Umbrellas, Excess and Certificates of Insurance

The central purpose of commercial Umbrella and Excess Liability policies is to provide coverage above the limits of the underlying coverage. That is the common thread between these two policy types. From there, however, the distinction can get fuzzy, leading to errors, unintended exposure and potential for trouble. Perhaps a little review is in order.

Umbrella policies are a type of Excess Liability that goes beyond providing additional limits to the underlying coverage. Basically, all Umbrellas are Excess policies, but not all Excess policies are Umbrellas. Nevertheless, the terms are used interchangeably by many, causing confusion and error when evaluating contractual compliance.

Excess Policies

1. Provide higher limits
2. Offer no broader protection than that provided by the underlying policy
3. Can be more restrictive than the underlying policy

Umbrella Policies

1. Provide higher limits
2. Coverage can be broader than the underlying policy
3. Are usually subject to the policyholder's assumption of a self-insured retention

Most Umbrella and Excess policies are not written on standard forms. Only a reading of the policy itself will reveal what is actually covered. But the lines are blurry. And since coverage definitions are developed by individual carriers, Umbrella and Excess policies may vary in what they actually cover.

Another factor to remember is that most policies are written as a self-contained policy, but some are written on a Follow-Form basis. In Follow Form, the coverage is not defined and merely states that it applies under the same terms and conditions as the primary underlying coverage.

All this can be problematic when determining if a contract with specific insurance requirements is in compliance. Scripters of contracts, usually attorneys, may not distinguish (or even be aware) of the differences between the two policy types and instinctively demand Umbrella coverage when in fact the intent of the requirement is simply to provide excess limits availability in the event of a claim.

The distinction between Umbrella and Excess is fading, and can even be misleading. In many instances, both policy types are subject to numerous exclusions. Even the titles can be confusing – some insurers call their Umbrella policies "excess commercial liability" and others call their Excess policies "commercial umbrella liability."

The takeaway from all this is there is no substitute for reviewing the actual terms and conditions of the policy itself, including all endorsements, whenever possible. A few checked boxes on the Certificate of Insurance, and the broker’s comment about "Umbrella follows form" may not be enough to properly determine if the requirements of the certificate holder have been truly met.