however, contractors can protect themselves against these losses by employing excess and general liability insurance, both of which increase the limits of the underlying policies, but have several important distinctions.
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first, what is an underlying policy?
An underlying policy is the initial insurance coverage established to protect against particular risks and address associated losses.
Each policy has its own unique scope of protected risks and financial limits. any liability for an incident that exceeds or falls outside of these parameters becomes the responsibility of the policyholder, not the insurance company.
For example, consider an underlying policy that covers workplace injuries, with damages up to $1 million. In which of the following scenarios would the contractor be fully covered?
Scenario 1: An accident occurs in the workplace for which the contractor is responsible. damages are assessed at $700,000.
scenario 2: an accident occurs in the workplace of which the contractor is responsible. damages are assessed at $1.4 million.
Scenario 3: An off-site accident occurs for which the contractor is responsible. damages are assessed at $700,000.
the contractor is only fully covered in scenario 1.
In Scenario 2, while the scope of the incident is covered by the policy, the $1 million limit means the contractor would be responsible for the excess of $400,000.
In Scenario 3, the contractor would be responsible for the full $700,000 assessment because the location of the accident was not covered by the scope of the policy, an inclusion gap. regardless of the financial cap on the contractor’s policy, the claim would not be covered.
To mitigate this risk, many policyholders seek additional coverage through an excess liability policy.
Fortunately, there are ways for contractors to protect themselves against the types of losses in scenario 2 and 3: excess and blanket insurance.
what is excess insurance?
excess insurance provides additional financial limits above and beyond those covered by the underlying policy.
Unlike umbrella policies, excess insurance does not expand the terms or scope of the underlying policy, but instead covers higher limits to protect against unforeseen and catastrophic claims and losses.
excess insurance helps contractors avoid the situation described in scenario 2. by extending their insurance to cover workplace accidents up to $2 million, the contractor in that scenario would not be liable for overpayment of $400,000.
what is general insurance?
A form of excess liability insurance, umbrella policies cover claims that exceed the limits stipulated by the terms of the underlying policy, while also providing wider coverage encompassing losses outside of those outlined in the policy initial.
for example, an umbrella policy may cover automobile liability in a foreign country even though the commercial auto policy does not extend its territory to foreign countries.
so umbrella insurance helps close any outstanding liability gaps.
In the examples above, umbrella insurance would have helped the contractor in scenario 3 protect themselves: they could have purchased an umbrella policy that covered additional contingencies not specifically related to the workplace.
Of course, before liability insurance policies address any of these losses, the insured must often pay a self-insured retention fee (sir), an amount paid by the owner of the policy before insurers respond to an incident.
While excess insurance does not affect the terms of your underlying policy, it does provide additional limits.
General insurance is a broader type of additional insurance that can cover situations outside the scope of the underlying policy.
bcs: your coi tracking solution
Whatever the terms of your providers’ certificates of insurance (cois), managing a team of third-party providers involves many moving parts.
Instead of risking the human oversight and non-compliance often associated with manual document tracking, it is prudent to migrate vendor processes to an automated solution that automatically flags policy deficiencies for an easy return to compliance.
From automated RFP onboarding and transmission tools to streamlined supplier portals and in-app messaging, state-of-the-art software comprehensively manages the full scope of your third-party processes, leveraging all the benefits of modernization so you can focus on running your business.
To learn more about the difference between excess and general insurance, watch this explainer video from the College of Business Accreditation Services (BCS).
bcs is the preeminent coi management solution on the market, offering self-service and full service follow-up, in-app communication tools, automatic onboarding via the bcs app, supplier portals, automatic RFP transmission and much more. To learn more, schedule a demo or contact us today.