Why a Charter School Should Consider an Umbrella Policy

Most state education boards require charter schools to purchase an umbrella policy as part of their insurance program.  However, there are a few states where it is not required.  In those situations, we highly recommend purchasing one and have provided the following guidelines to assist:

An umbrella policy provides liability coverage over and above the coverage afforded by your basic general liability policy. If you have also purchased commercial auto liability or employers liability coverage, your umbrella should apply excess of that coverage as well. To understand how an umbrella works try thinking of it in relation to a building. Your basic (primary) policies are the building floor and the umbrella is a roof with overhangs. The height of the building represents the umbrella policy limits. The overhangs represent coverage afforded by the umbrella that is not covered by the basic policies. An umbrella protects your firm against potentially devastating lawsuits. Here are some things to consider before purchasing a policy:

Limits

The limits your firm needs largely depend on the nature of your business. For instance, roofers and pharmaceuticals manufacturers are subject to catastrophic losses. Thus, they are likely to need higher umbrella limits than say, a retail store.

Coverages

The umbrella should provide coverages that are not afforded by your basic liability policy. The coverages your company needs depend on the type of business you operate. For example, if your company engages in print or online advertising, then you might want an umbrella that affords broader coverage for personal and advertising injury than your basic policy. Some umbrellas cover humiliation, or discrimination that is unrelated to employment as part of advertising injury.

Variation

The amount and scope of coverage afforded by an umbrella can vary widely from one insurer to the other. Thus, it is important to shop around and compare policies. A good place to start is to obtain an umbrella quote from the insurer that issued your basic policy.

Pitfalls

There are a few things to keep in mind when shopping for an umbrella. First, many umbrella insurers have replaced the old “legalese” in their policies with simplified language like that found in most primary policies. This has made umbrellas easier to read. However, some umbrellas are so similar to the basic policy that they do not provide much broader coverage.

A second thing to consider is that an umbrella policy may contain exclusions not found your basic policies. Alternatively, an umbrella may contain the same type of exclusion as your primary policy, but the exclusion in the umbrella may be broader. For example, the pollution exclusion in your basic liability policy may retain some pollution coverage while the exclusion in the umbrella retains no coverage at all.

Thirdly, some umbrellas contain a self-insured retention or “SIR.” It represents the amount your firm will pay out of pocket for each occurrence that is covered by the umbrella but not the basic policy.

Policy Period

Finally, when buying an umbrella, make sure that it begins and ends on the same dates as your basic policies. Policy dates are important because many umbrellas limit coverage to damages that result from injuries or damage occurring during the policy period of the umbrella.