Chapter 6 - § 6.6 • EXCESS AND UMBRELLA INSURANCE

• Jurisdiction: Colorado

§ 6.6 • EXCESS AND UMBRELLA INSURANCE

Umbrella and excess liability policies are designed to provide additional coverage above the limits of the underlying primary insurance policy. A primary CGL policy provides the first layer of insurance coverage - e.g., a typical CGL may have coverage limits of $1 million per occurrence/$3 million aggregate. A primary policy will therefore pay the first $1 million of damages related to a covered claim. The primary insurer also is responsible for initially providing the insured's defense. After the primary "layer" of insurance is exhausted, umbrella or excess policies provide a second "layer" of coverage to pay damages and defense costs above the primary policy's limit. Typically, the second layer of coverage afforded by umbrella or excess policies will provide up to $5 to $10 million of coverage. Depending on the value of the construction project, insured contractors and developers may have a third or fourth layer of coverage on top of their primary and excess policies.

Excess liability policies are issued to provide increased coverage limits in excess of an underlying liability policy. The scope of coverage of an excess policy is no broader than the scope of coverage of the underlying policy. Excess policies that are subject to all of the same terms and conditions of the underlying policy are known as "true follow form" policies. If there is a conflict in the terms of a "true follow form" policy and the underlying policy, the terms of the underlying policy control. While many excess liability policies state that they are "follow form," they contain provisions and endorsements that actually limit the scope of coverage as compared to the underlying policy, and have a provision that states that if the terms of the excess policy and the underlying policy conflict, the excess policy's terms control. Practitioners must carefully review any excess policy that purports to be a "follow form" to determine whether it contains any limiting terms or conditions, and, if so, whether these terms remove any essential coverages included in the underlying policy. Only after this analysis can the insured determine whether the excess policy will provide the coverage desired.

Umbrella policies provide a special type of coverage that incorporates elements of both primary and excess coverage. Umbrella policies are generally written over various primary liability policies, such as CGL, business auto, and employer's liability policies. The...