The Underlying Coverage section of FC&S Umbrella contains a general discussion of the coverages provided by common underlying liability insurance coverages. The discussion is designed to help the reader better understand the coverages provided by common underlying insurance coverage and how such coverages may interact or mesh with the umbrella policy.

The policy forms discussed in this section of FC&S Umbrella are the Insurance Services Office (ISO) 2001 commercial general liability (CGL) policy, the 1994 American Association of Insurance Services (AAIS) commercial liability coverage (broad form coverage) form (Ed.1.0), the 2001 ISO business auto coverage form and the 1997 version of the standard workers' compensation and employers liability policy.

While many insurers use general liability and business auto liability policy forms developed by the ISO, some insurers have designed their own versions of these policy forms or use non-ISO policy forms. For example, some insurers use one of the commercial liability coverage forms developed by the American Association of Insurance Services (AAIS). One of the AAIS forms, form GL-200 (commercial liability coverage [broad form coverage]) provides coverage that closely resembles coverage provided under the standard ISO-CGL policy form (occurrence version). Another AAIS form (GL-100 commercial liability coverage) is similar to the GL-200 form, but does not provide personal or advertising injury coverage and only limited contractual liability coverage.

This section will assist the reader in identifying differences in coverage between the ISO policy forms and, in certain instances, those policy forms such as the AAIS forms that vary from the ISO coverage format. Keep in mind, however, that neither The Umbrella Book nor any other reference is a substitute for the reader's own analysis, due diligence and careful reading of the policy form(s) in question.

Underlying Coverage Required by Umbrella Insurers

Primary general liability insurance coverage for most commercial organizations generally includes as a minimum the basic coverages provided by the Insurance Services Office (ISO) commercial general liability (ISO-CGL) policy. Depending on the nature of the insured's operations, primary liability insurers may add endorsements to broaden, restrict or eliminate coverage provided by the basic ISO-CGL policy form.

Most umbrella underwriters, however, require that underlying general liability coverage be at least as broad as the coverage provided by the most current ISO-CGL policy form. An exception is sometimes made for very small businesses, or businesses with a limited scope of operations. If umbrella underwriters perceive that underlying liability coverage is deficient, they may either refuse to issue a policy or restrict the umbrella coverage provided by:

1.  issuing an excess liability coverage form. Excess liability forms typically provide additional limits over underlying liability policies. However, unlike umbrella policies, these forms do not usually provide a broader scope of coverage than the underlying policies.

2.  issuing a “follow form” endorsement to reduce the scope of coverage provided by the umbrella policy so that such coverage is no greater in scope than the underlying coverage, or

3.  attaching one or more other endorsements that restrict or eliminate specific umbrella coverages.

In general, where the insured seeks the broadest umbrella coverage possible, it may be necessary to expand the scope of coverage provided by underlying insurance.

In addition to primary general liability insurance, most organizations purchase business automobile liability, workers' compensation and employers' liability (WC/EL) coverages. Umbrella underwriters generally require that these coverages be at least as broad as the coverages provided by recent versions ISO business auto policy and the standard workers' compensation and employers' liability policy developed by the National Council on Compensation Insurance (NCCI).

Manuscript policies or modified ISO or AAIS primary general liability forms sometimes form the basis of an umbrella policy form. In such cases, the discussions contained in The Umbrella Book may not address the actual differences between the primary liability and umbrella forms being reviewed by the reader.

The following underlying coverage discussions sometimes include paraphrased policy wording. Actual policy wording should be compared whenever the scope of specific coverage is being reviewed. While much of the ISO-CGL policy wording has been tested by the courts over the years, challenges to such wording are ongoing. Unfortunately, such challenges frequently result in a restriction, rather than a broadening, of coverage.