Umbrella policies often include exclusions of pollution, professional errors, cyber liabilities, and other exposures within the policy form, but the scope varies from insurer to insurer. In addition to carefully reviewing and reading the base policy form, always carefully identify and review endorsements and understand how such endorsements expand or limit coverage. If you don’t understand the purpose and scope of an endorsement require an explanation from your agent, broker, or the underwriter. For umbrella policies that are renewed as expiring be sure to ask your agent, broker, or the underwriter to identify any changes in policy wording. Better yet, compare the expiring and renewal policy form numbers, if they are different or have a more recent edition date, you can be certain that one or more changes have been made. Make sure you understand any such change even if it appears to be a minor wording or editorial change. Insurance policies are legal documents, treat them as such.

4. Underlying Policy Requirements and Maintenance

Umbrella policies require specific minimum underlying insurance limits, such as $1 million per occurrence for general liability. Compare so-called maintenance clauses. Those with failure to maintain continuous underlying coverage provisions may void or limit umbrella coverage. If an underlying policy lapses, is canceled, or falls below these limits, the umbrella policy may not respond until the insured pays the equivalent of the required underlying limit out-of-pocket, like a self-insured retention or deductible.

5. Follow-Form vs. Stand Alone Provisions

There was a time when there were significant differences between purely excess liability policies and umbrella liability policies. Today the distinction is often blurred with umbrellas incorporating features of excess liabilitypolicies When comparing commercial umbrella and excess liability policies, one of the most nuanced areas to evaluate is understanding the distinction between follow-form and standalone provisions, as these structures profoundly affect how the policy interacts with underlying insurance. At its core, a follow-form excess policy is designed to "follow" the terms, conditions, exclusions, and definitions of the underlying primary policies, providing excess coverage that mirrors the primary layer's scope. This alignment aims to create seamless vertical continuity, ensuring that the excess or umbrella responds in the same manner as the primary for covered claims once limits are exhausted. In theory, this makes follow-form policies straightforward for businesses with standardized underlying coverages, as it reduces the risk of mismatches that could lead to disputes during claims.

In contrast, a standalone umbrella policy generally contains their own independent insuring agreement, definitions, and terms that may be different from those contained in the underlying policies. Standalone policies often provide broader protection, such as drop-down coverage for gaps in the primary layer where the primary policy excludes a particular peril, but the umbrella covers it.

However, true follow-form coverage, where the policy incorporates every single term, condition, exclusion, and endorsement from the underlying insurance without exception, is extremely rare in practice. A genuine follow-form policy would expose the carrier to every nuance of the primary insurer's underwriting decisions, including potentially lax terms or unendorsed risks, which carriers avoid by inserting protective language.

6. Self-Insured Retention (SIR) or Deductibles

In the context of commercial umbrella liability policies, the self-insured retention (SIR), sometimes referred to interchangeably with a deductible, though they are distinct, is the threshold amount that the insured must bear before the umbrella policy begins to respond to a loss. This provision is particularly relevant when underlying primary coverage is exhausted, does not apply, or is absent altogether, such as in scenarios involving drop-down coverage for excluded perils. SIRs typically range from $10,000 to $100,000 per occurrence, though they can be higher. Key differences include but may not be limited to:

•   Application and Triggers: In some policies, SIR applies only during "drop-down" coverage for risks excluded from underlying primary policies, while others may impose it more broadly. Umbrellas often include gaps in coverage, while excess policies typically follow underlying terms without a separate SIR although there is little standardization in forms.
•   Satisfaction Requirements: Policies vary on what exhausts the SIR, some policies require strict "actual payment" versus those that may include settlements, judgments, or noncash elements like releases.
•   Defense Obligations: Some umbrellas exclude defense costs from counting toward SIR, requiring the insured to self-fund until exhausted, while others may include them or provide limited defense duties post-exhaustion.
•   Ambiguities and Custom Endorsements: Wording ambiguities around exhaustion (e.g., bankruptcy scenarios) differ by insurer, often resolved via endorsements.
  

These, and other SIR variations can affect risk transfer, premiums, and claims handling, emphasizing the need for policy review. When comparing policy forms your agent, broker, or risk management consultant can help in finding and comparing nuances.

7. Defense Obligations and Costs

Defense provisions differ, some umbrellas have no duty to defend, others have a right to associate, and the best include a duty when underlying is exhausted. Compare if defense costs are inside or outside limits—outside is preferable for prolonged litigations in risky industries. For exposures involving multiple parties, such as supply chain disputes, ensure the policy covers defense for additional insureds. The best umbrellas extend defense beyond primary limits, crucial for comprehensive risk management.

8. Insurer Financial Strength and Ratings

Assess financial strength by checking with rating agencies like A.M. Best or S&P; higher ratings (A+ or better) may imply higher reliability for paying claims on large losses. For businesses in volatile markets, a financially stable insurer helps avoid insolvency gaps. Compare surplus lines vs. admitted carriers. Surplus lines insurers may offer greater flexibility or lower pricing but with less regulatory protection. Alternative markets like Risk Retention Groups (RRGs) may require deeper investigation and review of financial performance.

9. Claims Handling Reputation

Evaluating an umbrella liability insurer's reputation for claims handling and payouts is probably more art than science and while any claim adjustment is highly fact specific there are steps you can take in conjunction with your agent or broker which should include one or more of the following:

• Review Independent Ratings and Surveys: Check scores from trusted sources like J.D. Power for property and auto liability claims satisfaction, as umbrella policies build on these. Companieslike Clearsurance provide customer-rated claims satisfaction scores.
• Consider Financial Strength Ratings: Use agencies like AM Best or Standard & Poor's to assess stability—A-rated insurers may be more dependable for smooth claim resolution.
• Analyze Complaint Data: Visit the National Association of Insurance Commissioners (NAIC) website for complaint indexes—lower ratios indicate fewer issues with claims denials or delays.
• Avoid Known Bad Actors: Your agent or broker can help identify insurers notorious for denying claims.

Keep in mind however that any significant liability claim is subject to the facts surrounding the claim and will be subject to a high degree of scrutiny and due diligence by the insurer. Claims involving litigation can also be subject to court driven delays which can significantly prolong resolution.

10. Conclusion

Finally, evaluate how the policy addresses any unique underlying risks. Umbrellas can provide broader scope than excess policies, but the scope of such broader coverage has diminished in recent years as the distinction between umbrella policies and excess liability policies has narrowed. Always carefully read policy forms, prepare a feature-by-feature comparison, which should include loss scenario analysis and involve your agent, broker or risk management consultant to help guide the process.