Commercial umbrella insurance is a crucial coverage for businesses that need extra protection beyond the limits of their standard liability policies. With the rising cost of claims and lawsuits, a single liability incident can exhaust the limits of your primary policies like general liability, auto liability, or employer's liability coverage. A commercial umbrella policy steps in to provide additional protection, ensuring your business doesn’t have to cover hefty financial shortfalls.
What Does Commercial Umbrella Insurance Cover?
1. Excess Coverage:
Commercial umbrella insurance provides extra liability coverage when the limits of your existing policies are reached. It applies to various types of primary policies, including:
- General liability
- Auto liability
- Employer’s liability
2. Broader Protection:
In some cases, umbrella policies may cover claims that are not covered by the underlying policies. For example, if a general liability policy excludes certain risks, the umbrella policy may fill in the gaps.
Why Commercial Umbrella Insurance Is Important
The frequency and severity of claims have been increasing, especially for industries exposed to higher liability risks. For instance, a significant injury at a worksite or a major auto accident involving a company vehicle can lead to millions of dollars in damages. In today’s litigious environment, even a minor mistake can result in a lawsuit that exceeds your primary coverage limits.
Example: General Liability and Umbrella Coverage
Imagine a scenario where a delivery truck owned by your company is involved in a serious accident that results in $3 million in damages. If your auto liability policy only covers up to $1 million, you would be responsible for paying the remaining $2 million. However, if you had a commercial umbrella policy with a $5 million limit, it would cover the excess costs, saving your business from financial devastation.
Claims Example
In a recent umbrella insurance claim, a manufacturing company faced litigation due to a product defect lead that lead to several injuries. The injured parties filed a lawsuit for $4 million in damages, but the manufacturer’s general liability coverage only provided $1 million in coverage. The commercial umbrella policy stepped in to cover the remaining $3 million.
Rising Costs of Claims
As shown in the chart below, claim settlements, particularly in sectors like construction and transportation, have been on a steep upward trend over the past decade.
Factors Driving Higher Claims:
- Medical costs: Medical expenses are rising, leading to higher settlements for personal injury claims.
- Litigation costs: Legal defense costs are increasing, especially with the growing number of lawsuits.
- Nuclear verdicts: These are extremely large jury awards, often in the tens of millions of dollars, which can easily exceed primary policy limits.
Who Should Consider Commercial Umbrella Insurance?
Every business should consider the protection commercial umbrella insurance offers, but certain industries face higher risks, including:
- Construction: Due to high-risk environments, accidents on job sites can result in substantial damages and legal fees.
- Manufacturing: Product liability claims can quickly exceed the coverage limits of general liability policies.
- Transportation and Logistics: Vehicle accidents involving company-owned trucks or vehicles can lead to multimillion-dollar claims.
- Retail and Hospitality: Premises liability incidents, such as slip-and-fall accidents, often result in expensive legal claims.
Benefits of Commercial Umbrella Insurance
- Financial Protection: Protects your business from large liability claims that exceed the limits of your underlying policies.
- Peace of Mind: Ensures that your business is adequately covered, even in the event of catastrophic losses.
- Cost-effective: Typically, an umbrella policy offers a relatively high limit of coverage at a lower cost compared to increasing the limits of primary policies.
A Graphical View of Umbrella Coverage
To help visualize how umbrella insurance works, see the diagram below that illustrates the layers of protection it provides:
Why Wait? Protect Your Business Now
With the rising costs of claims and the unpredictability of lawsuits, securing a commercial umbrella policy can be the difference between keeping your business afloat or facing bankruptcy. To ensure your company is fully protected, give us a call at 703-674-0299 and get a quote for a commercial umbrella insurance policy today!
By taking proactive steps to safeguard your business, you'll be better equipped to handle any liability claim that comes your way. Don't leave your business exposed—act now and secure the peace of mind you deserve.