If you own a business or commercial property, consider how easily you could absorb events like these:
- You own an apartment building with a porch that does not have railings. One of your tenants falls from it. Recovery from her injuries requires months of physical rehabilitation. A court awards her $3,000,000.
- The poorly-maintained brakes on an asphalt truck fail. The truck strikes the back of the car in front of it, causing a woman riding in the car to suffer serious hand injuries. The truck’s owner settles with her for $1,500,000.
- A man dies after an air conditioner falls on him. The building owner settles with his estate for $3,900,000.
- A woman slips and falls on some tiles as she is exiting a cafe. She receives a damage award of $5,700,000.
- A child collides with an uprooted cable and loses an eye. The owner of the premises settles with her mother for $2,600,000.
Incidents like these are rare, but they are always possible. They can drive companies out of business or property owners into bankruptcy without sufficient financial protection. That is why every business and property owner should consider purchasing an umbrella liability insurance policy.
An umbrella covers a business after it has used up its “primary” commercial general liability (CGL) or business automobile liability insurance. For example, suppose the owner of the asphalt truck had an auto liability insurance policy that pays up to $1,000,000 for bodily injuries and property damage in a single accident. After the insurer pays out the full amount, the truck’s owner still owes $500,000. The umbrella would cover the remainder.
Sometimes, multiple claims in one policy term can use up a business’s primary insurance. CGL insurance normally provides one amount of coverage (such as $1,000,000) for a single occurrence and another (such as $2,000,000) for all losses that occur during the policy’s term. Suppose the owner of the property with the uprooted cable had $2,000,000 of coverage for all losses, and its insurer had already paid $1,500,000 before the accident with the child. The primary insurer would pay only $500,000. If the premises owner has an umbrella, the umbrella insurer would pay the rest, up to the amount of insurance the business bought.
Umbrellas provide $1,000,000 or more of coverage. The cost of each additional $1,000,000 coverage is a fraction of the cost for the first $1,000,000. For example, the additional cost of buying $2,000,000 instead of $1,000,000 might be 40 percent of the cost of $1,000,000; the cost of going from $2,000,000 to $3,000,000 might be 30 percent of the cost of $1,000,000; and so on.
An umbrella may also cover some losses the primary policies do not. In those situations, the business will be required to pay a stated portion of the loss (such as $10,000) before the insurer will pay.
Any business may have a catastrophic unforeseen accident. An umbrella policy will help it survive at a relatively low cost. It is a wise purchase for any business or property owner.