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Conceptin Umbrella, flood and floaters

Drill10 items

Umbrella vs excess liability: drop-down and the SIR

An umbrella sits above your underlying liability policies and can also drop down to cover some claims they exclude, above a self-insured retention (SIR). A follow-form excess policy only adds limits above the underlying and is never broader than it. The personal lines around it are on umbrella, flood and other personal coverages.

A personal umbrella stack

SIR (no underlying policy)$2,500Homeowners Section II$350,000Auto liability (PAP)$600,000Personal umbrella$3,000,000
Illustrative limits. The umbrella pays above whichever underlying policy responds, or above the SIR when none does.

Umbrella and excess, line by line

Umbrella vs follow-form excess liability
QuestionUmbrellaFollow-form excess≠
Needs scheduled underlying insurance?YesYessame
Adds limits above the underlying?YesYessame
Can be broader than the underlying?YesNo; it adopts the underlying termsdiffers
Pays a claim the underlying excludes?Yes, above the SIR, if the umbrella covers itNodiffers
Usual underlying on a personal accountAuto and homeowners liabilityAuto and homeowners liabilitysame

marks a row where the two differ.

A judgment climbs the stack

WorksheetWorked example

Auto accident judgment of $1,150,000; PAP liability $600,000 combined single limit; personal umbrella $3,000,000

Judgment
$1,150,000
PAP limit (CSL)
$600,000
Umbrella limit
$3,000,000
  1. PAP pays firstlesser of $1,150,000 and $600,000$600,000
  2. Umbrella pays the rest$1,150,000 − $600,000$550,000
  3. Left for the insured$1,150,000 − $600,000 − $550,000$0

Umbrella share$550,000

Each layer pays to its own limit before the next one is touched; the umbrella never pays inside the PAP's $600,000.

Which retained limit applies

The umbrella always starts above something. With the stack drawn above, a claim the homeowners policy covers reaches the umbrella only after $350,000; an auto claim, after $600,000. A claim neither underlying policy covers, but the umbrella does, reaches it after the $2,500 SIR. The SIR is never added on top of an underlying limit.

Drop down also happens when covered claims exhaust an underlying aggregate. In every case, find the layer where the claim starts before doing any arithmetic.

Four terms to keep apart

Self-insured retention (SIR)
The insured's own layer under a claim only the umbrella covers. The insured bears it before the umbrella pays a dollar.
Drop down
The umbrella moving into first position: over the SIR when the underlying excludes the claim, or over an underlying aggregate that covered claims have used up.
Follow form
Excess coverage that adopts the terms of the policy beneath it, so its exclusions are the underlying's exclusions.
Scheduled underlying
The policies and minimum limits listed in the umbrella. The umbrella assumes those limits are there.

Layer by layer

0 of 10 answered · 0 right

For any dollar question, draw the stack first (underlying, umbrella, any excess layer, and the SIR off to one side), then pour the loss in from the bottom.

Notes on each optionCommit to an answer first. The notes under the item then open on every option: what rules it in or out, and the one word that splits the runner-up from the key.

  1. Item 01

    In a commercial umbrella, how does a self-insured retention (SIR) differ from a typical deductible?

    1. ACorrect: with an SIR the insured itself pays, and usually adjusts and defends, claims up to the retention, and the umbrella limit sits on top.
    2. BThere is a real difference: with a deductible the insurer handles and pays the claim first.
    3. CThe insurer paying first and billing the insured describes a deductible, not an SIR.
    4. DAn SIR does not reduce the umbrella's limit; the full limit sits above the retention.
  2. Item 02

    Ruth is sued for libel over a letter to her neighbors. Her homeowners policy excludes personal injury, but her personal umbrella covers it. The umbrella will:

    1. AA personal umbrella is broader than the underlying policies, so it can pay a claim they exclude.
    2. BCorrect: for a loss the homeowners excludes but the umbrella covers, such as libel, the umbrella drops down and pays above the self-insured retention.
    3. CThe umbrella pays damages, not just defense costs.
    4. DThe homeowners limit plays no role because the homeowners policy does not cover libel.
  3. Item 03

    Kim has a $1,000,000 personal umbrella with a $1,000 self-insured retention. She is sued for libel, which her homeowners policy does not cover, and a $50,000 judgment is entered against her. How much will the umbrella pay?

    1. A$0 forgets that the umbrella is broader than the homeowners policy and covers libel.
    2. B$1,000 is the self-insured retention Kim pays, not the umbrella's share.
    3. CCorrect: the umbrella drops down over the $1,000 retention: $50,000 − $1,000 = $49,000.
    4. D$50,000 ignores the self-insured retention.
  4. Item 04

    Ed's personal umbrella requires $250,000 of underlying auto liability, but he lowered his auto limit to $100,000. After a $400,000 judgment, how much does the umbrella pay?

