General liability insurance is the first line of defense in the event of a third party claim against the policyholder. Umbrella liability insurance is intended to respond in the event the general liability policy is exhausted or does not cover the loss.
Liability insurance policies have limits per occurrence on the amount the policy will pay in the event of a single claim. Policy aggregate limits restrict the amount the policy will pay regardless of the number of claims or occurrences.
The first liability policy to respond to a claim is known as the primary policy. Other policies will not have an obligation to pay claims until the policy limit has been exhausted through claim payments.
Umbrella liability policies will respond to a claim in the event of a catastrophic loss in excess of the per occurrence limit of the primary general liability policy.
In the event a series of claims has exhausted the general liability policy’s aggregate limit, the umbrella liability policy will also respond to covered claims.
In certain instances, the umbrella liability policy may also cover claims that are not covered by the primary general liability policy. In this event, the policyholder is required to satisfy a self-insured retention prior to the umbrella policy’s payment of any claims.