Even with so-called “following form” excess insurance, when multiple layers of umbrella coverage are needed to attain the desired level of catastrophe protection, there is a heightened potential for coverage gaps. Some of the problems that may be encountered with structuring high excess limits of protection include, but are not limited to, the following:

 1.Following-form excess policies do not always clearly state which underlying form(s) they are following. While these excess forms may provide the same coverage as an underlying policy, it may not be clear which underlying policy they follow in a multi-layered program. Some excess underwriters include their own definitions and exclusions in these so-called “following-form” policies. When present, the wording of these definitions and exclusions should be reviewed carefully and, if necessary, modified by endorsement. Even though the underwriter may think the wording of a definition or exclusion is identical to the wording of a definition or exclusion in an underlying policy, differences often exist. As discussed previously, most excess forms that purport to follow the terms of underlying coverage do so only to the extent that there is no conflict between the two forms.

2. The forms may include different prior insurance and/or noncumulation of liability provisions. Such differences can reduce the amount of coverage available to the insured under any other applicable insurance in effect prior to the subject policy's inception date.

3. The following-form excess wording may state that coverage follows the form of a coverage layer other than the first or immediately underlying excess policy. This provision can magnify problems if other coverage layers are inconsistent.

4.”Self-destruct provisions.” Some excess umbrellas can self-destruct (i.e., automatically cancel) in at least two ways (and should be avoided if possible):

a.”Maintenance of underlying insurance” conditions may state that if scheduled underlying insurance is not maintained, the excess policy will cease to apply. Thus, if the insured should switch underlying carriers or if an underlying insurer cancels its policy, the excess insurer may attempt to deny coverage.

b.The excess form may contain an automatic cancellation provision. Such a provision typically states that if the underlying insurance is cancelled, the excess policy is simultaneously cancelled without notice to the insured.

5.Some excess policies exclude defense coverage. These policies state that defense expenses will not be included in the definition of “ultimate net loss” and further exclude coverage in the insuring agreements. Because defense costs have the potential to penetrate any excess layer, this language should be avoided. If the excess policy excludes defense costs, and underlying insurers tender their policy limits, the insured could be responsible for all subsequent defense costs.

6.Some excess policies prorate defense costs between the insured and the insurer based on each party's proportion of loss payments. This provision is also undesirable. If defense costs are not paid by an underlying insurer, the insured may have top pay a large portion of such costs.

7.Some excess policies do not obligate the insurer to provide a defense (i.e., they have the right to associate in the defense of a claim, not the duty to control the defense). This is acceptable only if the insurer is required under the policy to pay defense costs as “ultimate net loss” or under some similar policy term.

8.Some excess forms state that the underlying policy limits can only be exhausted by the payment of claims. Defense costs will not be credited toward exhausting underlying limits.

 One method of minimizing coverage inconsistencies when structuring a layered excess program is to make sure that no endorsements are permitted on the excess policies that would result in more restrictive coverage terms than are in the first underlying policy.

 Another method of minimizing the difficulties is to have a single “fronting” insurer provide all excess coverage limits. In this case, the insurer may simply issue one policy and arrange for other insurers to share or reinsure the risk, either by providing coverage for one or more layers or by percentage of participation.

 Because any deviation from complete following form coverage can result in a potential coverage dispute or gap, each umbrella or excess policy should be endorsed with wording that supercedes and negates all preprinted policy terms and conditions (except the policy term, limits and premium) which are not consistent with the first umbrella or excess policy.

 Umbrella Coverage Depends on the Provisions of the Policy, Not the Label on the Policy

 The name or title of the policy is not a determining factor in the scope of coverage provided by an umbrella policy. This can be confusing, and a policy called an “umbrella” may actually provide coverage that is only as broad or even less broad as the underlying primary insurance. For this reason, it is necessary to look to the substance of the policy to determine the type of coverage provided.

