Many organizations maintain various liability insurance coverages to protect themselves against claims for damages arising out of legal liability to others, including (but not limited to) commercial auto liability, general liability, and employer's liability. But the liability limits on these primary or underlying policies usually are not sufficient to protect against the large settlement amounts and jury awards that businesses routinely face.
Because a liability claim can easily exceed your auto, GL, or employer’s liability limits, you need umbrella insurance to protect you further. How much umbrella coverage is the right amount? This is a complex question without a black-and-white answer.
While every business is unique, the following four factors tend to have the greatest impact on the amount of umbrella liability insurance your business needs.
The products and services you provide and the way you operate all contribute to your risk profile, which is a measure of your exposure to risk. Questions like these can help you assess your liability risk exposure based on the nature of your operations:
Whether or not you realize it, every time you sign a contract with a customer or vendor, you are likely agreeing to carry certain limits of liability coverage. Most organizations use contract language designed to shift as much of the liability away from themselves, so it’s important to review the verbiage carefully (especially the indemnification and insurance requirements sections) with your attorney and your insurance advisor.
Some contracts are detailed and clear while others are not, so it’s prudent to consult your attorney and your independent insurance advisor to ensure you know exactly what the contract requires from an insurance perspective. Then you can obtain the umbrella liability insurance limits that will fulfill your contractual obligations.
The more recognizable your brand and your company, the more likely a claimant will view you as having deep pockets they can dip into. For example, if a customer is burned by hot coffee served at a local independent coffee shop, they may be less likely to launch a major lawsuit than if the same incident happened at a well-known national coffee chain.
At the end of the day, you need to make a business decision about the umbrella liability limits you want to carry, and that comes down to your risk tolerance as an organization. Businesses with a low risk tolerance might be more comfortable paying a higher premium for higher umbrella coverage limits, while those with a higher risk tolerance might prefer to self-insure some of the risk, pay a lower premium for lower limits, and invest the difference in other initiatives.
Along with these four factors, your independent insurance broker will review benchmarking data to assess how your exposure to liability claims compares to peer companies of the same size (both revenue and employee count) and in the same industry. For instance, at B. F. Saul Insurance we review how the business compares to comparable organizations, determine where your limits fall relative to benchmarks, and factor those insights into our recommendation on the right umbrella policy limits.
The commercial insurance specialists at B. F. Saul Insurance understand the vital role umbrella liability coverage plays in protecting your assets. We bring decades of experience advising organizations on how to reduce their liability risk, with special expertise in government contracting, real estate, nonprofits, and professional services.
For help protecting your organization from liability claims with umbrella insurance, contact the independent advisors at B. F. Saul Insurance.