Current Trends Make Umbrella and Excess Liability a Must-Own Coverage

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No one expects to experience a catastrophic loss. However, it's crucial to have appropriate coverages in place if and when these losses arise. Umbrella and excess liability policies increase limits of insurance over primary general liability, auto liability and employers liability policies. These policies offer coverage in the event you experience that large-scale loss that you never expected.

For Real Estate companies, the biggest challenge in setting liability limits for these policies is estimating how severe a loss can be. Losses resulting from negligence associated with properties have a wide range of outcomes from minor to severe. It is important to take a step back and view exposures with an open mind throughout the process of determining appropriate umbrella and excess liability coverage.

Hardening Market

The umbrella and excess liability insurance marketplace has been a challenging environment in recent years. Policy limits are being cut, even for accounts with no recent claims activity. While policy limits are being cut, pricing is continually increasing; so buyers pay more for less. There has also been a significant reduction in capacity and in terms and conditions, making procuring appropriate coverages extremely difficult.

There are several reasons for this difficult insurance market for umbrella and excess liability. Nuclear verdicts, generally defined as verdicts and settlements of $10 million or more, are on the rise across all industries. Several societal trends have created increasingly anti-corporate juries; these trends are often called "Social Inflation." A 2019 Washington Post article covers five class-action lawsuits against large Real Estate companies in the United States. These lawsuits, which were based around broker tactics, show this pattern of corporate distrust amongst the general public.

Aside from the increased volume of lawsuits, third-party litigation financing is another trend connected to nuclear verdicts. Litigation financing involves a third-party source funding a plaintiff's court costs to receive a portion of jury awards. When a plaintiff has a third party's financial backing, they are much more likely to hold out during the litigation process, which generally means a higher verdict or settlement.

Questions To Answer

According to the Assurex Real Estate Benchmarking report, over 90 percent of commercial real estate companies purchase $10 million or less of umbrella and excess liability limits. While this may be due to cost and the hardening marketplace, it is important to know your organization's risk profile when setting these limits—especially given the current landscape.

Several questions are crucial for Real Estate companies to answer when it comes to considering coverage. Your broker can help your team answer these questions and decide what these answers mean when building a policy.

Important questions include:

  • What would the financial consequences be to your firm after a severe loss?
  • How large of a loss can you absorb without insurance?
  • What concerns do you have regarding the long-term viability of your excess liability insurance carriers?

We're Here To Help

The RCM&D Real Estate Practice is uniquely positioned to help you answer all of the above questions, provide risk mitigation strategies, and help procure the best possible umbrella and excess liability coverage possible. Talk to your trusted advisor today for more on how to tackle risks and protect your business from loss.

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