Ultimately, there are two types of excess liability insurance and there is an important difference between excess liability insurance and umbrella liability insurance.
Excess liability insurance pays for claims in excess of existing policy limits based on the underlying scope of coverage only or what is often referred to as on a follow form basis. Separately, the umbrella liability insurance serves three purposes:
- It provides excess limits when the limits of underlying liability policies are exhausted by the payment of claims;
- It drops down and picks up where the underlying policy leaves off when the aggregate limit of the underlying policy in question is exhausted by the payment of claims; and
- It provides protection against some claims not covered by the underlying policies, subject to the assumption by the named insured of a self-insured retention (SIR).