A Florida construction company has a comprehensive insurance program, including a Commercial General Liability (CGL) policy and an Umbrella Liability policy. The CGL policy has a 'per occurrence' limit of $1,000,000 and an 'aggregate' limit of $2,000,000. The Umbrella policy has a limit of $5,000,000 with a Self-Insured Retention (SIR) of $25,000. A catastrophic accident occurs, resulting in total damages of $1,800,000. The CGL policy covers $1,000,000 of this loss. How much of the remaining loss will the Umbrella policy pay, assuming no other underlying policies apply and the SIR has not been met by other claims?
- A$800,000
- B$1,000,000
- C$775,000
- D$1,800,000
Show answer & explanationAnswer & explanation
Correct answer: C. $775,000
The total damages are $1,800,000. The CGL policy pays its 'per occurrence' limit of $1,000,000. This leaves a remaining loss of $1,800,000 - $1,000,000 = $800,000. Since the CGL limit was met, the Umbrella policy is triggered. The Umbrella policy has a Self-Insured Retention (SIR) of $25,000, which acts like a deductible when underlying coverage is exhausted (or doesn't apply). Therefore, the Umbrella policy will pay the remaining loss minus the SIR: $800,000 - $25,000 = $775,000.
Why the other options are wrong
- A. This is the remaining loss after the CGL pays, but it does not account for the Umbrella policy's Self-Insured Retention (SIR).
- B. This would imply the Umbrella pays the full remaining amount, ignoring the SIR, or that the CGL didn't pay its full limit.
- D. This is the total loss, not the amount the Umbrella policy would pay after underlying coverage and SIR.
Umbrella Policy - SIR
A Self-Insured Retention (SIR) in an Umbrella policy is a deductible-like amount that the insured must pay out-of-pocket before the Umbrella policy responds, typically when there is no underlying coverage or when underlying coverage limits are exhausted but the claim falls below the Umbrella attachment point.
- Functions like a deductible.
- Applies when underlying policies don't cover a loss or are exhausted.
- Must be satisfied before Umbrella policy pays.
Memory trick: Umbrella picks up, but SIR takes its cut first.