Your Guide to Umbrella and Excess Liability Insurance in Canada

Canada has seen a recent surge in multi-million-dollar settlements and lawsuits. So, obtaining increasingly higher coverage limits is more important than ever before. While that might be impossible with primary policies, umbrella and excess liability insurance coverages make it easy.

But before jumping straight into obtaining the policy, learn more about it in the following sections.

 

What Is Umbrella and Excess Liability Insurance Coverage?

Umbrella liability insurance is an additional layer of coverage between the primary level and the excess layer. Put simply, it provides extra limits above the standard coverage that can include different covered areas not normally found in the primary policy.

This type of coverage only comes into effect when you’ve exhausted the limits found at the primary level.

Excess liability insurance is a coverage layer above the primary and the umbrella layers. It’s designed to safeguard against catastrophic losses, such as wildfires, train derailments, and significant oil spills. Excess liability insurance kicks in once the primary and umbrella coverages have exhausted their monetary limits.

It’s a common misconception that umbrella liability and excess liability are the same insurance. In reality, they have a few distinct differences. The major variation is that excess insurance doesn’t expand the scope or terms of the underlying policy like umbrella coverages but instead awards higher monetary limits.

Due to the nature of both coverages (i.e., they both increase the limitations of underlying policies in some way), they tend to be purchased together in an umbrella and excess liability insurance policy.

 

What Does Umbrella and Excess Liability Insurance Cover?

In basic terms, umbrella and excess liability insurance coverage picks up where the primary business insurance policy stops to ensure adequate protection against larger losses.

You can purchase umbrella and excess liability insurance for a wide array of policies, including those listed below:

  • Excess energy liability coverage
  • Excess commercial auto liability coverage
  • Excess general liability coverage
  • Excess product liability coverage
  • Excess employers’ liability coverage
  • Excess marine liability coverage
  • Limited excess professional liability coverage
  • Excess contractors liability coverage
  • Excess premises liability coverage

With that said, umbrella liability insurance won’t typically cover the following:

  • Written contracts
  • Oral contracts
  • Intention acts
  • Criminal acts
  • Personal possessions

 

Who Needs Umbrella and Excess Liability Insurance Coverage?

We recommend umbrella and excess liability insurance coverage if at least one of the following applies to your business:

  • You own multiple companies or properties.
  • You own numerous businesses that complete transactions in the United States of America.
  • You travel around the world for business.
  • You buy minimum coverage limits on your commercial auto liability insurance.

 

Why Should You Take Out Umbrella and Excess Liability Insurance Coverage?

Once your standard policy limits have been used, umbrella and excess liability insurance extends the limit and ensures additional coverage areas for particularly large losses. The main advantage of the policy is you won’t have to handle paying out-of-pocket for high-cost damages.

On top of that, umbrella policies can ensure your primary liability coverages extend to worldwide business activities. Typically, they would be limited to Canada or the United States of America and Canada, depending on the specifics.

To make it easier to decide whether your business could benefit from umbrella liability and excess liability policies, consider the following:

  • Your business needs umbrella liability insurance if at least one of the below applies:
    • It’s hard to estimate the maximum potential loss for liability exposures.
    • There are significant gaps in your current insurance coverage.
    • You want an extra line of defence in the modern world’s litigious society.
  • Your business needs excess liability insurance if at least one of the below applies:
    • It’s difficult to estimate the maximum potential loss for your liability exposures beyond the underlying and umbrella policies.
    • You have no other defences against catastrophic losses.
    • There are considerable gaps in your current risk management strategy and insurance environment.

 

Why Choose LiabilityCover?

Here at LiabilityCover, we specialize in connecting businesses like yours with the country’s leading and licensed insurers with years of experience covering others in your industry.

We’ve adapted our process to make it as seamless as possible while affording you the time and knowledge needed to make effective business protection decisions. We understand how complex the insurance world can be, so we aim to uncomplicate matters by doing all the hard work for you.

If you’re ready to find your perfect commercial insurance solution, complete our secure online inquiry form or call us on our toll-free number.

 

Frequently Asked Questions

 

What’s an Underlying Policy?

We mentioned the term “underlying policy” earlier. So, to avoid any confusion, we’ll explore the definition here.

In general terms, an underlying policy is the original coverage purchased to protect against specific risks, damages, and losses.

No matter what type of policy you purchase, it comes with a predefined scope of inclusion regarding financial limits and perils. If a liability extends beyond the covered amount or is not encompassed inside the policy’s parameters, payments become your responsibility, as the insurer has exhausted its resources to you.

Let’s consider a few examples to better demonstrate how this works. In each circumstance, the underlying policy covers job-site bodily injuries with a limit of $1 million. Here, you’re the contractor responsible for paying damages and fees:

  • Case One — You are responsible for an accident that happened on the job site. Damages equal $700,000.
  • Case Two — An accident that you’re responsible for happens on your job site. Damages equal $1.5 million.
  • Case Three — An accident happens away from the job site that you’re responsible for. Damages equal $850,000.

You are only completely covered in Case One.

In Case Two, the scope of the issue is covered. However, the damages exceed your policy’s limit of $1 million, meaning you’re responsible for the $500,000 excess. To mitigate such risks, you need to take out excess liability insurance.

In Case Three, you’re responsible for the entire $850,000 since the accident occurred outside the underlying policy’s scope (i.e., away from the job site). To mitigate these situations, you should acquire umbrella liability insurance.

 

How Do You Get Umbrella and Excess Liability Insurance Coverage in Canada?

