What Is Excess Liability Insurance and When Does Your Business Need It?

Excess Liability Insurance adds to what is called "primary" or "underlying" liability coverage. This most often includes Commercial General Liability (CGL), Business Auto Liability, Employers Liability Coverage. The excess liability will pay for the part of a covered loss that exceeds an underlying limit, and it drops down when paid claims exhaust an underlying aggregate. Businesses purchase excess liability insurance due to the fact that construction contracts, leases, and lawsuits routinely exceed the $1,000,000 per occurrence amount contained within their primary CGL or other policy.

It is the mechanisms behind the quotes that are far more important to the buyer than the labels (or names) on each quote. An example of this would be two $5,000,000 "excess" policies may appear identical as far as what is printed on the certificates. However, one could burn away (inside the limit) all of the defense costs while the other will pay for all defense costs in addition to the limits stated within each policy.

What is excess liability insurance?

Excess Liability Insurance is an additional level of coverage that will pay when a covered loss exceeds the limits of your Primary Policy. Most often excess liability insurance covers your CGL policy, employers liability coverage, and business auto liability. These are listed as the Underlying Policies on the Excess Policy Schedule of Underlying Insurance. If a $1,800,000 auto loss settles above the $1,000,000 limit of the Business Auto liability policy, the excess policy will then cover the amount that would not have been payable by the Business Auto liability policy ($800,000).

Your aggregate limit is the total amount an underlying policy will cover for losses incurred by you within one policy year, and once claims drain it, the excess drops down in its place. This is how the gap for defense costs is formed: The ISO umbrella CU 00 01 provides defense coverage above the limit while many Surplus Lines policies provide only your Ultimate Net Loss. A $1,200,000 defense claim can eat a $5,000,000 layer down to $3,800,000.

Is excess liability the same as umbrella insurance?

Not quite. An umbrella is the most all-encompassing type of excess coverage. It is the only type that can drop down to become primary insurance on some claims where an insured has policies with exclusions, over a self-insured retention. The other two types of excess coverage are follow-form and standalone excess. Follow form and stand alone excess only add limits above what is already covered below. A word of warning regarding follow-form: true follow form is rare, therefore, you should check if the terms used in each layer are consistent with the terms of the layer below. For which structure fits which buyer, see our umbrella vs excess liability guide.

When does a business need excess liability coverage?

Most businesses purchase coverage for at least one of these three reasons: a contract mandates coverage, a landlord (or large customer) has written that requirement in your lease, or your worst realistic potential loss is more than $1,000,000. Contracts are the most common trigger. General contractors set minimum total limits, often $5,000,000 or $10,000,000, with the certificate due before you mobilize.

The third reason needs no contract. American juries returned 1,288 verdicts of $10,000,000 or more between 2013 and 2022, by the US Chamber Institute for Legal Reform's count, with the median product liability verdict reaching $36,000,000.^[1]

Severity concentrates in a few places:

• Auto fleets: vehicles on the road are the most common source of verdicts above $1,000,000.
• Work at height or below grade: roofing, scaffold, and excavation work produces catastrophic injury claims.
• Public footfall and products: restaurants, retail, apartments, and anything you make or distribute expose large numbers of strangers.

How do excess liability limits stack?

Layers of excess limits are stacked on top of one another. Each layer attaches at the end point of the layer below it. A simple example of a small business layered tower would be a $1,000,000 CGL (with a $5,000,000 Excess Policy layered over it), totaling $6,000,000. Large commercial towers often have many layers that may come from multiple insurance companies. The excess carrier will require a certain amount of coverage to be provided by each underlying policy. There is typically a standard schedule for the minimum amounts required for the excess carrier as follows:

Maintaining those limits is a policy condition. In case you terminate or decrease an original policy prior to its expiration date, then the excess liability coverage would pay only based on the previously agreed upon minimum coverage limits. The difference would be your responsibility. The most subtle of traps is a sub-limit (i.e., a $250,000 assault and battery sub-limit within a CGL that has a limit of $1,000,000). It will only cover you if specifically noted on your policy's schedule. At each renewal, have your broker walk through the new schedule with you.

How much does excess liability insurance cost?

The variables that drive excess liability insurance pricing are those which determine the cost of your primary policy, as well as an additional structural element: position on the layer. The first excess million is the highest priced because there's the greatest chance that this will be the paying layer, with each subsequent layer being less expensive per million. As far as industry class drives it more than anything else, a roofing contractor or a long haul trucker pays multiples of what a consulting firm has for the exact same limits. Market wide prices have climbed: social inflation, claim severity growing beyond economic inflation, added 57 percent to U.S. liability claims over the last ten years and ran at 7 percent in 2023, per the Swiss Re Institute.^[2] These excess layers are absorbing the upper end of all large verdicts and therefore tend to feel these trends earlier than others. See our cost calculator for how your class translates into premium.

This guide is educational in nature and a summary of standard ISO policy language only. The actual terms, conditions and endorsements contained in your policy will control. Consult with a licensed broker about your actual exposures.

The Bottom Line

Excess Liability Insurance adds additional limits to your general liability, auto, and employers liability policies. The excess policy will pay when the Limits of Your Underlying Insurance have been exhausted. Most buyers are driven by a Contract/Lease requiring $5,000,000 or higher, though severe verdicts justify the layer on their own. Before you bind, ask for the schedule of underlying insurance and confirm whether defense sits inside or outside the limit.