FL Adjuster Claim Professional Exam: Excess and Umbrella Liability Insurance

Overview of Liability Insurance Types

Besides major coverages like homeowners, auto, and commercial general liability (CGL), specialized liability policies address specific risks. Key types include:

Personal and Commercial Umbrella Liability Insurance
Directors and Officers (D&O) Liability Insurance
Employee Benefits Liability (EBL) Insurance
Fiduciary Liability Insurance
Employment Practices Liability Insurance (EPLI)
Professional Liability Insurance (e.g., Physicians, Hospital, Allied Health Care, Nursing Home, Managed Care)
Nonmedical Errors and Omissions (E&O) Liability Insurance
Liquor Liability Insurance

Umbrella and Excess Liability Policies

Umbrella and excess liability policies provide high limits of coverage above primary policies (e.g., homeowners, auto, or commercial liability) to protect against catastrophic losses.

Pays after primary policy limits are exhausted.
May cover deductibles or impose a self-insured retention (SIR) (e.g., $10,000 for claims like slander).
Provides broader coverage, including "drop down" for claims not covered by primary policies (e.g., humiliation, mental anguish, discrimination).
Replaces underlying coverage if primary policy aggregate limits are exhausted.

Example Scenarios

Insured drives under the influence, causing a fatal accident.
Neighbor’s toddler drowns in insured’s pool due to lack of supervision.
Business’s defective product causes widespread injuries.

Key Point: Umbrella policies require maintenance of underlying insurance with consistent limits and scope. Failure to maintain may leave the insured responsible for coverage gaps.

Personal Umbrella Liability Policy (PUP)

A PUP provides excess coverage over primary policies (e.g., homeowners, auto, watercraft) for:

Bodily Injury
Property Damage
Personal Injury (e.g., libel, slander, false arrest)

Example

Insured has a $300,000 auto policy and a $1M PUP. An accident causes $1.2M in damages. The auto policy pays $300,000, and the PUP pays $900,000. If damages are $275,000, only the auto policy applies.

Commercial Umbrella Liability Policy

Provides excess coverage over business policies (e.g., CGL, auto, employers liability) with limits like $1M, $2M, or $5M.

Key Point: Covers claims not addressed by CGL, offering broader protection for businesses.

Executive and Professional Liability Insurance

These policies cover claims not addressed by CGL, including:

Type	Coverage	Example Claims
Directors and Officers (D&O)	Protects against wrongful acts (e.g., errors, neglect, breach of duty).	Shareholder lawsuit for poor acquisition decision, SEC lawsuit for falsified stock statements.
Employee Benefits Liability (EBL)	Errors in administering employee benefit plans.	Mismanaging pension plan records, incorrect benefits information.
Fiduciary Liability	Breach of fiduciary duties.	Pension plan insolvency due to poor investment advice or bank failure.
Employment Practices Liability (EPLI)	Discrimination, wrongful termination, harassment.	Employee lawsuit for wrongful termination, third-party discrimination claim.

Medical Professional Liability Insurance

Covers healthcare-related claims, including:

Physicians: Misdiagnosis, inappropriate treatment, intentional torts.
Hospital (HPL): Failure to admit, inadequate supervision, credentialing errors.
Allied Health Care: Covers EMTs, nurses, labs, etc.
Nursing Home: Medical, custodial, or social service errors.
Managed Care: Negligent provider selection, wrongful denial of treatment.

Errors and Omissions (E&O) Liability Insurance

Protects against errors in professional services, including:

Type	Coverage	Common Claims
Lawyers	Legal service errors, including personal injury (e.g., defamation).	Failure to file suit timely, settling without client consent.
Accountants	Financial losses from accounting errors (excludes fraud).	Audit errors, tax preparation mistakes.
Architects and Engineers (A&E)	Design, management, payment authorization errors.	Defective building design causing injury or damage.
Insurance Agents	Errors in placing or managing coverage.	Failure to place requested coverage, selecting insolvent insurer.
Real Estate Brokers	Errors in real estate transactions.	Misrepresenting property features, title issues.
Technology	Product failure, security breaches, IP infringement.	Software failure, unauthorized system access.
Cyber Liability	Data breaches, electronic transaction losses.	Customer data theft, website content liability.
Miscellaneous	Broad professional coverage (e.g., consultants, interpreters).	Errors in consulting or service delivery.

Key Point: Cyber liability protects consumers, while tech E&O protects providers.

Liquor Liability Insurance

Covers businesses that manufacture, sell, or serve alcohol under dram shop laws.

Coverage: Bodily injury, property damage, and related damages from serving alcohol.
Exclusions: No liquor license, product-related injuries, other insurance coverage.
Limits: Aggregate limit (total claims) and each common cause limit (per incident).

Example

An intoxicated driver, served by a tavern, causes multiple accidents. The each common cause limit covers all injuries from that driver, reducing the aggregate limit.

Key Point: Host liquor liability is covered under CGL for non-alcohol businesses but excluded for alcohol-related businesses.

Common Features of Executive and Professional Liability Policies

Claims-Made Trigger: Coverage applies if the claim is made during the policy period for incidents during or before the period.
Covered Persons: Includes employees, directors, officers, and subsidiaries (if majority-owned).
Damages: Covers legal defense, judgments, and settlements (within policy limits).
Hammer Clause: Limits insurer liability if insured rejects a settlement.
Limits: Single aggregate, equal per claim/aggregate, or unequal limits.
Deductibles/SIR: Deductibles (insurer pays, seeks reimbursement) or SIR (insured pays up to retention).
Exclusions: Intentional acts, notary claims, trademark infringement, prior claims, antitrust, fee refunds.