With LiabilityCover, acquiring the umbrella and excess liability insurance coverage you need is wonderfully straightforward. Simply follow these four steps:

  1. To begin, fill in our short and secure inquiry form.
  2. Once we receive your form, our team analyzes your insurance needs.
  3. Then, we connect you to a brokerage or agency with experience providing umbrella and excess liability insurance to businesses in your industry.
  4. Finally, your assigned broker or agent contacts you to guide you through the process.

 

What Are The Most Common Industries to Take Out Umbrella and Excess Liability Insurance Coverage?

Generally speaking, the industries and business types requiring umbrella and excess liability insurance include the following:

  • Commercial real estate (i.e., non-habitational properties)
  • Automobile, truck, and bus manufacturing
  • Financial institutions
  • Food distribution and processing establishments
  • Upper middle market retail trade
  • Technology and manufacturing
  • Property management operations
  • Property management services
  • Mining
  • Renewable and alternative energy
  • Oil petrochemical processing, exploring, refining, producing, and drilling plants
  • Oilfield service contractors
  • Power generation utilities

 

How Much Umbrella and Excess Liability Insurance Should Your Business Purchase?

The most accurate way to determine the amount of umbrella and excess liability insurance you need is to contact our dedicated team at LiabilityCover. Using our toll-free number or short inquiry form is easy, and our experts will quickly establish your coverage requirements.

But for a rough estimation of your optimal amount, you should ask yourself the following questions:

  • Do other businesses in your industry carry higher-than-average limits? If they do, try to determine the reasons behind this. Remember, your business is different from everybody else’s. Therefore, it doesn’t always mean you need higher limits just because similar companies have them.
  • How much does it cost to buy additional umbrella liability insurance? In other words, is the coverage worth the premium amount you’ll need to pay?
  • Does your profession, industry, location, or product make you an easy target for large settlements?
  • Are clients constantly visiting your brick-and-mortar location?

 

Is Umbrella and Excess Liability Insurance Coverage On Its Own Enough?

The nature of these policies means you cannot purchase them independently; they need primary coverage to enhance. So, here are some common insurance types that you may need before buying umbrella and excess liability coverage:

  • Commercial general liability insurance coverage — Any business dealing with third parties (for example, clients, vendors, other companies, members of the public, and suppliers) needs commercial general liability insurance. It protects your business from the daily operational risks of running a business, particularly property damage and bodily injury. The amount of coverage you need depends on a plethora of factors, including:
    • Location
    • Type of business
    • Target demographic
    • Business size and type
    • Ownership structure
    • Employee number and experience
  • Commercial auto insurance coverage — Otherwise called commercial vehicle insurance, it protects your trailers, trucks, cars, vans, and other automobiles used for work purposes. Any vehicle carrying goods, people, materials, tools, or equipment should be covered by a policy. You can choose between three types:
    • Business use — Solo entrepreneurs, home-based businesses, and small businesses typically opt for this coverage. It lets you add business use to your personal policy instead of buying a standalone commercial agreement.
    • Commercial use only — If your vehicle is used for work purposes only, this is the policy for you.
    • Business for numerous drivers — If multiple people use your vehicle, you need this insurance.
  • Commercial property insurance coverage — Essentially, it’s similar to homeowners’ insurance but covers your business premises instead. Specifically, it pays for the damage and loss of your property and its contents due to an insured peril, including fires, thefts, and vandalism. All types and sizes of businesses operating from a brick-and-mortar location require a policy. Just be mindful of the common exclusions, which are as follows:
    • Acts of terrorism
    • Power failures
    • Damage or loss from standard wear and tear
    • Smog and pollution
    • Explosion of machinery
    • Securities, precious metals, and cash
    • The disappearance of items if you cannot explain the loss
    • Losses or damages that occur in or around a property left unoccupied for over 30 days.
    • Damage caused by faulty planning, design, or development
  • Professional liability insurance coverage — Sometimes known as errors and omissions insurance, it financially protects you if you’re held liable for a service you offer. If your customer experiences financial loss due to your service or advice, they can sue. The policy covers legal fees and settlement expenses in these situations.
  • Product liability insurance coverage — It covers third-party claims of property damage or bodily injury caused by a product you sell, manufacture, or distribute. The most common issues your customers can claim against are physical harm and sickness from consuming your food. Businesses of all shapes, sizes and types utilize the coverage, including coffee shops, wholesalers, print shops, clothing stores, bakeries, florists, and more. The coverage areas are relatively far-reaching, but they don’t extend to:
    • Damages to your inventory or stock
    • Bodily injury from slip and fall incidents
    • Damages to your business assets
    • Injuries to your employees
    • Injuries to yourself
    • Damages caused by a service you provide
    • Damages caused by advice you offer
  • Legal expense insurance coverage — Also known as LEI, legal expense insurance covers you against common legal disputes. Hiring a lawyer can be expensive, so acquiring an LEI policy means the costs are covered. You can purchase two kinds of insurance:
    • Before the event (BTE) — You purchase this policy to cover cases that haven’t yet happened. It’s the more common type of legal expense insurance.
    • After the event (ATE) — This policy protects you if you’ve already lost a legal dispute. The insurance pays for adverse costs and disbursements.
  • Business interruption insurance coverage — Usually included in your commercial property insurance, business interruption coverage reimburses any income you lose during a temporary property loss. Depending on your policy wording, it may also pay for rent (or mortgage payments), taxes, employee wages, and more while your premises is repaired. However, the policy won’t compensate you for closures arising from acts of terrorism or pandemics.

 

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