Commercial umbrella liability insurance is needed by small businesses
McCormick, Roy C
There used to be a general perception in the commercial insurance world that milliondollar lawsuits were reserved for mega-corporations. While such “large” litigation continues to claim the headlines, increasing numbers of small businesses also are being affected.
Businesses of modest size are proliferating and, in the booming economy and technological revolution, achieving continuous growth and a sound financial foundation. They have a lot at stake and are vulnerable to lawsuits in our litigious society. Most don’t have the reserves, however, to handle costly legal fees without difficulty, let alone huge settlements or judgments.
This is an opportune time to review such accounts with respect to their overall protection against third-party claims. Those accounts that include commercial umbrella liability insurance may need to have their limits reevaluated. However, our focus is on the many other accounts that do not have umbrellas and need them. Some businesses that did not elect the coverage when starting out will be receptive to a discussion of its purpose and why it is now essential. An explanation of the nature of umbrella liability insurance-and its benefits in light of current headlines-can be effectively made clearly and briefly. Commercial umbrella liability insurance rests on top of primary commercial general liability, automobile liability and employers liability insurance. Depending on the underwriting rules and practices of the insurer, a commercial umbrella may be written to supplement other underlying (primary) insurance, such as that provided by professional, aircraft or watercraft liability coverage.
Insurance of two kinds is provided: dollar limits that are applicable to and excess over coverage provided by declared primary or underlying liability insurance; and coverage, subject to a self-insured retention or deductible, for certain occurrences not covered by the underlying policies.
The first (arguably, the foremost) feature of umbrella protection is an additional amount of liability insurance, in the multi-million dollar range, that is excess over “basic” general liability, automobile liability, employers liability and, in some cases, other declared underlying policies.
The catastrophic results of car/truck accidents on interstate highways and local roads underscore the need by business, large and small, for high limits of liability insurance.
Studies by the National Transportation Safety Board have supported the widely held conclusion that driver fatigue is a contributing factor in 30% to 40% of all heavy truck accidents. Such accidents involve trucks owned or hired by small firms. The implications are clear for businesses. They are vulnerable to allegations that they did not exercise reasonable care or control to minimize the possibility of automobile accidents.
Comprehensive general liability insurance is the bulwark that protects small business against the risks of its special activities, as well as the general risks encountered by all types of businesses-with the exception, notably, of those arising from the use of automobiles and workplace accidents covered by workers compensation insurance. Lawsuits and judgments are such that the high limits provided by an umbrella policy are a sound recommendation for the multiple exposures to which CGL insurance is applicable.
As a case in point, consider a home appliance businessa random selection from a long list of retailers. The presence of customers in a showroom where refrigerators, ranges, clothes washers and dryers, dishwashers, and television sets are displayed is necessary to the business but creates a potential for injuries even when there is good maintenance and management. These injuries can occur outside a building while people are entering or leaving and inside while they are examining merchandise.
The installation of a range in a home by the appliance company’s employees, after delivery in a company truck, is a subject for CGL coverage. There is a potential for accidents during “operations in progress” and reason for greater concern after installation has been completed. Destructive fires and gas explosions can be a consequence of faulty workmanship.
Coverage for the products/completed operations hazard is an essential part of the appliance company’s CGL, and it is properly strengthened by umbrella liability insurance.
The second major feature of commercial umbrella liability insurance is the extension of protection against third-party claims into areas of possible lawsuits that the underlying liability policies do not cover. The scope of umbrella protection for hazards not covered by the declared policies is delineated by the umbrellas exclusions and limitations; it is not spelled out in the policy.
The expanded protection is subject to a specified “self-insured retention” and is determined by checking the exclusions after first concluding that underlying insurance is not applicable.
It is important that the insurance counselor be familiar with the specifics of the particular umbrella policy before answering “…what does an umbrella cover that my present insurance does not?” Provisions of policies issued by insurers vary. However, a review of a representative group of policies indicates that coverage is included for: injury to almost all property of others which the insured may have in its care, custody or control; contractual liability, on a blanket basis, for all written, expressed or implied agreements; and the insured company’s operations anywhere in the world, except where restricted by law. Keep in mind that worldwide communications (including Internet) and delivery services are such today that the tiniest businesses of all descriptions now have customers and suppliers abroad.
Copyright Rough Notes Co., Inc. Aug 1998
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