general liability (CGL) insurance:

    A general liability policy protects the business against third-party liability claims for property damages, bodily, and reputational injuries. Companies can often face third-party claims that can lead to catastrophic losses. These inflictions can keep your business at stake when the claims exceed the standard CGL limit of $1 million. So, having an umbrella policy increases the limits to your coverage.  

  • Workers compensation insurance:

    Workers compensation protects your business and your employees from injuries in the workplace. The policy pays for the medical bills, lost wages, rehabilitation costs, and death benefits incurred because of workplace injuries and illness. According to the Bureau of Labor Statistics, there was 5250 recorded number of fatal workplace injuries in 2018.

    Workers may not be able to sue your business against injury costs. However, you may get lawsuits from them if they claim the injury happened from the employer’s negligence.

    If your workers’ compensation policy has an employer liability coverage, you are safe from such claims. However, if the claim amount exceeds the limits of the coverage, umbrella insurance can cover the liability risk. You can purchase an umbrella policy to receive the extra payout as well as cover for the litigation costs. 

  • Commercial auto insurance:

    Commercial auto insurance protects your business from third-party claims arising from at-fault accidents as well as the insured vehicle. An umbrella policy provides additional support to the liability part of the auto policy. For instance, if your commercial auto policy has a liability limit of $250,000, you can get extra coverage from your umbrella policy.

    Businesses usually have commercial trucks to transport goods and equipment. According to data from the Federal Motor Carrier Safety Administration131,872 crashes took place involving large trucks in 2018, out of which recorded injuries were 64,667 and 3,835 cases were of fatal injuries.  

What does commercial umbrella insurance not cover?

A commercial umbrella policy will not include coverage for any claims if your business does not have an underlying or primary plan in the first place. A big misconception about this policy is that it will cover anything that your policies cannot cover adequately. A standard umbrella coverage have the following exclusions:

  • Commercial property insurance:

An umbrella policy does not provide coverage to claims related to commercial property insurance that includes office equipment and inventory in your office premises.

  • Errors and omissions insurance:

Errors and omissions insurance is a part of professional liability insurance that protects professionals from their mistakes, causing damage to a third party. Umbrella coverage excludes claims for professional errors and acts of negligence arising in the course of doing business.

  • Lawsuits related to employee discrimination:

Umbrella insurance policy does not cover for claims and lawsuits related to unfair practices towards employees which are covered by employment practices liability insurance.

  • Punitive damages:

If the court deems punitive damages as a punishment for a business that has carried intentional harm to another entity, an umbrella policy will not provide any coverage. According to Britannica, punitive damages should be paid for by the assessed party unlike compensatory damages that are paid by insurance companies.

  • Claims already covered by primary policies:

For umbrella policy to work, your primary plans should have exhausted their coverage limits. It is not the first line of defense in case of losses.

Types of insurance that include commercial umbrella insurance

Any business that needs additional coverage as a contingency plan for lawsuits can opt for purchasing an umbrella insurance policy. Mostly umbrella policy is included for business packages like:

How much does commercial umbrella insurance cost?

Like any other insurance policy, the cost of an umbrella insurance policy depends on the needs of your business. The needs of your business will decide the amount of coverage you want and can vary on factors that include:

Size of your company:

The larger the company, the more expensive your umbrella insurance cost will be. Large companies have to extend their coverage limits as they have larger exposures to financial losses.

The number of employees:

More employees mean more exposure to workplace accidents and more possible lawsuits. You will need more limits to extend your employers’ liability coverage. Hence the cost of the policy will go high.

The industry of your business:

Insurance companies charge more rates for the coverage in sectors that are known to have higher risks such as construction and healthcare.

Claims history:

The cost of your insurance policy is bound to go high if your business’ track record with claims deems a high-risk behavior.

Insurance carrier you choose:

Your premiums differ with the insurance company, and you need to compare your options with a wide array of carriers. Comparing policies from different carrier options and finding a personalized quote is the best way to go.

Get a personalized commercial umbrella insurance quote from a wide range of carriers with us today.

FAQs on commercial umbrella and excess liability insurance policy

Is it mandatory to purchase a commercial umbrella or excess liability insurance policy?

Generally, states do not mandate the purchase of umbrella insurance. However, there may be contractual circumstances that require your business to hold a commercial umbrella policy. For instance, if your business deals with government contracts, you will have to carry this coverage as a requirement.

Does my business need an umbrella insurance policy?

If your business operates in a high-risk industry like trade, construction, or healthcare, you might want to consider an umbrella insurance policy. As per the analysis by IBIS World, business outsourcing services such as printing, photocopying, mailbox rentals, and parcel and mail delivery face the most risks in 2020.

Purchasing an umbrella policy can be an unnecessary expense for some business owners. But if your business needs protection with lawsuits that can keep your business’ existence at stake, you need an umbrella insurance policy. 

How much umbrella insurance do I need?

If you need adequate protection, it is safe to get an umbrella policy that at least covers your business’ net worth. The amount of the coverage you need depends upon the size of your business, the number of employees, the nature of operations- factors that determine the level of risks your business deals with every day. Consider consulting a risk advisor or a trusted insurance agent to assess your exposures.

What is the difference between a commercial umbrella and excess liability policy?

Umbrella liability policy provides broader coverage to the underlying plans and increases their limits of multiple policies in case their original limits get exhausted. Whereas an excess liability policy does not offer extra coverage to the underlying plans but only adds extra liability limit over existing coverages of the scheduled policy. 

How do I buy a commercial umbrella insurance policy for my business?

Businesses have a diverse spectrum of exposures and require a personalized policy to get the right coverage. Commercial umbrella insurance requires a detailed assessment of risks as they differ with the nature of the business and its employees.

To get the best umbrella policy for your business, you need an expert to assess all your risks, a variety of carrier options, and the right coverages.

Are you looking for the best commercial umbrella for your business?
Get personalized commercial umbrella insurance quotes from our wide range of carriers today!