What does commercial umbrella insurance cover?
Commercial umbrella insurance can extend coverage limits for either general liability insurance, employer’s liability insurance, or commercial auto insurance. If damages, lawsuits, or medical costs exceed the limits from one or more of these policies, umbrella insurance can cover the remainder so it doesn’t come out of your pocket.
The additional coverage from an umbrella policy can be used for:
Third-party bodily injury
Third-party bodily injury is included under a general liability insurance policy and covers legal costs if a customer or visitor is injured on your company’s property. An umbrella insurance policy can cover additional expenses on a per-occurrence basis or expenses that exceed the policy lifetime limit.
For example, if an accident occurs on the property that results in medical expenses for the customer of $2 million, a general liability insurance policy with a $1 million per occurrence limit will cover the per-occurrence limit of $1 million but the remaining $1 million would be covered by the commercial umbrella policy.
If a commercial umbrella insurance policy was not in place, the business would be responsible for paying the additional $1 million.
Third-party property damage
Like third-party injuries, third-party property damage is covered under general liability insurance policies. Commercial umbrella insurance that is added to a general liability policy will help cover expenses over policy limits due to customer or visitor property damage.
For example, if a plumber does not finish an installation correctly and water leaks throughout the customer’s building overnight, the general liability policy will pay up to the policy limits and then the commercial umbrella policy will cover the remaining expenses.
Commercial umbrella insurance can be added to your employer’s liability insurance which is typically part of a workers’ compensation policy. Employers’ liability covers businesses from employee lawsuits and damages due to work-related injuries.
For example, if a construction employee has an accident on the job, and it is determined they should be compensated under the workers’ compensation policy, the workers’ compensation policy will pay for medical and legal expenses up to the policy limits and then the commercial umbrella policy will pay for the remaining expenses.
A commercial umbrella policy will also add supplemental coverage to a commercial auto insurance policy or hired and non-owned auto insurance policy. It pays for damages above your auto liability limit for accidents caused by motor vehicles owned or operated by your business.
For example, if your delivery driver causes a multi-vehicle accident on the way to a client’s house, the cost of damage can quickly exceed the typical commercial auto insurance policy limits. A commercial umbrella policy will make sure that the extra damages will not have to be covered out of your pocket.
What does commercial umbrella insurance NOT cover?
While the term umbrella makes it sound like a commercial umbrella policy will cover everything, there are business insurance policies and other scenarios that cannot use umbrella insurance coverage. This includes damages within policy limits, a claim that is not covered by an underlying policy, commercial property damage, professional liability insurance, and employment discrimination lawsuits.
Damage within policy limits
Commercial umbrella insurance cannot be used to cover claim expenses that are already fully covered by underlying policy limits.
For example, if a customer hurts themselves on your property and there is a general liability insurance claim, commercial umbrella insurance can’t be used for payment coverage unless the claimed damage exceeds the policy limits outlined in your general liability insurance policy.
Claims not covered by an underlying policy
If there is not a business insurance policy in place (general liability, employer’s liability, or commercial auto) to cover the initial insurance claim, an umbrella insurance policy cannot be used to help pay for damages.
Commercial property damage
If business property is destroyed, damaged, or stolen you will need a commercial property insurance policy to pay for its replacement. Commercial umbrella insurance can only be added to liability policies.
For example, if your manufacturing product inventory is stored in your warehouse which burns to the ground, your business will require a commercial property insurance policy to cover the cost of lost inventory.
Professional liability insurance
Umbrella insurance cannot be added to a professional liability insurance policy that covers lawsuits involving professional mistakes, service errors, and malpractice.
Employment Practices liability insurance
Employment practices liability insurance covers businesses against lawsuits related to employee wrongful termination, harassment, or discrimination. Commercial umbrella insurance is not applicable to lawsuits exceeding this policy’s limits.