 Certain policy provisions are indicative of umbrella coverage, irrespective of the name or title of the policy. Such provisions include coverage that is over and above that provided by underlying policies, the requirement that the insured maintains underlying insurance, the existence of “other insurance” clauses that trigger the insurer's obligation to pay loss upon exhaustion of underlying insurance, or that require the proration of loss with other excess coverages. In one case the court determined that the policy in question was actually an umbrella policy, even though it was clearly labeled an excess indemnification policy since it was not triggered until the primary policy exhausted its primary and excess limits.

 Nearly all of the umbmrella policies analyzed in FC&S Umbrella provide some features indicative of umbrella coverage; however, as discussed elsewhere, true umbrella coverage is not widely available. The variations and nuances of coverage, though, can be numerous. In spite of the importance of reviewing variations in the scope of coverage provided by umbrella policies, price rather than breadth of coverage is often the principal criteria used by insureds to determine which policy to purchase. This is particularly so during periods when coverage is expensive and not readily available.

 FC&S Umbrella identifies many of the important differences between umbrella policies and may help readers to better understand the implications of wording used in the basic policy form. Such understanding is necessary to determine how the umbrella interacts with underlying coverage and to make sure the umbrella is broad enough to adequately cover the insured's exposures.

 Many states require endorsements that amend the basic coverage, such as those limiting the insurer's ability to cancel a policy. Although state-mandated endorsements are not reflected in our analysis, readers should always consider such requirements, if any, established by state insurance departments.

 There is no ideal umbrella form since no single policy can meet the precise needs of every insured. Proper coverage can be selected only after careful risk analysis. FC&S Umbrella helps readers determine whether a given policy form meets an insured's needs, but it is not a substitute for that essential first step in risk management, risk identification. If an umbrella form is inadequate to cover a particular organization's risks, modifications may be possible, subject to the flexibility of the underwriter and the price the insured is willing to pay.

 Many insurers are sensitive to the needs of their insureds and are flexible in modifying their basic umbrella policies. However, such potential flexibility cannot be reflected in an analysis of the basic policy form, even when mandatory endorsements are considered. There is no way to know in advance the extent to which a particular insurance policy will meet the special needs of a given insured.

 We realize that it is impractical for insurers to revise their printed forms for every change in circumstance that may arise, so the use of a variety of endorsements at the underwriter's option must be expected.

 The function of an umbrella policy is to raise primary limits to cover losses that if uninsured would be catastrophic to the organization, as well as to provide broader coverage than primary insurance. There is also a third important function of umbrella policies: an umbrella also should drop down to replace primary aggregate limits when such underlying limits have been exhausted. Structurally, such protection is represented in the above diagram labeled Structuring Excess Umbrella Coverage.

 Not all umbrella policies fulfill all three functions. A straight excess liability policy may only raise limits and replace primary coverage. However, it can substitute for an umbrella if the primary policy provides coverage as broad as typical umbrellas. This arrangement may not be desirable to an insured if broader primary protection is not needed or if it is more expensive. However, some primary programs—particularly those that are loss rated—provide coverage so broad that following form excess is all that is needed.

 When excess umbrella protection is needed to provide higher umbrella limits, the structure changes. The excess umbrella policies should be following form over the underlying umbrella coverage. If two, three, or more additional excess policies are necessary to provide the required total limits of liability, it can become cumbersome to attempt to describe the coverage and policy limits excess of the first umbrella. Separate descriptions would be required for each underlying policy limit, each subdivision of limits (such as bodily injury, property damage, and personal injury), each subdivision of coverage (such as products, malpractice, and operations), and to distinguish per-occurrence limits from policy aggregates.

 Excess underwriters providing coverage above the first umbrella often find it easier to write limits “up to” the policy limit stated, but excess of all underlying policies. Sometimes this technique is referred to as providing limits that are the “difference between” underlying insurance and the excess policy limit. This has the effect of smoothing out the jagged coverage provided by a fixed-limit policy which is placed above varying underlying limits.

 In the diagram, such a policy would stop at $5 million for all coverages, although it would be providing only $3 million excess of the primary aircraft coverage, $4.9 million excess of employers' liability, and so forth.

