Protecting Your Bottom Line: The Critical Role of Excess/Umbrella Liability Coverage for Contractors

Author, Jeremy Hoolihan, Partner, Rancho Mesa Insurance Services, Inc.

The construction industry operates in one of the highest‑risk environments. Contractors work with heavy machinery, multiple layers of subcontractors, hazardous jobsites, strict contractual obligations, and constant exposure to the public. These conditions create significant exposure to large liability claims. And, although general liability, auto liability, and employers’ liability insurance make up the foundation of a contractor’s risk management program, these primary policies often do not provide enough protection when a major incident occurs.

Excess and umbrella liability coverage plays a critical role by adding a financial safety net that protects construction companies from catastrophic losses. This additional coverage ensures that one significant claim does not jeopardize the entire business’ financial health.

Construction claims can escalate quickly, and the industry routinely deals with high‑hazard operations like trenching, scaffolding, welding, and heavy equipment. When something goes wrong, the consequences can be severe. Claims involving multi‑party lawsuits, public accidents near the jobsite, structural failures, or damage to neighboring properties often exceed the limits of standard liability policies. Judgments, often referred to as nuclear verdicts, in the tens of millions of dollars have become increasingly common. Without adequate excess or umbrella liability insurance, a single large‑scale accident can financially devastate a contractor.

The industry also depends heavily on financial stability to keep projects moving forward. A major loss can disrupt working capital, delay active jobs, hinder bonding capacity, and interrupt cash flow, all of which are essential elements of a construction company’s balance sheet. Excess and umbrella coverage helps protect these critical financial elements. Ultimately, this coverage ensures that a significant claim does not derail a company’s long‑term stability.

Contractors rely on excess and umbrella insurance as project owners, municipalities, and general contractors are increasingly requiring higher liability limits. Many construction contracts now call for total limits of five million dollars, ten million dollars, or more, depending on the project’s size and complexity. Having an excess or umbrella policy makes it easier for contractors to meet these requirements, bid confidently on larger and more profitable projects, and demonstrate reliability during contract negotiations. Without the appropriate limits, a contractor may be eliminated from consideration before a project even begins.

Excess and umbrella liability insurance is also one of the most cost‑effective ways for construction companies to increase their protection. Rather than raising limits on individual primary policies which can be expensive, these policies offer an affordable way to secure millions of dollars in additional coverage. Because they are designed to respond to major, unexpected events rather than routine claims, they provide a high-level of value relative to their cost. For many contractors, this makes them one of the smartest risk management investments available.

Construction companies face some of the most complex and severe liability risks. While primary insurance policies address routine exposures, excess and umbrella liability coverage is what protects contractors from catastrophic events that could undermine financial stability, damage their reputation, or threaten long‑term viability. For contractors of all sizes, this type of coverage should be strongly considered as an essential safeguard and one that not only protects the business but also supports contract compliance, enhances competitiveness, and ensures longevity in a high‑risk industry.

Feel free to reach out to me at (619) 937‑0174 or jhoolihan@ranchomesa.com to discuss excess and umbrella coverage.

Umbrella vs. Excess Liability: The Key Differences Contractors Need to Know

Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

When reviewing insurance requirements that contractors receive from municipalities and/or general contractors, two lines of coverage that are often misunderstood are umbrella and excess liability. These terms are commonly interchangeable in the contract, but have subtle differences. In addition, the limits required by contracts are increasing significantly.

Excess vs. Umbrella

An excess liability policy has two primary functions: it provides excess limits above the underlying liability insurance limits and replaces underlying insurance limits as aggregate limits are exhausted; the excess policy will be subject to the same coverage terms, conditions and exclusions as the underlying policies. This is what is called follow-form.

A commercial umbrella liability policy has three primary functions: it provides excess limits above the underlying liability insurance limits; replaces underlying insurance limits as aggregate limits are exhausted; and offers broader coverage than primary policies for certain losses which would be subject to an SIR or self-insured retention.

Why are they important?

A commercial umbrella or a properly structured excess policy will sit above a contractor’s existing policy’s general liability, auto liability and employers’ liability limit. This protects contractors from large unexpected losses that can have devastating financial impact on the company.

With the dramatic rise in costs of insurance claims the last few years, either from social inflation or third-party litigation funding, multi-million dollar settlements are becoming more frequent. For example, if one of your employees is in an auto accident that causes severe bodily injury to multiple people, the legal and medical costs incurred could very easily exhaust your primary auto liability limit very quickly. Umbrella or excess policy limits would be available cover those losses.

