Did you know that your standard business liability insurance may not cover large claims or lawsuits that exceed the policy limits? Excess liability insurance offers an extra layer of protection when your primary coverage falls short. This additional coverage helps safeguard your business from significant financial losses caused by legal fees, damages, and settlements. If your business operates in a high-risk industry, it’s crucial to understand how excess liability insurance works, what it covers, and whether it’s the right fit for you.

In this article, we’ll explore the ins and outs of excess liability insurance, including its coverage, benefits, and how to choose the right policy for your business.

What Is Excess Liability Insurance?

Excess liability insurance is designed to provide additional coverage when the limits of your primary business insurance policies, such as general liability or commercial auto insurance, are exhausted. This coverage kicks in after your standard policy limits have been reached, ensuring that your business doesn’t bear the brunt of unexpected expenses. Excess liability insurance doesn’t alter the terms of your existing policies. Instead, it acts as extra protection to ensure your business is covered in the event of large claims or legal fees.

Unlike some types of insurance, excess liability insurance is not intended to cover risks that are excluded from your primary policy. Instead, it provides additional coverage on top of what’s already included, which can be crucial for businesses that are at higher risk of facing large claims.

What Does Excess Liability Insurance Cover?

Excess liability insurance coverage varies depending on your primary policies, but generally, it covers:

• Legal costs: If your business faces a lawsuit that exceeds the coverage of your primary liability insurance, excess liability can help cover the legal fees.

• Settlements and damages: In the event that your business is required to pay damages, excess liability insurance can help cover the amount that exceeds your original policy limits.

• Medical costs: If an accident occurs that leads to substantial medical costs, this coverage helps protect your business from paying the full cost out of pocket.

Since excess liability insurance only comes into play after your primary policies are exhausted, it’s crucial to understand the scope of your existing coverage before determining how much excess liability you need.

How Does Excess Liability Insurance Work?

Excess liability insurance works by providing an additional layer of protection once the limits of your general liability insurance or other primary policies have been reached. It does not cover new types of risks or claims that your standard policy doesn’t include. For example, if your general liability policy has a $1 million limit and your business is sued for $1.5 million, excess liability insurance would cover the additional $500,000, provided it is within the limits of your excess policy.

This type of insurance is often purchased in increments, such as $1 million, which can be tailored based on your specific business needs. It is essential for businesses with significant exposure to large-scale lawsuits or other significant financial risks.

What Are The Benefits of An Excess Liability Insurance Policy?

Having an excess liability insurance policy provides several benefits, including:

• Enhanced financial protection: By providing additional coverage beyond your primary insurance policies, excess liability insurance helps ensure that your business isn't financially devastated by a major claim or lawsuit.

• Peace of mind: Knowing that your business is protected from unforeseen risks and large claims allows you to focus on growth and operations, rather than worrying about potential liabilities.

• Affordability: Excess liability insurance is often more cost-effective than purchasing additional primary coverage, especially for businesses that are already operating with sufficient base-level insurance.

• Flexibility: It allows businesses to scale their coverage limits according to their specific risks, providing customized protection.

Who Is Excess Liability Insurance Right For?

Certain businesses face higher risks of large claims, making excess liability insurance a smart investment. If your business operates in one of the following industries, excess liability coverage might be particularly beneficial:

Construction Contractors

Construction companies often deal with significant risks, including accidents, injuries, and property damage. For contractors working on large-scale projects, having excess liability insurance can provide much-needed protection beyond the limits of a standard general liability policy.

Manufacturers

Manufacturing businesses are exposed to potential product liability claims, and those claims can quickly exceed the limits of a basic policy. Excess liability insurance helps safeguard against these expensive lawsuits.

Real Estate

For real estate investors diversifying their portfolios through property funds (e.g., property funds), excess liability insurance ensures protection against liabilities arising from pooled investments, such as accidents or legal claims tied to managed properties.

Hotels & Motels

Hotels and motels are subject to risks related to guest safety, property damage, and customer service. With the added risk of large lawsuits, excess liability insurance ensures that your business remains protected.

Wholesalers/Distributors

Businesses in the wholesale and distribution industry face risks involving product liability, especially if the products they sell cause harm. Excess liability insurance is a cost-effective way to protect against these potential legal costs.

How Much Does Excess Liability Insurance Cost?

The cost of excess liability insurance depends on several factors, including:

• Your industry: High-risk industries such as construction or manufacturing tend to have higher premiums.

• The amount of coverage needed: The higher the excess coverage limits, the more expensive the policy will be.

• Your business’s claims history: Businesses with a history of frequent claims may face higher premiums.

• Your primary insurance policies: The limits and terms of your existing policies can also affect the cost of excess liability insurance.

While the cost of excess liability insurance varies, it’s often considered an affordable way to protect your business from potentially devastating financial losses.

Considerations When Purchasing Excess Liability Insurance

When purchasing excess liability insurance, it’s important to consider several factors:

Evaluate Your Risks

Understanding the specific risks your business faces will help you determine how much excess liability coverage is necessary. Conducting a risk assessment can help identify areas where you may need additional protection.

Understand Your Primary Policies

Before purchasing excess liability insurance, ensure that you have sufficient coverage in your primary policies. Excess liability is designed to kick in after your primary policies are exhausted, so it’s important to know where the limits of your coverage lie.

Policy Terms & Conditions

Read through the terms and conditions of any excess liability insurance policy you’re considering. It’s essential to understand the coverage limits, exclusions, and any additional requirements before making a decision.

What’s The Difference Between Excess Liability Insurance vs. Umbrella Insurance Policy?

While both excess liability insurance and umbrella insurance policies provide additional coverage beyond primary policies, there are key differences. Excess liability insurance only provides additional coverage for the specific types of claims that your primary policies cover. In contrast, umbrella insurance provides broader coverage, extending to situations that may not be covered by your primary policies, such as personal injury or property damage.

Do You Need Excess Liability Insurance? Talk To Hotchkiss Today

If you're concerned about the potential risks your business faces and want to ensure you have the right level of protection, Hotchkiss Insurance is here to help. As one of the leading insurance agencies in Texas, Hotchkiss Insurance offers customized excess liability insurance policies for businesses of all sizes. Whether you're in construction, manufacturing, real estate, or another industry, we can help you find the right coverage to protect your business and give you peace of mind.

Contact Hotchkiss Insurance today to learn more about our business insurance options and to get started with the coverage that’s right for you. Serving Houston, San Antonio, Fort Worth, Lubbock, and Dallas, TX, we’re here to support your business needs.