The excess policy provides additional liability limits over and above the limits of a primary liability policy, either a General Liability (GL,) Auto Liability (AL) or E&O policy. The excess policy is usually written on a following form basis, which is to say that the excess policy follows the insuring agreements and exclusions of the primary policy.
The primary policy is responsible for all losses which are within the primary policy limit. The excess policy will respond only to losses which exceed the limits of the primary policy.
For example, a furniture manufacturer is held to blame for a fire which seriously damages a neighbours premises. The client carries a $1 million primary GL cover and a $4 million excess policy. The claimants damages amount to $1.9 million. The primary policy pays the first $1 million of the damage award and the excess policy pays the remaining or excess $900,000.
Excess policies generally attach over a single primary policy.
The umbrella policy provides consolidated excess coverage over several policies, usually a General Liability (GL) and an Auto Liability (AL) cover. Some clients may have more than one GL or AL policy, and each policy should be identified and scheduled in the umbrella.
In addition, the umbrella provides a very broad insuring agreement, sometimes broader than cover available under the primary policies, and will act as primary cover or "drop-down" in the event that none of the primary policies will respond to a loss. The umbrella usually features a Self-Insured Retention which applies only to "drop-down" losses.
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What is the difference between an excess liability policy and an umbrella liability policy?