Liability and Umbrella Insurance
What the exam tests
Liability and Umbrella Insurance tests negligence, liability coverage triggers, umbrella excess mechanics, and gaps between personal and commercial policies. Expect at-fault loss allocation.
Core rules
- Negligence requires duty, breach, causation, and damages. Defenses include comparative negligence, contributory negligence, and assumption of risk.
- Vicarious liability holds one party responsible for another’s acts, such as an employer for an employee. Strict liability applies to abnormally dangerous activities and certain products.
- Homeowners and auto policies provide underlying liability limits. An umbrella pays excess over those limits and may broaden coverage, but it is not stand-alone.
- A self-insured retention applies when the umbrella covers a loss not covered by an underlying policy. Defense costs may be inside or outside the limit.
- Common umbrella exclusions: intentional acts, business pursuits, contractual liability, and employment-related claims.
Worked example
An at-fault auto accident produces an $800,000 judgment. Auto liability pays its $300,000 limit. A $1,000,000 umbrella then pays the remaining $500,000. If the loss were personal libel excluded by the homeowners policy but covered by the umbrella, a $250,000 self-insured retention would apply first, and the umbrella would pay $550,000 of the $800,000 judgment.
Traps that cost marks
An umbrella does not replace underlying insurance. Failing to maintain required underlying limits can reduce or void umbrella coverage. Business pursuits and intentional acts are commonly excluded. Do not assume defense costs are always outside the limit.