 Underwriters consider such limit variations when pricing excess layers of umbrella coverage according to how far they are removed from likely losses. The layer of coverage with the highest probability of experiencing one or more large losses is sometimes referred to as the “working” or “burning” layer.

 The working loss layer is a function of a particular organization's loss history and risk profile and can vary accordingly. Knowing where an insurer prefers to participate relative to the working or burning layer is an important role of the insurance broker. Failure to consider an insurer's preference can result in inferior protection or higher prices. A broker who is experienced and knowledgeable of the umbrella and excess liability marketplace will take care to evaluate alternative ways to structure the umbrella program so that it provides the most comprehensive protection at the best price.  The graph shows some of the ways in which a $20 million limit program could be structured. Many other possibilities exist. Any one or more of the plans shown could be correct for an insured, depending on the aptness of coverage, price, and the specific needs of the insured, if other factors are equal.

 Factors that vary in umbrella program structures are as follows:

 Underlying limits: These vary, depending on the underwriter's requirements. In some instances it may be advantageous to increase a primary coverage limit, since this may reduce the price of the first umbrella. It may also have a domino effect on the excess layers where the excess premium is based on the price of the preceding layer. (A lower underlying limit may also lead to a better total cost, as shown in the next diagram.)

 Excess (gap) layers: In some instances it may be difficult to obtain primary coverage with limits high enough to meet the umbrella underwriter's minimum underlying requirements. A layer of excess coverage between the first dollar primary policy and the first umbrella may be required to fill this gap in limits. This layer usually will be following form (straight excess) of the primary policy.

 Limit of first umbrella: Where it is necessary to have multiple layers of umbrella coverage to achieve the desired coverage limits, the first umbrella is usually considered a “burning” or “working” layer. Since the risk of loss is greater, the price is higher for this layer of coverage than subsequent layers. This is one reason why a high limit excess program ($30 million or more in limits) probably would not be written by a single insurer.

 Several excess umbrellas required to complete the program: Many excess liability markets want at least $5 million or more in underlying limits before their coverage attaches. Thus, it is common to see at least one umbrella and one or more excess (following-form) policies in a well-marketed program.

 Vertical layering: In a high-limits program, several insurers may share a layer of the coverage. This is called “quota sharing” or “participation.”

 A simple example of the pricing on primary and first umbrella policies illustrates the variations that can result when different structures are used. The example assumes the same primary and umbrella insurers are quoting on the account in both instances.

 The example illustrates that the strategy used to obtain quotes and structure coverage limits can make a great difference in the insured's cost.

 In practice, the possible variations in program arrangement are often numerous. Insurance market conditions change frequently, and good results often depend heavily on the marketing skills of the broker.

 Umbrella Applications and Underwriting

 The underwriting standards, rating practices, and forms used by umbrella insurers vary widely, but all insurers use the application form as the primary basis for collecting information about a particular risk. While some insurers prefer their own applications, most use standardized ACORD application forms. Such forms were developed and periodically revised by the organization of agents and insurers known as ACORD (Agency-Company Operations Research and Development). Since the ACORD applications represent a synthesis of many different insurers' applications, the information requested by insurers not participating in the ACORD program more than likely will appear in the ACORD form.

 The umbrella application, entitled Umbrella Section (ACORD 131) was developed by ACORD as part of a series of standardized applications (the ACORD Commercial Insurance Applications Series). It usually must be submitted to the umbrella underwriter with another standardized form, the Applicant Information Section (ACORD 125), which supplies basic information regarding the insured. Although individual insurers may require additional information or require the completion of their own proprietary applications, these two forms will serve as the basis for the following discussion on umbrella applications.

 Applicant Information Section [ACORD 125]

 1.Applicant Information

There are at least three different ways in which this information should be given to the underwriter:

a.The principal or controlling entity should be specified. This entity is usually designated as the “first named insured.” The appropriate Federal Employer Identification Number (FEIN) or Social Security Number of the entity should also be entered in the space provided.

b.The named insured clause as it is to appear on and be covered by the umbrella policy should be spelled out in detail.

c.A complete listing of all the entities, past and present (including subsidiaries and subsidiaries of subsidiaries), the insured expects to be covered by the policy should be supplied. If the list of entities is extensive, an addendum to the application should be attached. This differs from item b.

