Friday, June 7, 2019

It’s raining, do you grab an umbrella or bumbershoot?

We have all heard the varying terms for this coverage; umbrella, marine umbrella, excess, bumbershoot, follow form excess. The real question is what’s the difference?

Good news: It can be very simple. Bad news: These coverage names are used interchangeably, yet do not provide the same coverage. To make matters more confusing carriers sometimes title the form one thing yet the wording is for another.

Names aside, there are two main coverage forms used in today’s marketplace: Umbrella and Follow Form Excess. These forms, while both providing higher liability limits, have key differences that will help you determine which one it is despite how it is titled.

Umbrella policies generally utilize manuscript wordings which vary by carrier, and typically show a Self-Insured Retention (SIR).  What is covered in the underlying is typically covered in the umbrella, and what is not covered in the underlying may be covered in the umbrella. The latter situation is what we refer to as a drop-down scenario and where an SIR comes into play. Simplistically, if a claim arises that is excluded in the primary but covered in the umbrella the insured would pay first dollar up to the SIR amount, then the umbrella carrier would respond after SIR is satisfied. These policies are routinely 40-60 pages with many terms and conditions, it can be a difficult to work out what is and what is not covered.

Follow Form Excess policies are very straight forward, carriers typically use American Institute of Marine Underwriters 8A Follow Form Excess Clauses.  There is no SIR or drop-down clause associated with these policies. Whatever is included in the underlying is included in the excess, and whatever is excluded in the underlying is excluded in the excess. Think of this form more of a tower that goes directly over the primary policy(ies) and literally only extends the limits upwards. Traditionally follow form excess’ were used over a single coverage line, now the trend is to use for multiple coverage lines due to its simplicity.  These policies are only 10-14 pages with lots of clarity on coverage and few, if any, additional exclusions.

It is vital that the primary policy(ies) is listed in the Underlying Schedule, or else the excess policy will not go over it!

Moral of the story: Ignore the title, you really do not know what you have unless you read the form. Read. Read. Read.  

Laura Jay CMIP
Custom Account Broker