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Excess Liability Coverage

I already have general liability insurance for my contracting business. Why would I need excess liability coverage as well? Is it required by the state of California?

Think of excess liability as an extra layer of protection for your business. California doesn’t require you to have excess liability coverage, but a client or contractor may.

Let’s say you have a general liability policy that covers your business for claims of up to $1 million, but you’re hoping to land a job with a firm that requires its California subcontractors to carry $1.5 million in liability insurance. You need excess liability coverage to take care of the extra $500,000. It’s an easy and affordable way to increase the limits on your existing general liability policy.

Excess liability coverage also kicks in when a claim against your contracting business exceeds the maximum amount that your underlying insurance, such as your general liability or workers’ compensation insurance, will pay. Many contractors add excess liability coverage to their commercial auto policies, because of the potential for very high jury awards if they are found at fault in a serious motor vehicle accident.

So, while excess liability coverage is not required under California law, there are good reasons to consider it.

Is excess liability the same thing as an umbrella policy?

Although people sometimes talk about excess liability and umbrella insurance as if they were the same thing, they really are not the same. It’s called excess liability when it provides additional coverage for one type of insurance only, like your general liability policy OR a commercial auto policy. You pay a separate premium for each policy that you add excess liability to.
Umbrella insurance bundles different types of insurance, such as general liability AND commercial auto, and pays when a claim against either exceeds the limit.Many California contractors bundle their general liability, workers’ compensation, and commercial auto coverage under one umbrella policy. You pay a single premium to add umbrella coverage to all bundled policies.

Do I have to buy an excess liability or umbrella policy from the same carrier that I get my general liability insurance from?

There is no such requirement in California. You do not have to buy your excess or umbrella coverage from the same carrier that issued the original underlying insurance. You might find that you can save some money using different carriers. But there may be advantages to using the same carrier. For example, it can be easier to avoid coverage gaps and problems in processing claims when a single carrier is involved. That’s a decision you will need to make after weighing costs and practical considerations.