Law firms should consider umbrella insurance.

Why your firm should consider umbrella insurance.

Umbrella insurance provides liability coverage over and above the coverage afforded by your basic general liability policy. If you have also purchased commercial auto liability or employer’s liability coverage, your umbrella should also apply excess of that coverage. To understand how an umbrella works try thinking of it as a building. Your basic (primary) policies are the building floor, and the umbrella is a roof with overhangs. The height of the building represents the umbrella policy limits, and the overhangs represent coverage afforded by the umbrella not covered by the basic policies. An umbrella protects your firm against potentially devastating lawsuits. Here are some things to consider before purchasing a policy:


The limits your firm needs largely depend on the nature of your business. For instance, roofers and pharmaceutical manufacturers are subject to catastrophic losses, and thus, they are likely to need higher umbrella limits than retail stores.


The umbrella should provide coverages not afforded by your basic liability policy. The coverages your company needs depend on the type of business you operate. For example, if your company engages in print or online advertising, you might want an umbrella that affords broader coverage for personal and advertising injury than your basic policy. Some umbrellas cover humiliation or discrimination unrelated to employment as part of advertising injury.


The amount and scope of coverage an umbrella can vary widely from one insurer to the other. Thus, it is essential to shop around and compare policies. An excellent place to start is to obtain an umbrella quote from the insurer that issued your basic policy.


There are a few things to keep in mind when shopping for an umbrella. First, many umbrella insurers have replaced the old “legalese” with simplified language like that found in most primary policies, making umbrellas easier to read. However, some umbrellas are so similar to the basic policy that they do not provide much broader coverage.

A second thing to consider is that an umbrella policy may contain exclusions not found in your basic policies. Alternatively, an umbrella may contain the same type of exclusion as your primary policy, but the exclusion in the umbrella may be broader. For example, the pollution exclusion in your basic liability policy may retain some pollution coverage while the exclusion in the umbrella retains no coverage at all.

Thirdly, some umbrellas contain self-insured retention or “SIR.” It represents the amount your firm will pay out of pocket for each occurrence covered by the umbrella but not the basic policy.

Policy Period

Finally, when buying an umbrella, make sure it begins and ends on the exact dates as your basic policies. Policy dates are essential because many umbrellas limit coverage to damages resulting from injuries or damage occurring during the policy period of the umbrella.

Law firms need umbrella liability insurance.

Umbrella Liability Insurance – 5 Things to Know

An umbrella liability policy provides an insured with an “umbrella” of liability protection over the primary liability insurance. Most umbrella insurers require you to purchase primary insurance coverage before selling you an umbrella policy, such as general liability insurance, auto liability insurance, workers compensation, or employer liability insurance.

Your umbrella policy can provide coverage:

  • over the primary liability insurance carried by the insured if the primary insurance is exhausted by a loss;
  • of liability exposures for which there is no primary insurance; or
  • when the primary policy contains an exclusion that is not similarly excluded under the umbrella policy.

1. Individual judgment and individual risk Umbrella liability insurance policies are largely a matter of the insurer’s judgment, and rating is almost entirely a matter of individual judgment, not only from insurer to insurer but also from individual risk. Many of the umbrella provisions are negotiable with most underwriters.

2. Underlying coverage A requirement for underlying liability limits of $1 million is common. For insureds with severe advertising or another personal injury, or other special liability exposures, underlying coverage with high limits in these areas may also be required if these exposures are included in the umbrella coverage. Umbrella policy conditions usually call for maintenance of the underlying coverage, with the umbrella insurer’s part in a loss being determined as if the underlying contract were in force, even if it’s not. The only exception is when an underlying policy is totally exhausted by payment of the loss, in which case, the umbrella policy “drops down” to replace the exhausted underlying protection. Drop-down coverage also may become effective when the primary insurer is insolvent.

3. Defense coverage A significant variation in policies has to do with defense coverage; almost all umbrella liability contracts have provisions that, in effect, protect the right of the umbrella insurer to take over or participate in defense of a claim that may involve it. These policies include defense coverage for uninsured exposures, the authors say, even when the loss doesn’t appear likely to involve the umbrella contract. Also, some contracts include defense coverage of losses when, because the underlying insurance is exhausted by the loss payment, the umbrella policy comes in as primary coverage. Some policies include defense and appeal costs within the coverage limits, while others provide them as supplementary payments outside the coverage limits.

4. Additional insured Any additional insured under any policy of underlying insurance is automatically an insured under the umbrella policy. But the coverage isn’t any broader than the coverage provided by the underlying insurance. If the underlying insurer or the insured elects not to appeal a judgment over the retained limit, the umbrella insurer reserves the right to do so at its own expense. The umbrella insurer also pays for taxable court costs, pre-and post-judgment interest, and disbursements associated with the appeal.

5. Indemnity policy or pay-on-behalf-of policy Indemnity policies don’t require the insurer to make payment to the insured until the insured has first made payment for covered damages or expenses. The language requires you to use your own money to pay for damages and defense and then seek reimbursement. With a pay-on-behalf-of policy, the insurer promises to pay damages on behalf of the insured. This means that the insured doesn’t have first to make payment and then seek reimbursement from the insurer. The insurer normally pays expenses for defense as they are incurred if the umbrella insurer has taken over the defense role, even with a pay-on-behalf-of policy.

6. Common exclusions The Commercial Liability Umbrella Form excludes certain coverages that apply to specific situations. The following are only a few of the exclusions provided in the form. For more information, refer to the form itself and the detailed analysis provided by the authors.

  • Liquor liability
  • Workers compensation, employers liability, and employment-related practices
  • Pollution
  • Aircraft or watercraft, and racing activities
  • Recall of products, work, or impaired property
  • Electronic data