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What Is Excess Liability Insurance?

Excess Liability Insurance

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Most companies carry primary liability policies such as commercial general liability insurance, commercial auto insurance, or employers liability coverage. If your company is held liable for damages, these policies will financially protect you. However, it’s important to keep in mind that these policies have a limit of insurance that restricts the amount the insurer will pay in a single year or for a single claim. The amount of coverage offered is often sufficient to cover any claims that arise, but it’s possible that a major claim or multiple claims that occur in one year could exhaust your limits of insurance. If that happens, your company would be required to pay the remaining amount. Although such large claims are uncommon, if a major lawsuit or judgment does occur, it could strain your company’s financial resources.

Excess Liability Insurance is a supplemental policy that can step in to provide coverage above the limits of your primary liability insurance policies. If your company owns valuable assets and operates in a high-risk or litigious industry, this insurance can give you extra financial protection, ensuring that your company would be able to survive a major incident or lawsuit.

What is Excess Liability Insurance?

Excess Liability Insurance extends your primary liability insurance policies to cover claims after the underlying insurance’s maximum is reached. It can be purchased to complement a commercial general liability policy (CGL), commercial auto policy, or the employers liability portion of a workers’ compensation policy. An Excess Liability policy can extend one primary policy or multiple liability policies. For example, a company could purchase one Excess Liability policy above both a commercial auto policy and a CGL policy. Because it’s rare for a company to completely exhaust its underlying insurance coverage, Excess Liability Insurance is often quite affordable even with a high limit of coverage

Example:

What does Excess Liability Insurance cover?

Excess Liability Insurance extends the limits of insurance available to you on your primary liability insurance policies. It covers the same types of claims as an underlying liability policy, whether it’s CGL insurance, commercial auto liability insurance, or employers liability insurance. If your company suffers multiple claims or a particularly large settlement in one year, the costs may be greater than the maximum amount your liability policies will cover. Once the coverage provided by the underlying policies is exhausted, your Excess Liability Insurance will step in to cover the loss up to the limit of coverage for the Excess Liability policy. In addition, if your company is sued, your Excess Liability Insurance may take over your legal defense from your primary insurer once the limits of the underlying policy are reached.

Example:

Who needs Excess Liability Insurance?

Excess Liability Insurance is often referred to as “insurance for your insurance,” and many businesses purchase this coverage because they feel their primary policies are not enough. Typically, businesses that are unable to obtain high enough limits from their primary carriers will seek Excess Liability from another carrier, oftentimes one that specializes specifically in excess policies. Companies should consider Excess Liability Insurance if:

Example:

What is the difference between Excess Liability Insurance and commercial umbrella insurance?

It’s easy to confuse Excess Liability Insurance with commercial umbrella insurance because they both raise the limits of your liability insurance. In addition, insurers often use the terms “Excess Liability Insurance” and “umbrella insurance” interchangeably, and their exact definitions may vary depending on the insurer and its specific policies. However, there are generally accepted differences between the two types of coverage.

Excess Liability Insurance only increases the financial limits of the primary policy. It covers the same perils as the underlying policies, and in most cases, any claim excluded from your primary policy will also be excluded by Excess Liability Insurance. Insurers can offer something called follow-form coverage, which ensures that the excess insurance adheres to the same terms and conditions as the underlying policy it supports.

In contrast, commercial umbrella insurance can broaden your coverage in addition to increasing the limits of the underlying policy. Umbrella insurance may offer coverage for perils that aren’t covered under a primary policy. This is known as “drop-down” coverage because the insurance will drop down to provide payment from the beginning of the loss.

What is excluded from Excess Liability Insurance?

Excess Liability Insurance typically maintains the same exclusions as the underlying policy, but some policies may have additional exclusions. Common exclusions include:

Does Excess Liability Insurance have a deductible?

Excess Liability Insurance does not typically have a separate deductible. The deductible is considered to be the limits of your underlying insurance — the entire amount that the primary insurer pays for the claim, plus the deductible your primary insurer required you to cover. There is no additional cost to you. Unlike Excess Liability Insurance, commercial umbrella insurance may require a self-insured retention (SIR) for drop-down coverage, which is similar to a deductible. The SIR is a portion of the costs of the loss that you are required to pay before the insurer will begin coverage.

How much does Excess Liability Insurance cost?

Costs for Excess Liability Insurance varies depending on your company’s level of risk, the industry you work in, and the amount of coverage you want to purchase. It’s common for policies to cost about $150 – $450 per year for each $1 million of coverage. The cost may be lower for each additional $1 million of coverage purchased.

Final Word

Excess Liability Insurance can provide valuable extra protection above the limits of your primary liability insurance policies. This is an important coverage to consider for companies that work in high-risk industries or own significant assets. If large settlements or multiple claims exhaust your primary insurance, Excess Liability Insurance will take over coverage, giving you and your clients confidence that your company will survive a major claim or settlement.

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