Note: A corresponding list of the specific entities not to be covered (if any) under the umbrella may also aid the underwriter in assessing the exposures.

The first named insured on the policy usually will be responsible for paying the premium and may request cancellation without other insureds' approval.

The underwriter must know the names of all entities to be covered by the umbrella policy. Although many companies and individuals will be covered automatically by most umbrellas, the scope of this automatic coverage varies widely among umbrella forms. For this reason it is best to provide the underwriter with complete information regarding the persons and businesses to be insured. It may be impossible to determine the precise wording necessary for the named insured until after a policy form has been selected and reviewed for its automatic coverage.

Other information requested in this section includes the mailing address (for the principal or controlling entity), the legal structure of the applicant, age of the organization, and the names and phone numbers of persons whom the insurer can contact for inspection and premium-audit purposes.

2.Premises Information

This portion of the application is mostly self-explanatory. The column headed “Interest” refers to the insured's interest in the premises (e.g., owner, tenant, or lessor). “Part Occupied” should be answered with “all,” “half,” “none,” “first of three floors,” and the like. The entity involved at each location should be specified; this will save time in completing the Umbrella Section form.

3.Nature of Business

Briefly describe the operations conducted at each location listed in the preceding section. For a manufacturer, one location might be described as an executive or sales office, another as a warehousing and shipping operation, and a third as a manufacturing plant. The completed application should specify that these different exposures exist; otherwise, the underwriter might believe all locations are involved in manufacturing.

The operations conducted at tenant-occupied locations should also be described. The underwriter will consider the vicarious liability exposure from tenant to landlord unless evidence of lease or insurance provisions precluding this possibility is supplied. Copies or descriptions of such lease or insurance provisions should be attached to the application when possible.

Advertising brochures, newspaper and magazine articles, and other descriptive literature about an insured are sometimes useful to an underwriter reviewing a submission. If this material clearly, concisely, and honestly portrays the insured's operations, it should be made part of the application presentation. The agent or broker should tell the underwriter which locations and what portion of the insured's operations are described by the information in the literature.

4.General Information

The underwriter wants to quickly understand the insured's operations. This section asks some very important questions: Does the insured have subsidiary companies (and/or is the insured a subsidiary itself)? Is there an established safety program? Could a disastrous loss result from fires, explosions, collapse, or pollution incidents? Are there any other products or operations that are potential sources of catastrophic losses (losses in excess of primary limits or the retained limit)? Will this insurer be providing any other liability insurance for this insured? (Insurers often do not want to insure too great a portion of a risk's exposures or may be willing to issue only an umbrella if the same insurer provides primary coverage.) Has any insurance carrier recently canceled a policy, declined to provide a quotation, or refused to renew coverage for this insured during the past three years? Have there been any past claims relating to sexual abuse, molestation, discrimination, or negligent hiring? Has any insured had a prior conviction for arson (this question must be answered by Rhode Island applicants who are also applying for property insurance)? Are there any uncorrected fire code violations?

The last two questions relating to arson conviction and fire code violations normally need not be answered unless the same application form is to be submitted to a property insurer.

Any “yes” responses must be explained in the Remarks section. Any problems that seem especially troublesome should receive more detailed explanation and may necessitate additional pages of description.

5.Prior Carrier Information/Loss History

The reverse side of the Applicant Information Section (ACORD 125) form provides the underwriter useful numbers: past coverage limits, premiums, and loss figures. The umbrella underwriter may want to contact the prior primary, umbrella, and excess liability carriers to discuss the risk with other underwriters. Thus, a schedule of prior insurance can be useful. It is best if five complete years of information are supplied, but some underwriters will settle for only three years.

Insurer-generated loss runs are given greater credence by underwriters than an agent's or insured's records. The loss valuations should be the most recent available. If the insured fails to provide the current loss data, the umbrella carrier may deny coverage. An agent who intentionally fails to provide the most recent loss information available may be subject to an errors and omissions claim or other legal action if the insured's coverage is jeopardized in any way.

