With high-dollar claims and lawsuits on the rise, are you prepared for the day when your financial services firm causes a very serious accident or third-party property damage? Although financial services firms aren’t exposed to as many physical risks as in other industries such as construction, businesses in this industry can still be high stress and therefore put employees at high risk for accidents, illnesses, or injuries. Financial firms also frequently interact with outside clients, partners, and vendors, which exposes these firms to risks of injury and property damage.

As a financial services firm, you’ll likely already have several major liability policies—a commercial general liability policy, commercial auto policy, and employer’s liability policy—but what happens if you exhaust the limits of these coverages? That’s where Commercial Umbrella Insurance can step in to provide you an additional layer of coverage.

What is Commercial Umbrella Insurance for financial services professionals?

Umbrella Insurance covers the same types of liability your primary liability insurance covers and simply increases the coverage to a higher dollar amount. You may have multiple claims in a year or a large settlement, requiring financial resources that exceed the limits of your primary liability policies. Commercial Umbrella Insurance essentially serves as an additional safety net that kicks in when the existing limits of these three liability policies are exhausted:

• General liability insurance
• Commercial auto liability insurance
• Employers’ liability insurance

Examples:

• One of your high net worth clients comes to the office of your investment management firm for a meeting and trips over an errant power cable. After he is treated for a broken collarbone and is unable to work for several months, he sues for $2 million for medical expenses and lost wages, but your general liability insurance has a limit of $1 million. Your Commercial Umbrella Insurance covers the rest.
• One of your accountants is rushing to a client meeting in a company car when he rear ends another vehicle on the road. After the other driver is severely injured and becomes disabled due to the accident, he sues your firm for his medical expenses and wins a judgment of $5 million. Your commercial auto liability insurance pays out the policy limit of $1 million while your Commercial Umbrella Insurance pays the remaining $4 million.
• One of the stockbrokers at your firm has a fatal heart attack when he sees the markets unexpectedly tumble and loses millions of dollars. His wife files a loss of consortium lawsuit and wins a $1.5 million settlement. Your employers’ liability insurance pays out the policy limit of $1 million while your Commercial Umbrella Insurance covers the remaining $500,000.

Commercial Umbrella Insurance isn’t usually sold as a standalone policy. Generally, you’ll need to purchase a primary line of liability insurance (general liability, commercial auto, or employer’s liability) before you can purchase Commercial Umbrella Insurance. You may be required to purchase a minimum amount of the underlying insurance before you become eligible to purchase Umbrella Insurance, e.g. $1 million limit for general liability and $1 million limit for employer’s liability insurance.

Commercial Umbrella Insurance not only can extend your current liability limits, but it also can expand your coverage into areas not originally covered by your primary insurance policies. This is the primary difference between Umbrella Insurance and excess insurance. While excess insurance only extends coverage, Umbrella Insurance can actually broaden your coverage.

Example:

• One of the analysts at your Buffalo, NY office is traveling to Toronto for a meeting. He takes a company car and ends up rear ending another vehicle on the road just past the border in Canada. The other driver is severely injured and sues your firm for $2 million. Your commercial auto insurance policy does not extend to foreign countries, but luckily, your Commercial Umbrella Insurance does.

Why might financial services professionals need Commercial Umbrella Insurance?

As a financial services firm, you are well aware of the risks in the market. While a stock market crash may not happen all the time, a sound investment firm has certainly put in safeguards to protect against such an event. The same is true of insurance. While accidents or catastrophic damage might not occur frequently, it may still be wise to be prepared with the right financial protection in the case of an unfortunate event.

The following are a few scenarios in which your financial services firm may opt to secure Commercial Umbrella Insurance:

• Your financial services firm owns substantial assets that you wish to protect in the event of a lawsuit.
• You have high net worth clients. For example, you’re a financial advisory firm with clients who have hundreds of millions to invest. If they are injured at your office or while you’re transporting them in a company car, they could sue you not only for medical expenses but their lost wages.
• Your business is more likely to have general liability, commercial auto liability, and employer’s liability claims. For example, your tax preparation firm is based out of San Francisco but you drive to client offices all over Northern California, putting you at higher risk for commercial auto liability.
• Your clients require higher liability limits than your primary liability policies provide, and you need to meet contractual obligations.
• Your financial services firm does not have a lot of capital. In the case of an extremely high-dollar claim or lawsuit, you will be financially vulnerable.

What are the key exclusions of Commercial Umbrella Insurance for financial services professionals?

Contrary to popular belief, Commercial Umbrella Insurance can’t provide additional coverage for all types of claims. Here are some key types of claims that Umbrella Insurance generally will not cover:

Commercial property insurance – Commercial Umbrella Insurance usually does not cover property damage claims, unless it’s third-party property damage relating to general liability.

• Example: The offices of your insurance brokerage are hit by a hurricane, resulting in property damage of $1 million. Your business can only recoup losses up to the policy limit of your property insurance policy since you did not have the option to purchase Commercial Umbrella Insurance to provide extra coverage for property claims.

Professional liability insurance – Commercial Umbrella Insurance usually does not cover professional liability claims and lawsuits.

• Example: Your investment management firm makes a forecasting mistake that causes clients to lose millions of dollars. One of your clients sues your firm for $2 million worth of financial losses, which exceeds the limits of your professional liability insurance. Since you could not purchase Commercial Umbrella Insurance to provide additional coverage for professional liability claims, your insurance company will only pay up to the limits of your professional liability insurance policy.

How much does Commercial Umbrella Insurance for financial services professionals cost?

Pricing for Commercial Umbrella Insurance will depend on a number of factors, including:

• Your industry
• Risk exposures
• Coverage amount

There’s a lot of variation in the pricing, but small businesses can expect to pay annual premiums between $750 and $1500. Many small businesses find purchasing Commercial Umbrella Insurance to be an attractive option since it features relatively inexpensive premiums for a high dollar amount of coverage. You also have the option to raise the limits of your commercial general liability, commercial auto, and employer’s liability insurance, but it may be more expensive than purchasing Commercial Umbrella Insurance.

Umbrella insurance can be a cost-effective way to add to your insurance coverage, as the premiums on umbrella insurance are usually lower per additional dollar of coverage than the premiums on your primary policies. The reason for the lower premiums is that the umbrella policy does not pay out until your primary insurance policy is fully exhausted.

What is the “duty to defend” for Commercial Umbrella Insurance?

Most liability policies require insurers to defend the insured against lawsuits, called the “duty to defend.” For Commercial Umbrella policies, however, the “duty to defend” is sometimes limited or non-existent.

Example:

• Your tax preparation firm has exhausted the policy limit for its employers’ liability insurance paying out claims to an accountant who developed carpal tunnel syndrome. When another accountant files a lawsuit against the firm in the same year, the employers’ liability insurance will not cover anything related to the lawsuit because your firm has already exceeded the policy limit. Commercial Umbrella Insurance will only step in to pay the defense costs for your firm if it’s required in your particular Umbrella policy.

Final Word

A financial services business involves frequent interaction with clients, partners, and vendors—some of whom will be high net worth individuals—as well as potentially high-stress work. If you are not prepared for catastrophic events that may happen or multiple claims in a short amount of time, your firm may be financially vulnerable. Commercial Umbrella Insurance will provide an additional layer of coverage for your primary lines of liability insurance, giving you financial protection and peace of mind as you build your business.