Umbrella liability insurance provides excess liability coverage over several of the insured’s primary liability policies. Most umbrella liability policies provide coverage that is broader than the insured’s primary policies. An excess liability policy may be what is called a following form policy, which means it is subject to the same terms as the underlying policies; it may be a self-contained policy, which means it is subject to its own terms only; or it may be a combination of these two types of excess policies. Umbrella policies have three functions:
(1) To provide additional limits above the each occurrence limit of the insured’s primary policies.
(2) To take the place of primary insurance when primary aggregate limits are reduced or exhausted
(3) To provide broader coverage for some claims that would not be covered by the insured’s primary insurance policies, which would be subject to the policy retention.
Most umbrella liability policies contain one comprehensive insuring agreement. The agreement usually states it will pay the ultimate net loss, which is the total amount in excess of the primary limit for which the insured becomes legally obligated to pay for damages of bodily injury, property damage, personal injury, and advertising injury.