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Do Commercial Umbrella Aggregate Limits Apply to an Underlying Policy Without an Aggregate?

If an insured has a $1-million, combined single limit (CSL) on an auto policy and they exhaust the auto CSL and the umbrella limits, would the limit for the umbrella be reset for any other loss?
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On a commercial umbrella policy, it has always been my understanding that the most the policy will pay in a single policy period is the general aggregate limit. When reviewing the policy language in CU 06 02 06 97, I was surprised to read that if a policy shown in the schedule of underlying insurance does not have an aggregate, then the general aggregate would not apply.

Q: If an insured has a $1-million, combined single limit (CSL) on an auto policy and they exhaust the auto CSL and the umbrella limits, would the limit for the umbrella be reset for any other loss? 

Response 1: Limits of insurance are very important when comparing policies. Your particular policy has preferred wording around limits of insurance. If there is no aggregate in the underlying insurance, there's no aggregate in the umbrella.

II. LIMITS OF INSURANCE

B. The General Aggregate Limit is the most we will pay for all damages covered under the Insuring Agreement in Section I., except:

1. damages included in the "products-completed operations hazard"; and

2. coverages included in the policies listed in the Schedule of Underlying Insurance to which no underlying aggregate limit applies.

Your analysis is spot on, but don't expect every umbrella policy to respond in the same manner.

Response 2: It is common for commercial umbrella policies to apply an aggregate limit to only those underlying policies that include aggregate limits. However, this is by no means universal. It is important to review how the aggregate limits apply in any umbrella policy, as there are certainly some umbrella policies that apply the aggregate limit to underlying policies.

Response 3: Umbrella policy forms vary on how the general aggregate applies, depending on drop-down provisions terms that follow the underlying forms. These are important factors when comparing quotes from different companies.

In your auto example, the CSL for auto policies usually applies separately to each accident, and it is not a policy year aggregate. Look up the difference between split auto limits and CSL for a detailed explanation. When you have a $1 million CSL, the insured can have multiple losses on the same primary auto policy without changing the primary limit available for each accident. The umbrella is usually not impacted on the auto policy until one accident exceeds the underlying limit.

Response 4: You are correct. The umbrella general aggregate does not apply if the underlying policy does not have an aggregate. I do not think this is unusual in umbrella policies, although it's not always the case.

Response 5: That's a common misunderstanding regarding excess policies. Most of these policies are proprietary in nature so reading them is very important when comparing. That said, almost every excess policy I've analyzed has a provision stating the aggregate does not apply if an underlying policy does not have an aggregate. Since the auto policy does not have an aggregate, most excess policy aggregates will not apply. 

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.