Editor’s Note: The following is a blog post by the Leavitt Group that dives into the issue of commercial umbrella policies. 

How would your business be affected if you were faced with a lawsuit that exceeded your insurance limits?

Steve and Lisa dreamed for years of running a pizzeria. After years of saving, researching business strategies, and experimenting with recipes, they finally opened S&L’s Pizza Place.

Shortly after celebrating their fifth year in business, Steve and Lisa received a terrible call in the middle of the night informing them S&L’s Pizza Place was on fire. They arrived shortly after to discover their business engulfed in flames. An adjoining business had also started on fire, and by morning both businesses were destroyed. The subsequent investigation revealed the cause of the fire to be faulty wiring in the pizzeria.

Because the fire destroyed a neighboring business, Steve and Lisa ended up in a legal battle with the other business owner, resulting in a $2 million settlement, attorney fees, and court costs. These expenses exceeded the limits of their liability insurance policy.

This is an example of a situation where a commercial umbrella could take effect and ease the financial burden of a lawsuit.

What is Commercial Umbrella Liability?

A commercial umbrella policy is an extra layer of liability insurance. This coverage protects a business when the cost of claims exceeds the limits of their primary liability insurance policies. Without this coverage, a business owner could be left paying legal fees, medical bills, and damage expenses.

Do I Need Umbrella Insurance for My Business?

Lawsuits are an increasing risk for many business owners. While implementing safety measures is important, there is always a risk of something occurring beyond your control that could result in a lawsuit. Your business insurance provides some liability coverage, but a single lawsuit could easily exceed your policy limits.

Consider the implications of a lawsuit against your business. How would you pay attorney fees and court costs? If a judgment is rendered against your business that isn’t covered by your liability policy or exceeds the policy’s limits, what would happen? Your assets and future revenue will be on the line – putting yourself, your employees, and your business at risk.

What Puts My Business at Risk?

Some factors that may increase your need for an umbrella policy include the following:

  • Having a business that is open to the public.
  • Doing business on property owned by someone else.
  • Serving high net worth clients.
  • Having employees who drive as part of their work responsibilities.
  • Doing business with clients who require higher liability limits than what you have on your underlying policy. (Your underlying policy is the initial policy that will respond to a covered loss).
  • Engaging in business activities that have a greater chance of employee injury and/or property damage (i.e. construction or manufacturing).

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