Yogi Berra, known as much for his baseball career as for his way with words, once said “A nickel ain’t worth a dime anymore.”
We live in a society where we find ourselves bombarded by daily, possibly even hourly reminders that we could find ourselves on the receiving end of a lawsuit, as a result of some infraction, act of neglect, or oversight on our part, and that as such, we have to take steps to protect ourselves. Ads for both lawyers and insurance companies play on television and radio, and on banners within our smartphone apps and frequently visited websites.
The end result of this? People are far more likely to file a lawsuit today over things they may have shrugged off twenty years ago – and they’ll be asking for far more money. When I bought my first car in 2002, I was perfectly comfortable with NY State’s minimum limits ($25,000 per person and $50,000 per accident). Today I recommend ten times that amount as a minimum. Lawsuits aren’t just more common, they’re far more expensive. In this field, we see the Million-Dollar Lawsuit far more often than we wish we did. Lawyers are keenly aware of this, and can charge hundreds of dollars per hour, to the point where defense costs can be just as expensive as the settlement of the case.
The problem is, sometimes having one policy just isn’t enough. Two of the most common coverage limits we see in business insurance are $1,000,000 per Occurrence / $2,000,000 General Aggregate* (sometimes written as $1M/$2M), and double that amount ($2M/$4M). So, what is a business owner to do to protect their life’s work – especially when that amount could be used up on a single claim, between a generous settlement and a mountain of legal defense costs? They can purchase an Umbrella Policy, which offers excess liability insurance coverage, adding extra protection in increments of $1,000,000 over both of those limits. Many carriers will readily offer up to $3,000,000 in excess liability coverage – and some will go as high as an extra $10,000,000 if you can illustrate both a material need for the coverage, and also a low likelihood of using it.
Beyond that point, however, things get a bit tricky.
As lawsuits against larger entities both become more common, and climb into the realm of millions of dollars, carriers have become more and more reluctant to offer higher coverage limits. This is due to a combination of factors, including but not limited to annual cost increases, which are a fact of life. Remember, if an insurer has to pay more both to service and settle claims (and also more to keep its workforce), besides raising premiums, they can also lessen those costs by reducing their exposure – if you don’t write the policy, you don’t have to pay out on it.
Also, the cost of Reinsurance has increased. Insurance carriers often protect themselves from insolvency by transferring some of their risk to another, often larger carrier, so they can survive a catastrophic loss (for example, a hurricane). If they’re dipping into their reinsurance just to pay out on regular Commercial General Liability claims, they may be forced to step back from the Umbrella market for a time, until the cost to pay claims can be covered by premiums alone.
It’s important to point out that we can still find you coverage up to $10,000,000 and even beyond that if your business is looking to take its next big step and needs the proper coverage to safely do so. However, in our current market with fewer carriers and increasing hesitation, it’s better to start looking for that large umbrella a bit earlier, if possible, before you see the storm coming in.
*General Aggregate is the maximum amount an insurer will pay during a specific period of time (usually a year)