Umbrella liability coverage is a safety net of protection that begins where your primary insurance ends.* The primary policy is exhausted when:
- payment of any individual claim exceeds the per-occurrence limit, or
- the collective value of a series of claim payments within the same policy period exceeds the aggregate limit.
Excess liability and umbrella liability policies provide protection beyond these limits in two different ways:
- An excess liability policy sits directly on top of primary coverage and simply provides additional capacity without changing the nature or scope of protection.
- An umbrella liability policy supplements primary coverage, but also extends broader protection beyond the edges of underlying policies, after fulfillment of a modest self-insured retention.
Each contains a schedule of underlying insurance listing the specific primary liability policies that the Excess or Umbrella Liability form is intended to augment. As a rule of thumb, coverage must be shown in the underlying schedule in order for it to exist in the Excess or Umbrella layer.
In some cases, the schedule specifies how much underlying insurance or equivalent self-insured retentions (similar to deductibles) the policyholder must maintain for certain kinds of liability.
Umbrella liability policies also contain a drop-down provision, so that when a claim falls outside the scope of scheduled or required primary liability policies, the policy "drops down" to function like a primary policy, taking effect after a modest self-insured retention (typically, $10,000) is satisfied.
*For example, if you have a $1 million general liability limit and a $10 million umbrella liability policy, the umbrella coverage is triggered when the general liability policy is exhausted.