An unimpaired aggregate endorsement on an umbrella policy is an extremely narrow provision in the umbrella policy. Generally, the unimpaired aggregate endorsements means that the umbrella insurer will not pay for a claim, or defend a claim, if the situation underlying the claim happened while you had general liability insurance but before you purchased your umbrella policy.
An umbrella policy is basically additional insurance coverage beyond general liability insurance. Most liability insurance policies have coverage limits, so if a damage claim exceeds the liability limits, the liability insurer will not pay for damages exceeding that. However, if the insured also purchased an umbrella policy, then that policy will kick in and cover the damages, up to the coverage limit of the umbrella policy, that exceed the general liability policy limits. An endorsement is a specific provision in, or addition to, the umbrella policy.
Sometimes the insured purchases a general liability policy that has effective dates that differ from the effective dates of the umbrella coverage. For example, the general liability policy may run from Dec. 31 to the following Dec. 31, while the umbrella policy effective dates run from June 30 to June 30, so the two policies only have concurrent coverage for about six months out of the year. The unimpaired aggregate endorsement on the umbrella policy only becomes relevant when the effective dates vary from one another. As long as the general liability policy effective dates are the same as the umbrella policy limits, then the unimpaired aggregate endorsement will have no effect.
The term aggregate means total claims and payouts during the effective term of an insurance policy. Each policy generally includes both specific occurrence limits and aggregate limits. For example, the policy may cover up to $1,000,000 for each occurrence, with an aggregate limit of $2,000,000. This means if you have one claim for $1,500,000, followed by another claim for $1,000,000 during the policy term, the policy will only cover $500,000 of the second $1,000,000 claim. The maximum the insurer will ever pay out to the insured is the aggregate limit.
Impairment refers to whether the aggregate limits on the general liability policy have been "impaired" because of a previous payout. For example, if under a $2,000,000 aggregate liability policy the insurer has already paid a $1,500,000 claim, then that liability policy has been impaired to the tune of $1,500,000. If you purchase an umbrella policy after your general liability policy has already been impaired, then the unimpaired aggregate endorsement kicks in. The umbrella insurer will deny coverage until the insured has first paid the amount of the impairment. So, in the example where a $2,000,000 general liability policy has already been impaired by $1,500,000, the general liability insurer would pay the remaining $500,000, then the insured would have to pay the first $1,500,000 in additional claims, before the umbrella policy will kick in and provide any coverage.
- "The Savvy Businessperson's Guide To Property & Casualty Insurance"; Karin A Fleischhaker; 2008
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