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Umbrella and Excess

Practice questions on umbrella and excess for the casualty exam, each with an answer and explanation.

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Study questions and answers

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1. Which statement best describes a commercial umbrella policy?

  1. It replaces the CGL and business auto policies
  2. It provides limits above scheduled underlying policies and may also cover some losses the underlying policies do not cover
  3. It covers only property damage to the insured's buildings
  4. It pays only defense costs
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B. It provides limits above scheduled underlying policies and may also cover some losses the underlying policies do not cover
An umbrella sits above the underlying liability policies and can also drop down to cover some claims they exclude, subject to a retention.

2. An umbrella policy pays a claim the underlying policies do not cover at all. Before the umbrella pays, the insured must pay a:

  1. Coinsurance penalty
  2. Deductible per vehicle
  3. Self-insured retention (retained limit)
  4. Premium audit charge
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C. Self-insured retention (retained limit)
When the umbrella drops down to cover a loss not covered by underlying insurance, the insured first absorbs the self-insured retention.

3. How does a true excess (follow form) liability policy differ from an umbrella?

  1. It provides higher limits only on the same terms as the underlying policy and does not broaden coverage
  2. It covers losses excluded by the underlying policy
  3. It never requires underlying insurance
  4. It always pays before the underlying policy
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A. It provides higher limits only on the same terms as the underlying policy and does not broaden coverage
A follow form excess policy follows the terms of the underlying policy and only adds limits. It does not fill coverage gaps.

4. A business has a $1,000,000 CGL aggregate limit that has been used up by earlier claims during the policy year. A new covered claim arrives. Its commercial umbrella will generally:

  1. Deny the claim because the underlying aggregate is exhausted
  2. Pay only defense costs
  3. Pay only after the CGL renews
  4. Drop down and respond as if it were the primary policy, subject to its terms
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D. Drop down and respond as if it were the primary policy, subject to its terms
When the underlying aggregate limit is exhausted, the umbrella drops down to take the place of the underlying coverage.

5. An insured lets its required underlying auto policy lapse and then has a $1,500,000 auto liability claim. The umbrella requires $1,000,000 of underlying auto coverage. What happens?

  1. The umbrella pays the full $1,500,000
  2. The umbrella pays nothing at all
  3. The umbrella pays as if the underlying policy were in force, so the insured pays the first $1,000,000
  4. The umbrella pays the first $1,000,000 only
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C. The umbrella pays as if the underlying policy were in force, so the insured pays the first $1,000,000
If required underlying insurance is not maintained, the umbrella pays only what it would have paid had that insurance been in force, leaving the gap to the insured.

6. Which policy is a commercial umbrella usually NOT written over as an underlying policy?

  1. Commercial general liability
  2. Business auto liability
  3. Employers liability
  4. Workers compensation statutory benefits
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D. Workers compensation statutory benefits
An umbrella can sit over employers liability, but it does not provide excess workers compensation statutory benefits, which are set by law.

7. A personal umbrella policy usually requires the insured to carry minimum underlying limits on which policies?

  1. Homeowners and personal auto liability
  2. Life and disability
  3. Flood and earthquake
  4. Dwelling fire property coverage policies only
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A. Homeowners and personal auto liability
A personal umbrella sits over the liability coverages of the homeowners and personal auto policies and requires minimum underlying limits on them.

8. Why does a business usually buy a commercial umbrella?

  1. To lower the deductibles on its property policy
  2. To protect against catastrophic liability judgments that exceed its primary limits
  3. To replace its workers compensation policy
  4. To cover damage to its own vehicles
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B. To protect against catastrophic liability judgments that exceed its primary limits
The main purpose of an umbrella is to provide high limits for large liability losses that exceed the underlying policies.

9. When an umbrella responds to a covered claim above the underlying limits, how are defense costs usually handled?

  1. The insured always pays them
  2. They reduce the underlying policy's limits only
  3. The umbrella insurer usually defends once the underlying insurer's duty to defend ends, often in addition to the umbrella limit
  4. They are excluded entirely
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C. The umbrella insurer usually defends once the underlying insurer's duty to defend ends, often in addition to the umbrella limit
The umbrella insurer generally takes over the defense after the underlying limits are used up, and most umbrellas pay defense costs outside the limit.

10. Which statement about the umbrella and underlying policies is correct?

  1. The umbrella pays first, then the underlying policy
  2. The underlying policies pay first up to their limits, then the umbrella pays above them
  3. Both pay equal shares of every loss
  4. The insured chooses which policy pays first
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B. The underlying policies pay first up to their limits, then the umbrella pays above them
Underlying policies are primary and pay up to their limits. The umbrella is excess and pays above them.
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