Umbrella underwriters are not normally concerned about a history of minor losses; however, losses in excess of $5,000 (paid and/or reserved) must always be explained. Such losses indicate to the underwriter the potential for future serious losses and are one way to evaluate the adequacy of underlying aggregate limits.

 Umbrella Section [ACORD 131]

 Although the name of the insured is required in the Applicant Information Section (ACORD 125), enter it again here (in at least an abbreviated form), in case the two forms become separated. If the name of the insured is abbreviated on the Umbrella Section, an explanatory note should be included that the full name of the insured appears on ACORD 125.

 The coverage periods requested need not be stated in full-year increments if it is necessary to adjust to a common anniversary with underlying coverages. Short-term policies less than one year or policies with terms longer than one year are useful in bringing a liability program into concurrence. Normally, though, the effective dates of expiring umbrellas will coincide with those of an underlying liability program, so a full one-year renewal or replacement policy is usually requested.

 1.Payment Plan and Audit Options

Most underwriters will quote an annual premium unless instructed otherwise. If the premium is for a period beyond one year, the insured may wish to pay the entire policy premium or only the first twelve months. If the insured chooses the latter, the extended period premium would be due one year after the policy's inception. In any case, the extended term premium should be quoted along with the first full year's premium.

Usually it is preferable to purchase a flat-charge umbrella policy. The premium for primary liability policies is normally developed using rates and exposure bases (such as payroll, sales, and area occupied). Where these exposure bases are not representative of the risk of severe loss, an auditable umbrella will be unfair to the insured. These rating bases may increase for economic reasons not related to catastrophe loss potential (e.g., inflation, salary increases, and relocation to more spacious quarters).

2.Policy Information

If coverage is being newly written on a claims-made basis, the proposed retroactive date should be shown. If the policy is a claims-made renewal and the retroactive date is not being advanced, the existing retroactive date must be shown.

The umbrella liability limits required will vary from insured to insured. Usually there will be an occurrence limit and aggregate limits applying to certain hazards (e.g., products/completed operations, general hazards, and occupational disease) or applying to the whole umbrella policy. If the insured does not want an annual aggregate limit on specific coverages, or if the insured will accept specific aggregates but prefers not to have an aggregate on the entire policy, this should be requested in the application. Desired special aggregate coverage provisions, such as limits applicable on a “per location” basis, should also be requested. Umbrella policies contain aggregate limit statements as an integral part of their basic form. These sometimes can be modified by a particular endorsement.

Any retained limit amount (also known as a Self-Insured Retention or SIR) can be requested, although the umbrella underwriter may limit the alternatives within certain maximums and minimums. The range of alternatives will depend upon the financial size and capability of the insured and the coverage scope of underlying insurance purchased. The effect of requiring a minimum SIR is that the underwriter can avoid claim involvement in small, operating-level losses of an insured.

Most umbrella insurers today issue policies with a $10,000 or $25,000 SIR. Some insureds may be required or may want to assume a higher SIR. A company that self-insures other liability coverage up to $100,000, for example, may not want an umbrella SIR as low as $10,000. It also is unlikely that an umbrella underwriter would knowingly grant such a low retained limit to a liability self-insurer.

First-dollar defense coverage for SIR claims is not provided by all umbrella forms. Some insurers whose forms do not offer first-dollar coverage may amend their policies by endorsement for an additional premium charge.

3.Primary Location and Subsidiaries

The location numbers from the Applicant Information Section (ACORD 125) can be entered here. Since the entity involved in each location was specified on that form, the description of the operation can be provided more completely here.

Across from each number, supply the annual payroll figures, annual U.S. sales and receipts, annual foreign sales and receipts, and the employee count for that location.

4.Underlying Insurance

The information provided about underlying insurance policies should be as complete as possible. Not only will it help define the scope of underlying coverage and the primary limits provided, but it will permit the proper rating of the umbrella. The umbrella underwriter will be charging SIR premiums only for those exposures not insured by underlying policies. It may be helpful to provide copies of primary policies or applications.

