Commercial Insurance and Excess Liability Coverage

I’ve been thinking a lot about ice cream lately, specifically Blue Bell ice cream. They’ve been in the news a lot since listeria bacteria was discovered in some of their ice cream products. Officials believe that Blue Bell ice cream contaminated with listeria is responsible for the deaths of 3 people in Kansas in the past year.

In addition, the contaminated products are being blamed for making people ill in Arizona, Kansas, Oklahoma, and Texas. All Blue Bell pulled its entire product line from stores, restaurants, and food service shelves on April 20th. Blue Bell shut down its Broken Arrow, Oklahoma plant on April 3rd for cleaning, and has since followed suit with plants in Texas and Alabama.

Since this series of events began, I’ve been thinking about how small and medium sized businesses can protect themselves from a disastrous claim situation such as this. I’ve not seen anything in news reports about lawsuits that have been filed against Blue Bell, but they will come and they will be expensive.

General liability insurance can protect against some of the losses Blue Bell will face, but probably not all of it. General liability policies have a limit to how much coverage they provide. Depending on the insurance company and the industry, coverage may top out between $1 and $5 million.

One way to provide additional coverage is with a commercial umbrella or excess liability policy. These policies provide additional coverage to protect against large losses. Coverage is purchased in $1 million increments and can provide additional coverage of $1 million, $5 million, $10 million, or even more. The cost for this protection is roughly $1,000 per million in coverage, so a $10 million umbrella would cost about $10,000 a year.

Excess liability policies should be carried by companies of all sizes and in a variety of industries. I have a client whose annual revenues are approaching $1 million. Based on the risk level of his work, he carries a $3 million umbrella to protect himself in the event any of his subcontractors, clients, or their clients are injured or suffer loss based on the work performed. The cost of the policy is much less than the financial loss he’d incur in a single claim.

There are three questions I encourage our commercial clients to answer when discussing excess liability coverage.

  • What are the risk factors associated with their business?
  • What would a minor, moderate, and major loss look like financially?
  • How big of a claim do they want to be prepared for?

Every business carries a certain amount of risk of something going wrong. For programmers and consultants, the risk will be financial. This could be a system failure, poor delivery on a project, or advice that costs a client revenues. A builder or major food or drug provider will have a larger exposure because a worker or client could be injured or lose their life.

Given the difference in risk exposure, companies should envision what small, medium, and major losses may look like. Will a small loss potentially cost hundreds, thousands, or tens of thousands of dollars? Will a moderate loss cost $100,000 or more and what could a large loss constitute? How much of that would you be able to pay out of pocket versus filing a claim?

Insurance can be purchased to cover a one in a million type of claim, but that’s probably not financially prudent. I believe it’s important to consider what a major claim may look like, and compare that to the maximum amount of coverage it would take to address that.

What are you prepared for? Share your comments, questions, and experiences with me on our Google +, Facebook, and LinkedIn pages. I’d love to hear from you!

Evie Wise
Evie Wise


Evie Wise
Evie Wise

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