commercial umbrella insurance: is an umbrella a follow form?


Simply put, commercial umbrella insurance provides an added layer of protection against catastrophic losses by providing higher limits. And in some cases, it also helps fill in coverage gaps. Umbrella liability coverage is written over the following primary liability policies.

  • Commercial general liability policy
  • Commercial auto policy
  • Employer’s liability coverage

However, I am often asked whether the umbrella is a follow form or a true umbrella. To answer that, let’s start with the definition of follow form from the International Risk Management Institute.

“An umbrella policy provision follows the underlying policy as to how the provision applies. The umbrella policy may stand alone for certain exclusions, conditions, etc., while relating back to the underlying coverage for most provisions. This type of policy form is typically used excess of scheduled underlying insurance and usually contains a requirement that the insured maintain scheduled underlying insurance.”

With this in mind, the unendorsed umbrella, for the most part, follows terms and conditions stated in the underlying policies. But depending on how the umbrella is set up, it can provide broader coverages, or restrict coverages, from what is on the underlying policies, with or without additional umbrella coverage forms. Here are some examples of instances in which the umbrella does not follow the underline.

  • The general liability policy excludes professional coverage; however, the insured wants to purchase an umbrella that includes it. An umbrella endorsement can be added to provide this coverage. Once added, if the insured is liable for professional coverage-type losses, the umbrella will respond as the first line of insurance because the underlying policy excludes it.
  • The base umbrella form, CU 00 01, excludes employers liability; however, simply adding the employers liability coverage information to the Schedule of Underlying Insurance on the umbrella declarations triggers coverage; thus, the exclusion will no longer apply.
  • The general liability policy excludes watercraft (with some exceptions) and aircraft; however, the umbrella base form broadens the watercraft exception and provides some aircraft coverage.

In these examples, it is easy to see that the umbrella is neither a follow form nor a true umbrella.

This being said, when your customer requests an umbrella policy — knowing it is not a true umbrella or a follow form — it is imperative to set up the right coverages, exclusions and other terms and conditions that will meet the customer’s needs.

Business owners must understand that purchasing an umbrella policy is smart business and may save their company if a large loss should occur. Unlike property or inland marine coverages, it is not as easy to predict liability losses. Looking at a property or inland marine declaration, the limits easily determine what a total loss could look like if a loss were to occur. But with a liability loss, the unknown is concerning — the insured may face legal judgments or settlements that could cost thousands or even millions of dollars.

Without adequate limits, part of those losses would come out of the insured’s pocket, or the insured would have to sell off assets to cover the difference once the underlying liability limits were exhausted. This could not only be costly to an insured, it could bankrupt that entity.

For more information, please contact your Westfield Independent Insurance agent.