When Standard Limits Aren't Enough
Umbrella insurance adds extra liability coverage on top of your general liability, commercial auto, and employers liability policies. When a claim exhausts your primary limits, the umbrella kicks in.
Construction involves risks that can produce catastrophic claims. A scaffold collapse with multiple injuries. A major auto accident on the highway. A fire that spreads from your project to neighboring buildings. These scenarios can easily exceed $1 million.
How Umbrella Coverage Works
Think of your insurance program as stacked layers.
| Layer | Example Coverage | |-------|-----------------| | Primary GL | $1,000,000 per occurrence | | Primary Auto | $1,000,000 combined single limit | | Umbrella | $2,000,000 excess | | Total Protection | $3,000,000 |
A claim comes in for $2.5 million. Your primary GL pays its $1 million limit. Your umbrella then pays the remaining $1.5 million. Without the umbrella, that extra $1.5 million comes from your business assets and personal finances.
What Umbrellas Cover
Umbrella policies typically provide excess limits over your general liability coverage, commercial auto liability, and the employers liability portion of your workers' comp policy.
Many umbrellas also provide some coverage for claims that fall outside your underlying policies, subject to a self-insured retention. This is called drop-down coverage. The retention is usually $10,000 to $25,000 that you pay out of pocket before the umbrella responds.
Umbrella vs. Excess Liability
These terms get used interchangeably, but there's a meaningful difference.
| Feature | True Umbrella | Excess Liability | |---------|----------|--------| | Broadens coverage | Yes | No | | May cover excluded claims | Yes, with retention | No | | Follows form exactly | No, may expand | Yes | | Cost | Higher | Lower |
For most contractors, a true umbrella policy provides better protection than strict excess coverage.
When You Need Umbrella Coverage
Contract requirements often drive the decision. Many general contractors and project owners require $2 million or more in total limits. You can't hit those numbers without an umbrella.
Larger projects mean larger potential claims. Commercial construction, multi-family residential, and public works all carry exposures that can easily exceed $1 million.
If you've accumulated significant assets over the years, protecting those assets from judgment creditors makes sense. Your house, your equipment, your savings. An umbrella provides meaningful protection.
Multiple vehicles in your fleet multiply your auto exposure. More employees increase the chance of a serious workers' comp claim that tests your employers liability limits.
Typical Umbrella Limits and Costs
| Limit | Approximate Annual Premium | |-------|---------------------| | $1,000,000 | $500 - $1,500 | | $2,000,000 | $800 - $2,500 | | $5,000,000 | $1,500 - $5,000 | | $10,000,000 | $3,000 - $10,000 |
Rates vary substantially based on your underlying coverage, trade classification, claims history, and the carrier's appetite for construction risk.
For what umbrellas cost relative to the protection they provide, they're one of the better values in the insurance program.
What You Need Before Adding an Umbrella
Umbrella carriers require minimum limits on your underlying policies before they'll provide excess coverage.
General liability needs to be at least $1 million per occurrence and $2 million aggregate. Commercial auto requires a $1 million combined single limit. Employers liability needs $500,000 per accident, $500,000 disease per employee, and $500,000 disease policy limit.
If your underlying policies are below these thresholds, you'll need to increase them before adding an umbrella.
Coordinating Your Coverage
Work with your agent to ensure there are no gaps between your primary policies and umbrella. Ideally, all your liability policies come from the same carrier. Named insureds should match across all policies. Additional insureds need to be scheduled on both primary and umbrella.
Gaps in coverage defeat the purpose of the umbrella. Get this coordination right during the policy setup, not after a claim.
Claim Examples
Major Auto Accident
Your truck causes a multi-vehicle accident on I-15 resulting in $1.8 million in injuries. Primary auto pays $1 million. Umbrella pays $800,000. Without the umbrella, you're personally responsible for that $800,000.
Job Site Catastrophe
A scaffold collapse injures three workers, generating total claims of $3 million in medical expenses, lost wages, and damages. Primary GL exhausts at $1 million. Umbrella covers the remaining $2 million.
Coverage Gap Claim
Someone alleges defamation that your primary GL excludes. Your umbrella might cover the claim after you pay the self-insured retention, typically $10,000 to $25,000.
Common Questions
Is umbrella insurance required in California?
Not by law, but many construction contracts require higher limits that you can only achieve with umbrella coverage. Practically speaking, it's required for most commercial work.
Can I get umbrella coverage with a claims history?
Yes, though options become more limited and premiums higher. Markets exist for contractors with various risk profiles. We work with specialty carriers that accept tougher accounts.
Does my umbrella cover my subcontractors?
No. Your umbrella covers claims arising from your operations. Subcontractors need their own coverage. Make sure their limits meet your contract requirements.