When discussing coverage gaps with decision makers, I will often get the question, “well doesn’t my umbrella catch that?”. At one point in time, that answer could often be a yes. In 2025, that is not the case. The change in verbiage from “umbrella” to “excess liability” reflects a narrowing of the coverage. Excess liability simply increases your limits of liability coverage for auto, worker’s compensation, and general liability. The days of an “umbrella” broadening coverage are coming to an end.
Understanding Excess Liability for Your Business
When it comes to protecting your business with excess liability insurance, determining the right coverage limit can feel like navigating a maze. The truth? There isn’t a single excess limit that can guarantee complete protection. Here’s why and how you can make an informed decision about your coverage.
Why an Excess Liability Limit Can’t Guarantee Full Protection
An excess liability policy is designed to provide additional liability coverage above and beyond your base policies; general liability, auto, and worker’s compensation. While it adds a safety net, it’s essential to recognize that no policy limit can prevent a civil suit from exceeding its boundaries.
Take, for example, the trend toward “nuclear verdicts” in the legal world. These are cases with extremely high jury awards, often surpassing tens of millions of dollars. Pair that with increasing auto-related losses among contractors and other industries, and it’s clear that large verdicts can easily exceed even generous excess policy limits.
Where Should You Start?
- Consider Contractual Obligations
Begin with the limits you’re contractually obligated to carry. Many industries or client contracts dictate specific liability requirements, which will form the baseline for your coverage.
- Evaluate Net Worth and Assets
To further protect your business, assess your company’s assets and net worth:
- Newer Companies likely have fewer assets and less exposure, but their excess limit should still reflect their growth potential.
- Established Businesses typically have more assets at stake and a reputation to protect. Rebuilding after a significant loss may be far more challenging, so a higher limit tied to your balance sheet is critical.
Challenges with Higher Limits
The insurance market has shifted significantly, especially for excess policies. Premiums have skyrocketed, and carriers have tightened their appetite for offering high limits. This means obtaining exceedingly high excess limits can now be both cost-prohibitive and difficult.
Instead of solely focusing on obtaining a high limit, it’s increasingly important to take proactive measures to manage the risks that drive excess premiums, particularly auto-related losses.
Risk Management is Your Best Ally
Strong risk management practices can help not only reduce your direct exposure but also improve how underwriters view your business. Here’s how you can demonstrate robust efforts and potentially reduce costs:
- Fleet Maintenance Schedules: Regular upkeep ensures safer vehicles on the road.
- Driver Safety Training: Reduces accidents by equipping drivers with defensive driving techniques and shows a proactive approach to protecting the community you are operating in.
- Motor Vehicle Reports (MVRs) and Screening Policies: Track and manage driver violations proactively.
- Driving Policies: A clear policy on safe driving makes expectations known and enforcement equitable.
- “How’s My Driving” Programs: Accountability measures provide real-time feedback.
By implementing and showcasing these initiatives, you can mitigate higher auto premiums and, in turn, maintain more manageable excess premium costs.
Final Thoughts
Choosing the right excess limit for your business requires a careful balance between contractual obligations, asset protection, and cost management. While no excess limit guarantees full protection, focusing on risk management and aligning coverage with your company’s needs can help create a more secure foundation.
At Kapnick Insurance Group, we’re here to guide you through this complex process. Our team of experts can help you assess your business risks and tailor coverage to protect what matters most. Reach out today and ensure your business has the protection it needs.