So, when reviewing a contract, pay close attention to the umbrella or excess insurance requirements, and ensure that you understand the subtle differences of how they can impact your bottom line if there is a claim.    

To learn more about these specific coverages and how they can be incorporated into your current insurance program, reach out via email to sclayton@ranchomesa.com or (619) 937-0167.

Excess/Umbrella Rates Experiencing Alarming Price Jump

Author, Sam Clayton, Vice President of the Construction Group, Rancho Mesa Insurance Services, Inc.

As if the 2020 business landscape has not already been challenging enough, a hard market for excess/umbrella is occurring at a concerning rate, resulting in rising premiums, limited capacity and a restriction in terms and conditions.

A hard market can be defined by a decrease in limit and underwriting capacity, and an increase in rate and premium. While other lines of liability are seeing single-digit increases, excess/umbrella pricing is experiencing 20-30% jumps, depending on the risk. This significant increase is the result of several factors including:

• Social inflation

• Nuclear judgements

• Third-party litigation financing

• Natural and man-made catastrophes

• Increase in severe distracted driving incidents

In addition to these premium increases, insurance carriers are reducing their capacity. Previously a carrier might have been comfortable in offering higher limits such as $25 million on a risk and now they are limiting their lead limits to $5 or $10 million dollars, which then require a business, in need of higher limits, to seek additional participation from other carriers to meet their needs. This creates both the need to “stack” limits and at the same time make sure policy terms stay consistent.

The area most often overlooked are new restrictions in the terms and conditions. Some to be mindful of include:

• Communicable Disease Exclusions

• Wildfire Exclusions

• Higher Retention Limits

Now more than ever is the time for contractors to be meeting with their broker to put proactive steps in place to minimize the impacts of this hardening market. As the construction group leader here at Rancho Mesa, if you have questions or need help in navigating these turbulent times, please reach out to me at (619) 937-0167 or email at sclayton@ranchomesa.com.

Optimizing Risk Management While Reducing Gaps in Coverage

Author, Jeremy Hoolihan, Account Executive, Rancho Mesa Insurance Services, Inc.

Working within the construction unit at Rancho Mesa for over 15 years, I have developed strong long-term business relationships with my clients. As an insurance advisor, I have an obligation to insulate clients from exposures and liabilities. Many of which may remain the same from year to year. However, it is vital that business owners meet with their insurance advisor frequently, especially prior to an insurance renewal, to avoid potential gaps in coverage.  Below are a few key topics that should be reviewed on a regular basis by a company’s insurance advisor. 

Review and Discuss Business Operations

It’s always a good business practice to have the insurance advisor review the business’s operations to see if there have been any changes that could affect its risk profile.  For example, I once had a client in the construction industry that specialized in commercial tenant improvement work. The company wanted to start a residential construction division. By understanding this change before it actually took place it provided us the time to adequately access the differences in the insurance exposures between the commercial and residential marketplace.  As a result, we were able to proactively and affordably place their coverage with an insurance carrier that was comfortable with both exposures.

Review Financial Projections

With the economy fluctuating year to year, it is vital that you meet with your insurance advisor and go over your financial projections for the coming policy term.  These items should include projected; annual sales, payrolls, subcontract costs and any changes in your surety requirements. These factors will help in not only negotiating the most favorable renewal terms for you but help to avoid any unforeseen expenses like a large final audit

Discuss Business Assets

Businesses routinely buy, sell, and upgrade their tools, equipment, and vehicles. While most are conditioned to notify their insurance advisor of any changes, it is always a good business practice to review assets with the insurance advisor at each pre-renewal meeting. It is common that there are items that were either sold (that need to be removed) or new (that need to be added to policies). By reviewing the assets on a regular basis, it minimizes the chance that items are missed and you either are paying premium on an item you no longer have or have an uninsured loss.

Discuss and Revisit Recommended Coverages

Recommended coverages may include an Umbrella, Pollution Liability, Professional Liability, Employment Practices Liability, and Cyber Liability policies. Even if you have discussed these coverages in the past with your insurance advisor and have declined them, they should not assume you will do so again in the future. The business climate is constantly changing; therefore, so are the risks you are facing.  Understanding where you have gaps  in your risk management profile and making informed decisions to either transfer the risk to an insurance carrier (purchase insurance) or retain the risk yourself (don’t purchase insurance) is always a Best Practices standard.

If you would like to discuss and learn more about Rancho Mesa’s proprietary risk management tools and explore our help in developing a Risk Management program based on your specific business needs, you can reach out to me at 619-937-0174.