Umbrella vs excess liability

Extra limit — with a catch

Both an umbrella and an excess policy do the same headline job: they stack more limit on top of the sub's primary GL, auto, and employers-liability policies, so a large loss doesn't blow through the underlying limits. The difference is breadth, and it decides whether the extra limit is worth requiring at all. An umbrella can be broader than the policies beneath it and 'drop down' to cover some gaps the primary doesn't, subject to a self-insured retention. An excess policy 'follows form' — it covers exactly what the underlying covers, no more and no less, just with a higher limit.

The catch: does it cover YOU?

Here's the trap for a GC. Say the sub carries a $1M / $2M primary GL that names you as additional insured, plus a $5M umbrella. It looks like $6M of protection. But if the umbrella does not extend additional-insured status to you, your recovery as an additional insured stops at the primary's $1M — the $5M above it is the sub's alone. A tall umbrella number on the certificate is only your protection if it follows form over your additional-insured and primary & non-contributory status.

The schedule of underlying, and the gap that opens beneath it

An umbrella does not float above the sub's insurance in general. It sits above named policies at named limits, listed on a page called the schedule of underlying insurance. The umbrella attaches where those limits stop, and it assumes they are there.

Which creates a failure mode nobody looks for. If the schedule says the general liability underneath carries $1,000,000 per occurrence and the sub later moves to a cheaper policy at $500,000, the umbrella still attaches at $1,000,000 — and the $500,000 in between belongs to the subcontractor personally. On a small trade contractor that gap is, for practical purposes, uninsured. Nothing on the certificate shows it: the GL row shows $500,000, the umbrella row shows $5,000,000, and the arithmetic that matters is on a page you were not sent.

The same schedule is where you find out whether the umbrella sits over the auto and employers-liability policies or only over the general liability. It usually lists all three. When it does not, the missing one is missing.

Self-insured retention vs deductible — not the same thing

The part of an umbrella that is genuinely broader than the underlying — the drop-down that covers something the primary policy excludes — does not usually apply from the first dollar. It applies above a self-insured retention, which the insured pays out of their own pocket before the umbrella engages.

That word gets used interchangeably with deductible and the two are not interchangeable. Both mean the insured absorbs the first layer, and that is where the similarity ends. Under a deductible, the insurer generally handles and pays the claim from the first dollar and then bills the insured back — so the carrier's duty to defend attaches immediately, and the claimant is dealing with an insurance company from the start. Under a retention, the insured pays first, directly, and the insurer's obligations — including, usually, the duty to defend — do not attach until the retention is exhausted. Below the line, the insured is their own insurer, and often their own claims department.

That distinction is not academic to a general contractor, because it travels to you. If you are an additional insured on a policy carrying a retention, the retention generally has to be satisfied before that policy responds to you. A subcontractor who cannot fund it — or who has gone under by the time a defect claim matures years later — leaves you arguing that a condition precedent was met by a company with no money. A deductible does not create that problem, because the carrier pays and collects afterwards.

So a sub carrying a large umbrella with a retention they could not actually fund has a policy that reads impressively and, for the coverage that made it worth buying, behaves like no policy at all. It is a fair question to ask, and it is on the declarations page rather than the certificate.

How to write the umbrella requirement

• Require it only when the exposure warrants — a larger or higher-risk job whose potential loss exceeds the primary limits. Don't demand a big umbrella on every small trade by reflex.
• Over the right policies — the umbrella/excess should sit above the GL, auto, and employers-liability policies, not just one of them.
• Following form over your status — it should extend your additional-insured, waiver-of-subrogation, and primary & non-contributory status from the underlying, or your extra limit doesn't reach you.
• Collect the proof — ask the agent for the umbrella's schedule of underlying / follow-form endorsement, not just the certificate line.

Hi [Agent name],

We're the general contractor on [Project]. [Sub name]'s certificate shows an umbrella/excess policy, and I need to confirm it protects us, not just them.

Could you confirm the umbrella/excess:
1) Sits in excess of the general liability, auto, and employers-liability policies, and
2) Follows form over [Your company]'s additional-insured status, waiver of subrogation, and primary & non-contributory status on the underlying GL?

A copy of the schedule of underlying or the follow-form endorsement would settle it — thanks.

[Your name], [Your company]