A Million Dollars Isn’t What It Used to Be

Commercial Umbrella Insurance

All businesses can benefit from umbrella coverage. With or without a contractual obligation, adequate commercial umbrella insurance is critical to provide coverage from unforeseen risks and a safety net when liabilities exceed expectations.

“Ninety-nine times out of 100, if a customer falls in your parking lot, they will want to leave quickly in embarrassment, but the one time they don’t – that could cost you your business.”

But those who work in the world of commercial insurance know a million dollars isn’t what it used to be.

While the threats and consequences for litigation against commercial organizations have accelerated greatly in recent years, commercial general liability insurance coverage – $1 million per occurrence and $2 million aggregate – and other eligible casualty coverages have not changed in decades.

A New Era of Litigation

Twenty years ago, a $1 million policy would cover most liabilities that a business might face, but the legal and financial landscape has changed. According to Drew Dean, Associate Managing Director at Burns & Wilcox in Indianapolis, more than 15 million lawsuits are filed each year in the United States and cases against large and small businesses alike are resulting in dramatically higher awards.

1962 marked the first $1 million verdict in a personal injury lawsuit. Today, Dean says 12 percent of all awards are in excess of $1 million and 75 percent of product liability awards exceed that amount.

Of the awards that do exceed $1 million, approximately three quarters are for lawsuits related to product liability, with the remaining related to business negligence, personal negligence and premises liability.

Extended Protection

Commercial umbrella insurance can provide coverage for companies’ legal liability and expenses in excess of their primary general liability coverage.

“Most umbrella policies can provide additional limits over general liability policies, covering the same types of incidents,” says Mike Ehrhardt, Managing Director of Burns & Wilcox in St. Louis. Some policies can also be written for up to $5 million or more to cover assets.

“Often umbrella insurance helps fulfill a contractual obligation for a business,” says Dean. For instance, a large retailer might require a small supplier of beef or dairy to hold umbrella coverage in case of product contamination.

All Businesses Have a Need

“We are living in a more litigious society, so it’s wise to consider worst case scenarios. Ninety-nine times out of 100, if a customer falls in your parking lot, they will want to leave quickly in embarrassment, but the one time they don’t – that could cost you your business,” says Ehrhardt.

According to Ehrhardt, commercial umbrella coverage is typically sold along with general liability insurance. Ehrhardt recommends brokers and agents “engage in this conversation with all of their commercial clients, so they can make an informed decision together by assessing the options and the relative costs of each.”

“Brokers should also be considering the size of a company’s operations, its assets to absorb a loss and the geographic spread,” Dean says. The question for brokers and agents to ask their clients is, “does your company have sufficient assets to absorb a loss of $2 to $5 million?”