It is interesting to see that the contract calls for $1 million CGL and Auto and then a $1M Umbrella, rather than just asking for $2M CGL and Auto limits. An Umbrella or Excess policy is an additional layer of liability insurance. After the first $1M is paid out by the first insurance company, then the Umbrella or Excess insurer will start paying from $1,000,001 and upwards. There are two different types: Commercial Umbrella and Personal Umbrella. They each have the similar idea of overlying primary liability levels, but they have different wordings that deal specifically with either business risk or personal risk.
The difference between Excess and Umbrella is that the Excess policy will provide the exact same coverage and exclusions that the underlying coverage has. An Umbrella Policy, however, will have extra coverages that your primary CGL policy excludes. These coverages are referred to as “drop-down” coverages because the coverage drops down to the first dollar (you don’t have to wait till $1,000,000 is spent before you can access the insurance). Some common drop-down features are non-owned aviation and watercraft (liability coverage if you rent a plane or boat for business/commercial purposes); some limited pollution coverage; worldwide coverage if you get sued in another country; libel and slander; and more. All of the above are general statements re what MANY policies cover and don’t cover; and not necessarily what EVERY policy provides, therefore, you need to check with your broker/agent re what they actually sold you.
Since Item 4 of the contract asks for either Umbrella or Excess, it looks like the drop-down coverages aren't a concern because an Excess policy is acceptable. I am assuming the reason they re splitting the liability between primary and umbrella/excess is probably because of the General Aggregate. The contract stated $1,000,000 Occurrence/ $2,000,000 General Aggregate. If you have a policy that is written this way it could potentially mean you have no insurance for this new job if there are previous claims at other jobs. Example:
Job #1 – paid out $750,000 (within the $1 million per occurrence limit)
Job #2 – paid out $500,000 (within the $1 million per occurrence limit)
Job #3 – paid out $750,000 (within the $1 million per occurrence limit)
Now you are at this job (Job #4). The job owner doesn’t know where you’ve worked the last couple of months since your policy’s effective date; nor if there were claims or not. You can show him that you have $1,000,000 per occurrence limit insurance and it all seems okay; BUT, $2,000,000 has already been spent by the insurance company, so they are not going to be paying another dime if you have any more claims because you’ve hit the General Aggregate limit. On the other hand, if you had a $1,000,000 Umbrella, then you could access that policy since your primary policy is already all used up.
If you have a CGL policy that does not have a Gen Agg (and that is the reason the job owner is asking for the Umbrella) then have your insurance agent call and explain that your CGL coverage with no Gen Agg already takes care of their concern re previous claims, and then try to have the Umbrella requirement removed from the contract.
P.S. – You should check to see if your policy’s limit includes or excludes Claims Expenses as part of the limit calculation. For example, you could have a claim where a court awards $750,000 to a third party plaintiff, but if it dragged on for a long time and special engineering and consultant reports were part of the claims investigation and settlement, you could be looking at another $350,000 in expenses, which actually turns that $750,000 claim into a $1,100,000 claim. The insurance company will always pay claims expenses, but if they include them as part of the limit of insurance, then a $1,000,000 policy may not be enough - as per my example - and with what lawyers & consultants charge, it is not that far-fetched to have expenses run that high; not kidding.