Complete information may not be available when the umbrella application is prepared. Renewals or replacements of underlying policies may not have been issued, or the agent may not yet have obtained the underlying liability limits sought. At the very least, provisional information (or information about expiring liability policies) should be provided. Indicate to the umbrella underwriter that final information will follow. This permits the underwriter to review what information there is, ask questions, and begin rating the umbrella. Final pricing of the risk will take very little additional time.

For each underlying policy, enter the name of the insurer, policy number (if known), coverage period, limits (per occurrence and aggregate, if applicable) and annual premium. The premium charged for underlying coverages is important because some umbrellas are priced as a percentage of underlying premium.

Following the information about underlying insurance policies are some important questions that provide the underwriter with additional information about the format of underlying coverage. Are defense costs included within underlying aggregate limits? Is there a separate limit for defense costs? Is defense cost coverage unlimited? Are the underlying policy forms standard ISO forms or similar? If any underlying coverage is provided on a claims-made basis, what is the retroactive date, when was uninterrupted claims-made coverage started? Has any “tail” coverage been purchased for any primary or excess policy?

5.Underlying Coverage Checklist

The checklist in this section serves two purposes:

a.A coverage checked indicates that the insured carries this particular insurance and that it is standard ISO coverage. The limits on this coverage must equal or exceed those entered in the immediately preceding schedule; otherwise, the exposure box should be checked (see b).

b.An exposure checked indicates that the insured knows of risks or hazards associated with the described liability. An exposure should also be checked when the coverage carried for any of the described liabilities is below standard in its extensions, exclusions, or restrictions, or if the limits on this coverage are less than those reported in the schedule.

Each exposure checked should be explained in the space following the checklist or in an addendum to the application. The underwriter wants to be certain the underlying liability insurance program is properly arranged. The umbrella insurer does not want to cover exposures over an SIR that would normally be insured only excess of underlying insurance. Other exposure and related coverage questions are found on the reverse side of the Umbrella Section, so only other exposures related to the listed coverages above need be described in this space.

6.Previous Experience

This duplicates in part the loss information requested in the Applicant Information Section (ACORD 125). The underwriter wants to know if any losses exceeding $10,000 have been incurred over the past five years. Beyond that, the underwriter requires details on any large losses so that the potential for severe loss can be assessed. The more information supplied regarding each loss, the more quickly the underwriter's review can be completed.

7.Care, Custody, or Control

Many umbrellas exclude property in the care, custody, or control of the insured, either in the basic coverage form or by an attached endorsement. Such property might include leased premises, rented equipment, computers or other electronic data processing equipment, or goods on consignment. Underwriters are generally interested in the value of property in excess of the retained limit (usually $10,000 or $25,000) and want to know how such property is insured.

The first section on the reverse side of the Umbrella Section (ACORD 131) asks the insured to indicate any care, custody, or control exposures and to provide specifics regarding them. The boxes lettered A through D allow any protection to be described quickly and easily:

A.Is the insured held harmless in a lease?

B.Is the insured favored by a waiver of subrogation between contracting parties and has that waiver been accepted by primary underwriters and endorsed into a property insurance policy?

C.Is the insured a named insured in a fire insurance policy carried on the property?

D.Other information, such as

(1)Does the insured carry adequate limits of underlying fire damage legal liability insurance on any real property in his custody?

(2)Have the care, custody, or control exclusions been removed from primary liability policies?

These measures may insulate the insured from claims and the umbrella insurer from working level losses. Despite this, many umbrella underwriters will still exclude property in an insured's care, custody, or control. However, with acceptable primary protection in liability or property policies, the umbrella underwriter may remove the exclusion for an appropriate premium charge.

8.Additional Exposures

Advertisers Liability. Few insureds purchase separate, primary advertising liability insurance. While standard general liability policies provide limited advertising liability coverage, that coverage is designed for insureds not in the business of advertising.

As respects advertising liability coverage in a general liability policy, the umbrella policy will become operative upon exhaustion of the underlying limits. The umbrella policy is usually excess of any SIR for advertising liability, but some insurers may provide first-dollar advertising coverage in the umbrella when there is no underlying coverage.

