Excess Liability Policy an Alternative to Elusive Umbrella Policies

Habitat recently reported on the forces that are squeezing the renewal of umbrella insurance policies — today's hard insurance market, the departure of many insurance carriers from the New York market, and the tighter scrutiny insurance carriers are giving to clients before renewing umbrella policies. It all adds up to an imperfect storm for co-op and condo boards. Today, a broker offers an alternative:

It was only a few years ago that co-op and condo boards could easily obtain a $100 million umbrella insurance policy and pay $1,200 in premium — a valuable safety net if a claim was not covered by the board's general liability, worker's compensation or directors & officers policies. Those days are long gone, and it seems unlikely that they will ever return.

There are a number of reasons for this, but social inflation played a big role in the changes. Jurors are awarding claimants higher payouts, which are costing insurance carriers more money in claims. Certain carriers were not profitable or not as profitable as they would have liked to be, so they have pulled out of the umbrella market. This is leaving a strain on the insurance industry as brokers scramble to find replacement policies for their clients. With only a few viable options, the carriers are becoming overwhelmed with submissions and doing everything they can to keep up with the demand. However, not every account is going to fit the underwriting requirements of the remaining carriers. This leaves boards with even fewer options. Premiums can be as high as $25,000 for a $5 million limit!

An umbrella policy is ideal, but it's not always an option. The next best option is an excess liability policy.

What is the difference between an umbrella and an excess liability policy? A well-written, standalone umbrella policy will sit over the underlying general liability policy, directors & officers policy and worker’s compensation policy. An excess liability policy, on the other hand, will generally sit over only the underlying general liability policy. This leaves the board with only whatever its D&O limit is (usually, it is $1 million in coverage) and no additional liability coverage above and beyond that. One option is to ask for a $2 million limit on your D&O policy, but not all carriers will offer this.

To make things even more confusing, not all umbrella policies will sit over and extend to all of those three coverages mentioned above. More and more package carriers are starting to offer an umbrella or excess liability policy in addition to their property and liability package, and more often than not, when the package carrier is offering the umbrella policy, then that umbrella will not sit over the D&O and worker's compensation policies.

In light of all this, it's crucial to have your insurance broker review your policies and options with you annually. If you live in one of the five boroughs of New York City and you want an umbrella policy, it's crucial that you have your building cleared of any Department of Buildings or Housing Preservation and Development violations. Umbrella carriers consider these while underwriting the policy and will decline to offer coverage if certain violations are present. They will also consider the client's claim history.

Regardless of where you are living, the umbrella carriers are starting to become more and more concerned about the age and condition of your building. They want to see new roofs and updated plumbing and electrical systems. In today's hard insurance market, it's crucial to service and maintain your building and the various operating systems within it.

Eric Eggert is a consultant at the insurance brokerage Mackoul Risk Solutions.