Why Contractors Need Excess Liability Insurance

Newsletter 18-04

Today’s risks coupled with a litigious environment require contractors to look carefully at their Liability insurance program to make sure they have enough coverage in place in the event of a serious loss for which they are found to be responsible. While underlying policies such as Commercial General Liability (CGL) or Commercial Auto insurance address third-party claims, the limits on these policies may simply not be enough. That’s where Excess Liability insurance steps in.

Excess Liability insurance extends the coverage limits of your underlying policies, providing an extra layer of protection. The same terms and conditions of your underlying policies typically apply on an Excess policy.

Why Would You Need Additional Coverage Limits?

In the event of a catastrophic incident that leads to substantial liability claims, an underlying policy might not be sufficient to cover all the costs. Excess Liability insurance can cover costs that exceed the limits of your primary, underlying policy, protecting your assets and providing financial stability by covering large claim amounts.

You may also require more limits due to the nature of the work you are performing or the size of a project. For projects with complex operations, multiple subcontractors, and higher exposures, Excess Liability coverage can provide peace of mind. The additional coverage can help address the increased risk associated with larger projects and its potential impact on your business.

In addition, many contracts, especially those with larger clients or government entities, require contractors to carry certain levels of Liability insurance. If, for example, you have a contract for work that requires you to maintain Liability limits in the amount of at least $5 million but your underlying CGL policy provides a limit of $2 million, you can apply for an Excess Liability policy for the additional $3 million required. Excess Liability coverage can help contractors meet these contractual obligations and secure projects that demand higher limits of liability.

Having Excess Liability coverage can also serve to enhance your reputation and credibility. It demonstrates to clients and stakeholders that you are well prepared to handle potential risks and liabilities that might arise during the course of a project.

It’s important to evaluate your specific needs, assess project requirements, and consult with your legal advisor to determine the appropriate amount of Excess Liability coverage for your business.

*NOTE: The insuring agreement in a policy sets out the covered perils, assumed risks, and nature of coverage that the insurance company provides to its insured in exchange for the premiums paid. Thus, the terms and conditions of the policy will dictate whether coverage exists and the nature of any potential benefits.