A Florida business has a Commercial General Liability (CGL) policy and an Umbrella Liability policy. The CGL policy has a limit of $1,000,000 per occurrence. The Umbrella policy has a $10,000 Self-Insured Retention (SIR) and a limit of $5,000,000. A covered claim arises that results in a $1,200,000 judgment against the business. Assuming the CGL policy responds first, how much will the Umbrella policy pay?
- A$1,190,000
- B$200,000
- C$5,000,000
- D$190,000
Show answer & explanationAnswer & explanation
Correct answer: B. $200,000
The CGL policy pays its full $1,000,000 limit first. This leaves a remaining loss of $1,200,000 - $1,000,000 = $200,000. Since the CGL policy (which serves as underlying coverage) has paid its full limit, the SIR of the Umbrella policy typically does not apply. The Umbrella policy then covers the excess loss up to its limit. Therefore, the Umbrella policy will pay $200,000.
Why the other options are wrong
- A. This amount is incorrect based on the CGL limit and the total judgment.
- C. This is the Umbrella's maximum limit, but only the actual excess loss is paid.
- D. This incorrectly deducts the SIR, which only applies when the Umbrella is primary (no underlying coverage or when underlying coverage doesn't apply).
Umbrella Liability - SIR vs. Underlying Coverage
An Umbrella Liability policy provides excess coverage over underlying policies. A Self-Insured Retention (SIR) functions like a deductible, but typically only applies when the umbrella policy is primary (no underlying coverage) or when underlying coverage is exhausted, not as a 'gap' between underlying coverage and the umbrella's activation.
- Provides excess liability coverage.
- Sits above primary (underlying) policies.
- SIR applies when umbrella is primary or underlying doesn't cover.
- SIR generally does NOT apply if underlying policy exhausts its limit.
Memory trick: Umbrella: Covers the 'excess' above your primary, the SIR is for when you're 'bare'.