Ways to Manage Complex Risk With Excess Liability Coverage


When it comes to business risk, excess liability coverage is a unique beast. It’s an important piece of your business insurance puzzle and can protect your personal assets from costly legal judgments. But because this type of risk is so complex, you need to have a firm understanding of what excess liability insurance covers and how it works before signing on the dotted line.

If you’re not quite sure what excess liability insurance is or if you have questions about how it works with other types of business insurance, this article is for you. Keep reading to learn more about excess liability coverage and why it’s such a crucial piece of your risk management strategy.

What is Excess Liability Coverage?

Excess liability coverage is a form of business liability insurance. It protects your business from certain types of damages if you’re found liable for injury or property damage. Unfortunately, it won’t protect you from every type of business liability, but it can be a valuable part of your risk management strategy.

Excess liability coverage typically works hand-in-hand with primary liability coverage. The primary policy covers the first dollar of liability, while the excess policy kicks in once the primary policy has been exhausted. Some business owners carry both a primary and excess liability policy, while others carry just one or the other. You’ll want to know which type of policy makes the most sense for your business and risk factors.

Why Is Excess Liability Insurance Important?

Excess liability coverage is important because it protects your business from large damage awards. A single lawsuit could leave your business on the brink of collapse, and an excessive damage award could threaten your financial solvency.

Excess liability insurance protects you from damage awards that exceed the limits of your other coverage policies. If a customer is injured on your premises and sues you, your primary liability coverage will pay for the injured person’s medical bills.

Excess liability coverage kicks in if the damage award exceeds the limits of your primary policy. For example, if a customer is injured on your premises and sues you for $500,000, your primary liability policy will only pay $100,000 of that claim. Excess liability coverage would kick in to cover the remaining $400,000.

How Does Excess Liability Coverage Work?

Because each business insurance policy is different, there’s no standard format for how excess liability coverage works. However, there are some common themes that you can expect to see. The policy will outline the types of damages it will cover.

For example, let’s say you run a restaurant and one of your customers falls and breaks their hip after tripping on an uneven floorboard. If they sue you and win, the excess liability coverage would pay damages related to the customer’s medical bills.

Excess liability coverage won’t pay for the customer’s pain and suffering or punitive damages (more on those later). It will only pay for concrete damages related to their medical treatment and living expenses.

Excess liability coverage works hand-in-hand with other insurance policies. If a policy has been exhausted, the excess policy kicks in. For example, let’s say you have a $1,000,000 combined single limit policy for general liability, commercial auto, and workers’ compensation. If someone successfully sues you for $1,100,000 in damages relating to a car accident, your general liability policy would cover $100,000 of that claim ($1,000,000 – $100,000 = $900,000). When your primary policy is exhausted, your excess policy would kick in with another $100,000.

When Might You Need Excess Liability Coverage?

Excess liability coverage is meant to protect your small business in the event of a truly massive claim or lawsuit. Because every small business is unique and has its own risk factors, there’s no one-size-fits-all answer to this question. However, there are some general guidelines you can follow.

If you own a retail store, trade shows and other events are perfect opportunities for potential lawsuits. You should consider higher levels of excess coverage at these times to protect your business.

Excess coverage is especially important if your employees are involved in any type of accident. A single slip-and-fall accident can quickly spiral into a multi-million dollar lawsuit. Some businesses, like construction and manufacturing, are inherently more dangerous than others. If you have employees working in these sectors, you may want to increase the amount of excess coverage on your general liability and workers’ compensation policies.

Limitations of Excess Liability Coverage

There are a few limitations to keep in mind with all types of business insurance, but especially excess liability coverage.

First and foremost, excess liability coverage doesn’t protect you from every type of risk. While it will help protect you from large damage awards, you’ll need other types of coverage to protect you from smaller lawsuits.

Excess coverage may only provide the first dollar of coverage. With general liability, workers’ compensation, and automobile coverage, the policy provides coverage up to a certain dollar amount. If a claim is under that dollar amount, you may not be required to pay anything.

Excess coverage only kicks in once the primary policy has reached its limits. Depending on the type of business you operate and your risk factors, your insurer may not offer excess coverage.

Call to Get a Quote for Excess Liability Insurance

Excess liability coverage is a unique form of business liability insurance that kicks in once the primary policy has been exhausted. It protects your small business against truly massive claims and lawsuits. Excess coverage isn’t always necessary and won’t protect you from every type of risk. But it can be a valuable protection for small businesses that are particularly vulnerable to large lawsuits and damage awards. Excess liability coverage is an important part of your risk management strategy. It can protect your business in the event of a truly massive claim or lawsuit.

Millers Insurance Group provides excess liability insurance to companies in a variety of industries, including cannabis-related businesses. Please reach out to us or fill out our online form to get an insurance quote today for your company’s excess liability coverage.

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