CHAPTER § 5.05 Excess and Umbrella Coverage

JurisdictionUnited States

§ 5.05 Excess and Umbrella Coverage

[1] Distinction Between Excess and Umbrella Coverage

"Primary insurance" is defined as "insurance that attaches immediately on the happening of a loss."145 In contrast, excess insurance is a second line of insurance protection that is only triggered when liability exceeds the coverage limits of a primary insurance policy.146 "Excess insurance is designed to provide high limits of coverage to guard against catastrophic loss."147 Because excess coverage is only triggered when the primary insurance limit has been exhausted, a secondary insurer "greatly reduces his risk of loss," which "is reflected in the cost of the policy."148 A "tower" of insurance refers to the layers of excess insurance above the primary policy for a particular policy period.

[2] Exhaustion of Limits

All forms of insurance will specify a "face amount" of the policy. This is the upper limit, or "aggregate limit," of insurance under the policy. Many policies also contain other sub-limits, such as a per claim or per occurrence limit that can be equal to or less than the "aggregate limit" of the policy. Generally, the insurer's "duty to control the defense and settlement negotiations continues until it is determined that there is no liability coverage or until the limit of the company's liability is exhausted by the payment of judgment or settlements."149

[3] ADR Considerations

Excess insurance is often underwritten by foreign markets, such as the London or Bermuda markets. Insurers in these markets tend to offer forms that require that disputed claims be resolved through arbitration, often in inconvenient forums, such as London or New York. It is important that there is consistency throughout the tower on the forum for dispute resolution to avoid having to litigate a claim multiple times.



[145] Black's Law Dictionary 818 (8th ed. 2004).

[146] Wurth v. Ideal Mut. Ins. Co., 518 N.E.2d 607, 610 (Ohio App. 1987) ("[A]n excess insurer is not generally liable for any part of the loss or damage which is covered by other insurance (be it collectible or uncollectible), but is liable only for the amount of Joss or damage in excess of the coverage provided by all other applicable insurance policies.").

[147] Christiania Gen. Ins. Corp....

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