Which clients need coverages beyond standard CGL?

Insureds and their brokers are increasingly asking for higher excess or umbrella limits to top up their commercial general liability (CGL) policies, says Eric Scott, vice president of property and casualty solutions at Trisura.

This trend underscores the importance of a liability tower structure, in which carriers layer a primary CGL policy with umbrella and excess liability policies. Doing this extends coverage limits and fills gaps, so insureds have enhanced protection against substantial claims.

“Most of the requests for high excess limits are arising due to the insureds or brokers looking to mitigate a higher hazard exposure,” Scott says. “But we’ve also seen an uptick in [clients] purchasing umbrella policies just to meet contractual requirements.”

Clients with higher exposures include any industry handling hazardous products or facing an increased risk of lawsuits (including class actions). Also vulnerable are industries exposed to a higher risk of severe injuries or large property damage.

Clients in these industries are prime candidates to ask for higher excess limits, Scott says.

It’s also become more common for suppliers, vendors or other third-party contractors to specifically require umbrella coverage before the insured can sign the contract. That’s the case for low-hazard risks, too.

“There are always insurance requirements within those contracts and, back in the day, $2 million CGL [may have been adequate],” he says. “But now it’s typically a larger CGL limit. And more frequently, there’s specific mention of umbrella liability needing to be purchased in order to fulfill the insurance requirements within that contract.”

Insurers may be reluctant to offer higher coverage amounts to small businesses due to perceived higher risks. So, umbrella purchases have become a way for small- and medium-sized (SME) organizations to meet contractual requirements.

These requirements apply to organizations of all sizes, “even very small companies that historically only carried, say, $2 million or $5 million CGL. Often, one insurer is not willing to put up large [primary] limits on a very small business,” says Scott.

Higher court awards, particularly against clients doing business in the U.S., have fuelled interest in purchasing excess layers of insurance.

It’s important for clients to understand how excess limits differ from umbrella policies.

The CGL policy is the first coverage layer and is the first to respond to claims. Excess liability extends the underlying policy’s limits under the same terms, conditions and exclusions. Umbrella coverage, on the other hand, offers broader coverage to fill policy exclusions or gaps, once the underlying coverage is exhausted.

“A worst-case scenario would be any misunderstanding about what [coverages] are extended through the umbrella and which ones are excluded at the umbrella level,” says Scott. “From an underwriting perspective, understanding exactly what is and isn’t covered on the underlying policy is critical.”

For the most severe claims, it’s possible for umbrella excess policies with very high attachment points to be triggered after multiple underlying policies are exhausted, Scott explains.

“The examples I’ve seen have been those catastrophic large losses, where there’s unfortunately, multiple [life-changing] injuries or deaths,” he says.

Those are typically U.S.-based class action lawsuits or multiple claims arising from one occurrence in the U.S.

Feature image by iStock/valiantsin suprunovich