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Is Umbrella or Excess Liability Policy Necessary?

Updated: Feb 25, 2022

When you purchase a general liability policy there is always a policy limit that the insurance company will pay. For example, if you have a liability insurance policy on your vehicle with a $75,000 limit and a judge or jury decides you caused damages of $1,000,000 the plaintiff will take the $75,000 from the insurance company and you could potentially be liable for the rest. Insurance companies assume liability for a variety of perils and circumstances that cause injury. Insurance policies typically cover the cost of legal representation and any award of damages in the event the insured is deemed to be responsible for paying. However, there is a limit that insurance company agrees to assume liability. This limit to liability encourages the insured to be more careful in operating their business. The most severe accidents cause the most severe damage, if an insured never had to worry about paying above the insurance policies there would be less incentive to pay attention to circumstances that could create an unreasonable risk to the public that could result in death or serious bodily injury. Lawsuits for death or bodily injury may have no limit of liability.

Often conditions that create risks that cause death or serious bodily injured can be avoided by paying attention to circumstances and either by investing some sweat working to resolve the issue or paying a little money for safety devices, repairs, signs, etc. Being vigilant has the obvious benefit of preventing injury to employees, friends, and members of the public. Taking reasonable care in the operation of one’s business reduces the risk of the insured being subject to unlimited liability for injuries that occur either on or as a result of business operations. Moreover, if Insurance companies were subject to unlimited liability, Insurance companies wouldn’t be able to guarantee they could pay their customers claims.

The sky is really the limit when it comes to liability for personal injury. In 1998, Philip Morris, RJ Reynolds, and two other tobacco companies agreed to a $206 billion settlement, at a minimum, covering medical costs for smoking-related illnesses to people. While this example does not illustrate the typical personal injury award it does illustrate the extent of liability business face in conducting business. Lets look at a more typical example of an insured incurring more liability than the policy limits of her insurance agreement.


It’s always been Larissa’s dream to have a beach resort house with units for rent in Miami Beach. She finds the perfect “fixer upper” that currently has tenants occupying most of the rooms and she buys it. She knows one of the problems is that the roof leaks and it’s only going to get worse. She decides that’s the first thing that needs to be fixed. She negotiates a price with the cheapest roofers she can find and they get to work the very next day. They get to work early stripping off the shingles of the old roof. About the time they are finished and preparing to fill