Rules
Part of Reading umbrella coverage with a sceptical eye
Checklist for judging umbrella coverage insurers before you bind
Umbrella coverage insurers stand or fall on the underlying schedule: follow-form exceptions, maintenance conditions, and what to ask before binding.
An umbrella quote is a list of other policies before anything else. The first page that matters is the schedule of underlying insurance.
Judge an umbrella insurer by how it behaves toward that list: what it demands below, whether it follows their wording or brings its own, and what it does when one fails to respond. Rankings do not show this, so no insurer is ranked or named here.
What to take away
- Judge an umbrella carrier on its relationship to the underlying policies, not on its brand.
- "Follows form" is the single most important phrase on the quote, and it is rarely true without exceptions.
- The required underlying limits and the maintenance condition are obligations on you. Miss them and the umbrella has a gap beneath it.
- Whether the carrier will sit above the primary insurers you already have is a question to ask before anything else.
Five things that separate umbrella insurers
Whether it follows form, and where it stops. A true follow-form umbrella adopts the terms of the underlying policies, so what is covered below is covered above. Most umbrellas do that with exceptions: their own exclusions, their own definitions for some terms, and their own conditions. The exceptions are the product. A quote that says "follows form" on the cover and lists a page of exclusions inside has told you two different things, and the inside is the one that counts.
Follow-Form Umbrella: Promise vs. Reality
Cover page says
- Follow form
- Adopts underlying terms
- Definitions
- Same as underlying
- Conditions
- Mirrors primary
- What counts
- Marketing language
Inside wording does
- Follow form
- Adds own exclusions
- Definitions
- Overrides some terms
- Conditions
- Imposes its own
- What counts
- Inside exceptions
What it accepts underneath. Umbrella insurers set minimum limits and sometimes minimum terms for the underlying policies, and some will only sit above carriers they approve. If your primary auto or general liability cover is with a market the umbrella carrier dislikes, the umbrella may be declined or written with a carve-out. Ask early.
How it treats a gap in the underlying. If a primary policy is canceled, not renewed, or has a limit eroded by earlier claims, the umbrella's response depends on its wording. Some drop down to the level the underlying should have provided; some treat the shortfall as yours. The maintenance condition says what you promised to keep in place; read it against what you actually hold.
Defense. Whether the umbrella pays defense costs, and whether those costs erode its limit, differs between wordings. On a large claim this is not a detail. A dispute big enough to reach an umbrella layer usually runs for years, and the federal courts' outline of how a civil case proceeds gives a sense of the stages that spending pays for.
Claims coordination. A large loss involves the primary insurer and the umbrella insurer at once, and they do not always agree. Ask how the carrier handles a claim where the primary is still defending, whether it participates early, and who decides on settlement when the primary limit is nearly exhausted.
Reading the quote
Go through it in this order.
Reading the Umbrella Quote in Order
- Schedule of underlying insurance
- Required underlying limits
- Maintenance condition
- Follow-form language and exceptions
- Retention
- Defense provisions
- Exclusions not appearing below
- The price
- The schedule of underlying insurance.Every policy listed, with carrier, limits, and period. Check it against what you actually hold. An error here is an error in the foundation.
- The required underlying limits.What the umbrella insists you carry beneath it. Compare with the schedule. Any shortfall is a gap the umbrella will not fill.
- The maintenance condition.Your promise to keep the underlying in force on the same terms. Note what happens if you cannot.
- Follow-form language and its exceptions.Find the sentence, then find every exclusion and definition that overrides it.
- Retention.What you pay when the umbrella responds to something the underlying did not cover at all. This is different from the primary deductible.
- Defense provisions.Inside or outside the limit, and who controls it.
- Exclusions that do not appear below.Anything the umbrella excludes that the primary does not is a place where "excess cover" is actually a hole. Professional, cyber, pollution, and employment-related exposures are frequent examples. Whether an award of punitive damages can be insured at all is decided by state law rather than by the policy, so ask instead of assuming.
- The price.Last, once you know what it sits above and what it carves out.
What an umbrella is for, what it usually sits above, and why umbrella and excess are not synonyms are all explained in the overview of the line. The way any policy's parts fit together is in the renewal reading guide.
Questions for the broker, once per quote
Questions for the broker
- Does this wording follow form, and which exclusions and definitions override the underlying?
- Will the carrier sit above each of my primary insurers as they are?
- What underlying limits does it require, and does my schedule meet them today?
- What happens if a primary limit is eroded by an earlier claim in the same year?
- Are defense costs inside or outside the limit?
- Is this insurer admitted in my state?
- Which markets did you approach for this layer, and why this one?
A licensed broker who can see all of your primary policies is the person who decides whether an umbrella fits above them. That is not a judgment you can make from the umbrella quote alone, because half the information is in documents the umbrella insurer never sent you.
Broker Questions, Once Per Quote
- Does wording follow form, and what overrides it?
- Will carrier sit above each primary insurer?
- What underlying limits are required?
- What if a primary limit is eroded?
- Are defense costs inside or outside limit?
- Is insurer admitted in my state?
- Which markets were approached, and why this one?
Admitted or not
Umbrellas for ordinary businesses are commonly written by admitted insurers, but not always. A difficult primary program can push the layer into the surplus lines market. Your broker should say which kind of carrier is quoting. Your state insurance department licenses insurers, can confirm whether one is admitted, and can explain what guaranty fund protection means where you are.
Admitted or Surplus Lines?
Is the umbrella carrier admitted in your state?
State guaranty fund protection may apply
Surplus lines market, check rating and broker disclosure
Financial strength is assessed by independent rating agencies. Ask the broker to show you the current assessment, because an umbrella is a promise about the largest loss you will ever have.
Common questions
Should the umbrella be with the same insurer as my primary policies?
It can simplify claims coordination and sometimes pricing, but it is not required and is not always available. The question is whether the umbrella carrier accepts your primaries, not whether the names match.
The umbrella is cheap. Is that a warning?
Look at the exclusions that do not appear in the underlying and at what the wording does when a primary policy is short. A cheap umbrella is often one that follows form less than it appears to.
Does the umbrella cover things my primary policies exclude?
Only if its own wording independently covers them, subject to its retention. Assume it does not until the wording says otherwise.
Who checks that my underlying limits still meet the requirement?
You do, at every renewal of every primary policy, because a change below can open a gap above without anyone writing to tell you.
