Personal Umbrella/Excess Liability
Personal Umbrella/Excess Liability
This domain tests the structure, conditions and exclusions of personal umbrella and excess liability policies, and whether the coverage you placed actually responds above the underlying auto, homeowners, watercraft or rental policies.
Excess versus umbrella
- A true excess policy follows the terms of a specified underlying policy and adds limits for the same coverage.
- An umbrella is broader than the underlying: it drops down over a self-insured retention (SIR) when no underlying policy applies, and adds coverage such as personal injury (libel, slander, invasion of privacy, false arrest), worldwide auto and watercraft liability, and some non-owned exposures.
Conditions that decide payment
- Maintenance of underlying insurance: the umbrella schedules required limits - commonly $300,000 on the homeowners and $250/500/100 on the auto. If the insured drops below them, the umbrella pays only what it would have paid had the schedule been met, so the insured absorbs the gap.
- SIR: applies per occurrence where no underlying coverage exists; it is not a deductible that erodes the limit.
- Defense: confirm whether defense is inside or outside the limit. ISO's personal umbrella pays defense in addition to the limit; many carrier forms pay inside it.
- Exclusions survive: business pursuits, professional services, intentional acts, owned aircraft, employment-related injury, watercraft outside the schedule and assumed contracts.
Worked example
A client carries $500,000 homeowners liability, $250/500/100 auto, and a $2 million umbrella with a $250,000 SIR. A multi-car accident produces a $1,400,000 judgment. The auto pays its $500,000 per-occurrence limit and the umbrella pays the $900,000 excess, well within its limit. Now assume the client had cut the auto to 100/300: the auto pays $300,000, the umbrella still responds only above the scheduled $500,000, and the insured personally owes the $200,000 gap.
Traps
- Treating the umbrella as a substitute for adequate underlying limits.
- Forgetting the SIR when the loss falls outside the homeowners form.
- Assuming the umbrella covers the business, an unlisted boat or a drone.
- Assuming an umbrella satisfies state financial responsibility or SR-22 filing requirements.
- Missing that punitive damages and intentional acts are treated differently by state.