Commercial Umbrella Insurance
How Commercial Umbrella Claims Work for Contractors
How Commercial Umbrella Claims Work for Contractors — everything contractors need to know about umbrella coverage.
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What Happens When a Claim Is Large Enough to Reach Your Umbrella
A commercial umbrella policy sits above your GL, commercial auto, and employers liability policies — extending your total liability protection beyond what any single policy can provide. For contractors facing large projects, high-value claims, and contract requirements, umbrella coverage is essential.
Step 1: Primary Policy Handles the Claim
Umbrella claims start with the underlying policy. Your GL or auto carrier receives the claim, assigns a defense attorney, and manages the litigation. The umbrella carrier is typically notified early — most umbrellas require notice when a claim may exceed primary limits.
Reporting Requirements
Notify your umbrella carrier promptly when: (1) a claim may approach or exceed your underlying limit, (2) you receive a summons on a large claim, or (3) your primary carrier reserves above 50% of the underlying limit. Late notice to umbrella carriers can jeopardize coverage. Report early.
How the Transition Happens
When the underlying policy pays its limit, the umbrella activates automatically for the excess. Both carriers coordinate — the umbrella carrier may take over active management of defense and settlement strategy once the primary limit is paid or reserved. Defense costs may or may not be shared depending on policy terms.
Settlement Strategy Across Layers
Large claims involving both primary and umbrella carriers require coordination on settlement strategy. Umbrella carriers have their own interests in settlement — they’re paying the excess. Disputes about settlement amounts between primary and umbrella carriers are handled between the carriers, not by you.
Defense Costs Inside vs. Outside the Limit
Some umbrella policies include defense costs within the umbrella limit (reducing available settlement capacity). Others pay defense costs outside the limit. For very large, complex claims where defense costs alone could reach $500,000+, understanding your policy’s defense cost structure is critical to knowing your actual available coverage.