    1. AThe umbrella still pays above its required underlying limit; lowering the auto limit does not void it.
    2. B$300,000 assumes the umbrella drops down to Ed's actual $100,000 limit, which it does not.
    3. C$400,000 ignores the underlying layer entirely.
    4. DCorrect: the umbrella pays as if the required $250,000 were in place: $400,000 − $250,000 = $150,000, and Ed pays the gap.
  5. Item 05

    How does a personal excess liability policy differ from a personal umbrella?

    1. ABoth an excess policy and an umbrella require underlying insurance.
    2. BDropping down over a self-insured retention describes the umbrella, not the excess policy.
    3. CCorrect: an excess (follow-form) policy only adds limits above the underlying coverage and is never broader, so it will not cover what the underlying excludes.
    4. DBoth policies pay only after the underlying policy, never before.
  6. Item 06

    A contractor's CGL has a $2 million general aggregate that earlier claims have used up. A new $300,000 covered claim arises. How does its commercial umbrella respond?

    1. ACorrect: when covered claims exhaust the underlying aggregate, a commercial umbrella drops down and becomes primary.
    2. BThe umbrella does not wait for renewal of the CGL.
    3. CThe umbrella does not share covered losses with the insured.
    4. DThe self-insured retention applies only to claims no underlying policy covers, not to claims after an exhausted aggregate.
  7. Item 07

    A company carries a CGL with a $1 million limit, a $5 million umbrella over it and a $10 million excess policy over the umbrella. A covered occurrence produces an $8 million judgment. How is it paid?

    1. AThe insured pays nothing, because the excess layer still has $10 million available.
    2. BThe CGL is primary and pays its $1 million first; skipping it misstates the layers.
    3. CThe umbrella sits between the CGL and the excess policy, so it cannot be skipped.
    4. DCorrect: layers pay in order: CGL $1M, then the umbrella's $5M, then the excess policy pays the remaining $2M.
  8. Item 08

    In a commercial umbrella policy, the 'retained limit' means:

    1. ACorrect: the retained limit is what the umbrella sits above: the scheduled underlying limits, or the self-insured retention when no underlying policy covers the claim.
    2. BThe umbrella's own aggregate is its limit of insurance, not the retained limit.
    3. CA CGL deductible is not what the umbrella sits above.
    4. DA loss reserve is the insurer's accounting estimate, not a policy term for the insured.
  9. Item 09

    A commercial umbrella typically requires which underlying policies to be scheduled?

    1. ACommercial property and crime are first-party coverages an umbrella does not sit over.
    2. BWorkers comp Part One is statutory benefits, which an umbrella never covers, and crime is first-party.
    3. CCorrect: a commercial umbrella schedules the liability policies: CGL, business auto and employers liability (WC Part Two).
    4. DProperty and business income are first-party coverages, not liability layers.
  10. Item 10

    Todd's liability policy has a $500,000 limit and a $50,000 self-insured retention. He is found liable for $700,000. How much must Todd pay himself?

    1. ACorrect: Todd pays the $50,000 retention, the policy pays its $500,000 limit above it, and the remaining $150,000 is Todd's, for $200,000.
    2. B$50,000 is only the retention; Todd also owes the amount above the limit.
    3. C$250,000 treats the retention like a deductible that shrinks the limit to $450,000.
    4. D$150,000 forgets the $50,000 retention Todd pays first.
Mixed practice test · Timed mock

Umbrella and excess questions

Where does personal excess liability stop short of an umbrella?

Both sit above your auto and home limits. Only the umbrella can be broader and drop down over an SIR; a personal excess policy follows the underlying forms and adds limit only.

What if the insured lets an underlying limit drop below the required amount?

The umbrella still treats the required underlying limit as if it were in force, so the insured pays the gap between the limit actually carried and the required one.

What does a commercial umbrella sit on?

Usually commercial general liability, business auto and employers liability, each scheduled with its limit. The occurrence and aggregate limits it sits on are explained on the commercial general liability page.

Can an excess policy sit on top of an umbrella?

Yes. An excess layer above the umbrella pays only after the umbrella limit is used up, and as follow-form coverage it takes on the terms of what lies beneath it. In a layered loss, pay each layer to its limit from the bottom up.

More layers to pour a loss through

Umbrella, excess and retention arithmetic, each result broken down line by line. The app is built for Apple's iPhone and iPad, nothing else.

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