Excess Liability Policies

The Excess Liability policy has many similarities to the Umbrella policy. However, the differences are in breadth of coverage, pricing, and policy provisions. Excess Liability policies can be written for both personal and commercial risks, but this article focuses more on the commercial application.

An Excess Liability (EL) policy works in a similar fashion as an Umbrella policy; it provides an extra tier of liability coverage for large losses. The EL policy is typically written for a combined occurrence/aggregate limit of $1,000,000, and it would step in after an underlying liability policy limit is maxed out.

Example:

Let's imagine your business has a General Liability limit of $1mil occurrence, $2mil aggregate. Your Excess Liability policy has a combined occurrence/aggregate limit of $1mil. If your company sustained a $1.5mil General Liability loss, your General Liability policy would cover the first $1mil of the loss, and then your Excess Liability would cover the $.5mil left over. If any other losses happened during the policy term, the General Liability policy would have up to $1mil of coverage left, and the Excess Liability would have $.5mil left to go over the General Liability policy, or any other liability policy. (A similar situation could be played out with automobile liability coverage.)

What Makes the Excess Liability Policy Different from the Umbrella Policy?

The main difference between an Umbrella policy and an Excess Liability policy is in the breadth of coverage of each. The Excess Liability policy typically follows the wording of the underlying liability policy exactly, while the Umbrella policy has its own coverages and exclusions. So for an Excess Liability policy, if the General Liability policy excludes claims of mental anguish, so does the EL policy (this is called a 'follow-form' Excess Liability policy). Typically, an Umbrella policy would cover claims involving mental trauma on a first-dollar basis (as a standard General Liability policy typically only covers direct bodily injury and damage to property of others). 

To summarize, the Excess Liability policy literally just adds X amount of liability dollars above your underlying liability policies, while the Umbrella policy both adds a layer of liability protection and broadens coverage. Because of this, underwriting standards will be higher for Umbrella policies than Excess Liability policies, and an Excess Liability policy will be cheaper than an Umbrella policy.