Insureds in the business of advertising require advertisers liability insurance that is available from specialty markets. Relying solely on the advertising liability coverage provided by the umbrella may not be prudent for such companies, as the coverage provided by most umbrella policies often falls short of the advertiser's needs.

The umbrella underwriter is interested in the media used (such as print, television, or radio), the annual cost of advertising for the insured, and details regarding any advertising agency used. Advertising agencies insure their exposures on special liability forms, and adding clients as additional insureds can usually be done.

Aircraft. It is usually desirable for the umbrella to provide non-owned aircraft, unless such coverage is included in a specific aviation policy that covers owned, hired, and non-owned aircraft. It is important to identify any known exposures to the underwriter at the time of application.

Many umbrella forms contain an absolute exclusion of all aircraft, including aircraft owned by the insured. Some umbrellas may exclude owned aircraft unless coverage is provided by scheduled underlying insurance. The owned aircraft coverage offered by primary and excess aviation underwriters is generally less expensive than coverage an umbrella insurer might knowingly provide. Some umbrella underwriters can insure small industrial aid aircraft (excess of underlying owned aircraft coverage limits of between $3 and $5 million) at competitive prices. Otherwise, specialty aviation underwriters seem to provide the best market for this exposure.

Automobile Liability. Specific exposures are explored in this section. The umbrella underwriter wants to be assured that no important details regarding automobiles, their use, and underlying coverage are overlooked.

Contractors Liability. Construction and demolition operations often present increased liability exposures. Less frequently, increased bodily injury exposures are created, although these risks may be many times more severe. A contractor's liability can arise from his own operations as well as those of subcontractors. For this reason an umbrella underwriter will be interested in any contracting (including installation) performed by the insured. Sometimes an umbrella insurer will request to see samples of certificates from subcontractors and construction contracts regularly entered into. Sometimes the underwriter will require that an inspection of the contractor's operations be conducted by loss control personnel.

The fact that information about a contractor's operations is requested by the underwriter does not mean that coverage suited to the applicant will be provided. Umbrella policies do not always provide broad-as-primary coverage for contractors. In fact, most umbrella policies do not afford broad-form property damage coverage and may make other protection contingent on underlying insurance.

Employers' Liability. Although all umbrella policies exclude employers' liability to some degree, the umbrella should cover excess employers' liability. If workers compensation is self-insured or subject to specific limits of excess insurance, it may be possible to schedule the SIR or excess policies as underlyers and remove the workers compensation exclusion.

The underwriter is interested in knowing whether the insured could be subject to specific liabilities under the Federal Employers' Liability Act (which allows railroad employees engaged in interstate commerce to sue an employer for damages where the employer's negligence is involved) or the Jones Act (which basically confers the privileges of the Federal Employers' Liability Act upon seamen).

Other federal laws involving workers compensation obligations, and the exposures they create, would interest an underwriter only to the extent to which he was providing workers compensation coverage for liability of others assumed under contract or excess of a self-insured program. Those laws, and the employees they normally involve, include the United States Longshoremen's and Harbor Workers' Compensation Act (USL&HW) (covers marine railway and waterfront workers), the Defense Bases Act (covers military workers on U.S. military bases, including foreign national civilians), the Outer Continental Shelf Lands Act (covers oil and gas workers on the outer Continental Shelf), the Non Appropriated Funds Instrumentalities Act (NAFIA) (covers U.S. nationals working as civilians on military bases), and the War Hazards Compensation Act (covers employees of American contractors outside the U.S. where injury is the proximate result of war).

Incidental Malpractice Liability. Many umbrella forms do not include specific references to incidental medical malpractice coverage or the exposures that necessitate it. Nevertheless, a nurse's office and/or first-aid stations are common in large industrial organizations. An umbrella policy should cover the organization's incidental liability, although separate professional liability coverage should be purchased for the individual medical professional involved. Note that an incidental malpractice exposure may exist even if the insured contracts with others for medical or nursing services.

