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When 1 Million is Not Enough

When 1 Million is Not Enough - Fairbanks Insurance Blog
18 April 2016

When 1 Million is Not Enough

Most General Liability and Commercial Auto policies have maximum limits of $2 million dollars.
In many cases, this limit can be insufficient if a major claim is filed that includes significant injuries and property damage. There are historical cases of claims paid in the millions, but still not enough to cover the contractor’s liability. When this happens, and it happens more than you’d think, the contractor faces a complete liquidation of assets to meet the demand of a court awarded judgement. Equipment, tools, vehicles and buildings will have to be liquidated even after the insurance company has paid out the limit of the policies in force.

There are many examples that can be cited, but without naming names, a few that come to mind are:

    • A large construction company was assessed 6.8 million dollars in a construction lawsuit that resulted around geotechnical issues.


    • An action was won against a plumbing contractor for construction defect claims involving expansive soils at residential development.


  • Settlement of approximately $11 million against a general contractor and subcontractor for deficiencies in the removal and replacement of building envelope components at multiple apartment complexes.

Typically, any of these claims could have put the contractor out of business if sufficient liability insurance wasn’t in place. In all three of these cases, the commercial umbrella policy would have been triggered and then paid.


What is an Umbrella and How Does it Work?

The Commercial Umbrella policy is the most affordable way for a business to increase its liability limits in their underlying policies such as General Liability, Business Owners, and Commercial Auto. This increase provides a higher level of protection that is adequate to accommodate the exposure or because the customer requires the higher limit.

In most cases, the commercial insurance policy has an established limit of one or two million dollars. When the traditional limit is not sufficient, an umbrella of liability can be used to increase the standard limit to various other higher limits depending on the Umbrella insurance carrier selected. If, for example, your company that provides land grading services is contracted by a construction firm to provide those services, it is highly likely that the general contractor will require $5 million in liability limits rather than the standard $1 million that your current policies offer. When you add your $4 million dollar umbrella policy to your portfolio, the total limits available are increased to $5 million dollars for every underlying policy.

If your business is offering products or services to high net worth clients, governmental organizations or large corporations, the Umbrella policy will always be required to accommodate the limits these clients require. It makes very good sense to have this Umbrella in place before targeting these types of clients so that you will not have to scramble to get the necessary insurance in place at the last minute.


Umbrella Versus Excess Liability

Although commercial umbrella and excess liability terms are frequently used interchangeably, they are not identical policies. The umbrella policy frequently offers coverage that is not available in an underlying policy where the excess liability policy provides only the coverage in the underlying policies. The business owner should also be on the lookout for language containing the term “following-form”. This means the policy does not define coverage, but simply states that it only applies if coverage is available in the underlying policies.

Commercial umbrella coverage is especially practical when it comes to commercial auto liability. Most commercial auto carriers will offer limits of $2 million dollars or less, and this is simply not sufficient coverage in many cases.


For more information and a free commercial insurance quote, contact an insurance professional at Fairbanks Insurance Brokers at (949) 595-0284.