Does My Nonprofit need "Umbrella" Insurance?

nonprofit umbrella liabilityThe primary reasons a Nonprofit organization may need an umbrella (or Excess Liability) policy generally break down as follows: 1) The limits available under the primary liability policies may not be enough to cover the insured's exposure or 2) The organization may enter into a contract that requires limits in excess of the primary liability limits.  Does your organization need more coverage?

It is important to note that most organizations carry policies with a $1,000,000 primary per occurrence limit. This default limit has been the standard for decades. Indeed, $1,000,000 is not what it was in 1970.

An umbrella liability insurance policy is designed to pick up where the underlying liability insurance policies leave off. When the underlying coverage is exhausted due to the payment of a Liability claim or claim expenses, the umbrella policy will pay on the balance that is owed to the claimant. In some cases, the umbrella will include coverages that are excluded from the underlying liability policy. The umbrella can pick up coverage because there is no exclusion for the loss.

An Excess Liability insurance policy provides limits that exceed the underlying liability policy. ... The primary purpose of Excess Liability insurance is to close coverage gaps and to offer an added layer of protection in case the underlying insurance is exhausted of all possible resources.

The excess policy also excludes claims that would be excluded by an underlying policy.

In most cases, a true umbrella policy would not be available over the typical Nonprofit liability policy, whereas excess liability policies are readily available.

The standard coverage language in an excess liability is as follows:

The insurance provided under this Coverage Part will follow the same provisions, exclusions, and limitations that are contained in the applicable "controlling underlying insurance" unless otherwise directed by this insurance. To the extent, such provisions differ or conflict, the provisions of this Coverage Part will apply. However, the coverage provided under this Coverage Part will not be broader than that provided by the applicable "controlling underlying insurance."

By design, the coverage form intends to follow almost exactly the coverages provided by the "controlling underlying insurance." The primary coverage difference is those excess liability policies do not extend over medical payments coverage.

When considering your insurance program, it is essential to remember that the most critical risk management decision any organization can make is to work with an experienced Nonprofit focused insurance broker. It can be challenging to decide whether or not your organization needs excess liability coverage outside of a third-party requirement. Discussing your assets with your insurance broker and the types of claims similar organizations have faced might be valuable in making the determination.


 

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