Underlying coverage for incidental medical professional liability is automatically included in most standard general liability policies. However, it should not be assumed that the umbrella policy will automatically apply excess of the primary since a growing number of umbrella policies exclude professional service exposures.

Pollution Liability. While most umbrella policies specifically exclude pollution and pollution cleanup exposures, such exclusions vary. The answers to the questions posed in the application provide the underwriter with some of the information necessary to determine whether the policy should be made subject to a limited or absolute pollution exclusion. If the underwriter initially favors an absolute exclusion, he will most likely request additional information.

Products Liability. To evaluate products liability exposures, underwriters often ask for copies of sales brochures or similar promotional materials describing products and services the insured offers. If this material clearly portrays the insured's operations and products, it should be included in the umbrella application. Otherwise, submit a simple listing that briefly describes each product or service, its purpose (intended use), and its users. In every instance, the annual receipts and sales figures and the geographic distribution of sales should be provided for each product or service.

Although the 1996 version of the ACORD 131 form does not request information regarding discontinued products and operations, such products and operations often represent a substantial exposure. A separate schedule, similar to that recommended for current products and services, should be prepared on products or services discontinued within the last five years.

Protective Liability. The use of independent contractors concerns all insurance underwriters. For example, consider a “paper” contractor who arranges for a variety of subcontractors as they are needed on projects he develops but performs no physical work himself. This type of operation is more difficult to underwrite than a contractor who performs a substantial portion of his own work. The loss history and other experience on the “paper” contractor may or may not be valuable in predicting the future insurability of such a risk. Accordingly, an umbrella underwriter may be wary of “paper” contractors. Information regarding the written contracts used, including limits of liability coverage required of subcontractors and hold harmless agreements, can allay these fears substantially.

Watercraft Liability. As is the case regarding aircraft, umbrella underwriters require information regarding owned, leased, or chartered watercraft. Many umbrellas exclude coverage for owned watercraft entirely, while some forms provide limited owned watercraft coverage. A key determinant in many cases is the size of the craft in question. An umbrella might cover an insured's liability for the ownership, maintenance, operation, and use of watercraft twenty-five feet in length or less. Umbrellas that provide limited owned watercraft coverage most often use lengths ranging from twenty-five to seventy-five feet in length. Most umbrellas provide some coverage for non-owned watercraft.

Apartments/Condominiums/Motels. The underwriter wants to know about catastrophic loss potentials—in this case, multi-story residential buildings that might collapse or burn, injuring occupants; swimming pools that can attract small children and result in drownings; and diving boards, the misuse of which can result in back and neck injuries.

Miscellaneous Other Exposures. Other exposures covered by underlying insurance policies that may also be scheduled as underlying insurance on umbrella policies (subject to underwriting guidelines, which vary by insurer) include but are not limited to the following:

 ·Discontinued Products Liability

·Personal Injury Liability

·Employee Benefits Liability

·Non Owned Auto Liability

·Hired Auto Liability

·Garage Liability

·Garage Keepers Liability

·Railroad Liability

·Personal Umbrella Liability

·Protection and Indemnity

·Employment Practices Liability

·Professional Liability

·Directors and Officers Liability

·Errors and Omissions

·Foreign Liability

·Liquor Liability

·Electronic Data Liability

·Cyber Liability

·Animal Liability

9.Vehicles

Many umbrellas contain limitations on the coverage provided for non-owned automobiles. These restrictions usually result from the various ways the umbrella covers employees, partners, and other persons. How coverage applies often depends upon the scope of underlying automobile insurance. Every umbrella should be at least as broad as the primary automobile coverage.

Primary insurers are interested in drivers' records; the number, types, and ages or vehicles used; the materials hauled; and the distances driven. Umbrella underwriters will usually trust the underlying insurer to review driver records and concern themselves instead with the number, types, and uses of vehicles.

 It is important for insureds, agents, or brokers to provide the umbrella underwriter with as much useful information as possible. While the information need not be as extensive or detailed as a primary liability underwriter might require, it should be clear, concise, and to the point.

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