Common Mistakes General Contractors Make with Commercial Umbrella Insurance
Commercial umbrella insurance is one of the most valuable policies a general contractor can carry. It provides an extra layer of liability protection when claims exceed your underlying policy limits. Yet many contractors either skip this coverage entirely or purchase it without fully understanding how it works.
At Farmer Brown, we have helped contractors across all 50 states navigate their insurance needs for nearly three decades. During that time, we have seen the same mistakes repeated over and over. This guide breaks down the most common errors general contractors make with commercial umbrella insurance coverage and how to avoid them.
Mistake #1
Assuming General Liability Limits Are Enough
The most dangerous mistake contractors make is believing their general liability insurance provides sufficient protection on its own. A standard general liability policy typically offers $1 million per occurrence and $2 million aggregate. That sounds like a lot until you face a serious claim.
Consider what happens when a worker suffers a catastrophic injury at your job site. Medical expenses alone can reach hundreds of thousands of dollars. Add lost wages, rehabilitation costs, and pain and suffering, and you are looking at a claim that easily exceeds $1 million. If you are found liable and your policy limits cannot cover the full judgment, your business assets are on the line.
Commercial umbrella insurance exists specifically for these situations. It kicks in when your underlying coverage runs out, providing additional liability coverage that can mean the difference between surviving a lawsuit and losing everything.
Small business owners often think umbrella coverage is only for large operations. That is simply not true. One slip and fall injury, one vehicle accident, one piece of equipment failure can generate a claim that overwhelms your general liability limits regardless of your company size.
Mistake #2
Not Understanding the Gap Between Underlying Limits and Umbrella Requirements
Here is a technical mistake that catches many contractors off guard. Insurance companies require minimum limits on your underlying policies before they will sell you a commercial umbrella policy. If your current coverage falls below those thresholds, you have a gap that leaves you exposed.
For example, most umbrella insurers require at least $1 million per occurrence on your general liability policy and $1 million combined single limit on your commercial auto insurance. They also typically require specific limits on your employer’s liability insurance.
The problem arises when contractors purchase umbrella coverage without verifying their underlying policy limits meet these requirements. If a claim occurs and your primary coverage falls short of the umbrella’s required minimums, you could be personally responsible for the difference.
Before you purchase commercial umbrella insurance, review every underlying policy. Make sure your general liability, commercial auto, and employer’s liability limits satisfy what your umbrella insurer requires. This simple step prevents a costly surprise when you actually need to file a claim.
Mistake #3
Confusing Excess Liability Insurance with Commercial Umbrella Coverage
Many contractors use the terms “excess liability” and “commercial umbrella” interchangeably. They are not the same thing, and confusing them can leave gaps in your protection.
Excess liability insurance follows the exact terms and conditions of your underlying policy. If your general liability policy excludes a certain type of claim, your excess coverage excludes it too. Excess policies simply extend your existing liability limits without adding anything new.
Commercial umbrella insurance coverage works differently. It provides broader coverage that may protect against claims your underlying policies do not cover. Umbrella policies also typically sit over multiple primary policies simultaneously, covering your general liability, commercial auto, and employer’s liability all at once.
For general contractors facing diverse liability risks across multiple job sites, a commercial umbrella policy usually offers more comprehensive protection than excess liability insurance. Make sure you understand which type of coverage you are actually buying.
Mistake #4
Buying the Minimum Coverage to Satisfy Contract Requirements
General contractors often encounter projects that require specific insurance limits. A commercial client might demand $5 million in total liability coverage before awarding a contract. Many contractors respond by purchasing the exact minimum required and nothing more.
This approach treats insurance as a box to check rather than protection for your business. Contract requirements represent what the project owner wants for their protection, not necessarily what your business needs.
Think about your total exposure. How much are your business assets worth? What would happen if a lawsuit resulted in a judgment exceeding your coverage limits? Liability claims from bodily injury, property damage to someone else’s property, or employee lawsuits can quickly reach seven figures in serious cases.
Commercial umbrella insurance cost is relatively modest compared to the protection it provides. Most small business owners pay between $500 and $2,500 annually for $1 million in additional coverage. Increasing your umbrella policy limits often costs less than you expect, and the extra protection could save your business.
Mistake #5
Waiting Until Something Goes Wrong
Too many contractors operate without commercial umbrella insurance until they face a near miss or an actual claim. By then, it may be too late. Insurance companies review your claims history when determining whether to offer coverage and at what price.
A contractor with a clean record can purchase umbrella coverage at competitive rates. A contractor who just had a significant claim may find coverage more expensive or difficult to obtain. Waiting until you need the protection often means paying more for it or being unable to get it at all.
The best time to add commercial umbrella insurance to your business insurance package is before you need it. Protect your business operations while your claims history is clean and premiums are favorable.
Mistake #6
Ignoring What Umbrella Insurance Does Not Cover
Commercial umbrella insurance provides valuable protection, but it does not cover everything. Contractors who assume their umbrella policy handles all liability risks set themselves up for unpleasant surprises.
Most commercial umbrella policies exclude professional liability claims, which require separate errors and omissions coverage. They typically exclude intentional acts, pollution liability, and certain employment practices claims. Damage to your own property or work usually falls outside umbrella coverage as well.
Understanding these exclusions helps you build a complete insurance program. Your umbrella policy works alongside your other coverage, not as a replacement for it. Review your commercial umbrella insurance policy carefully and ask your agent to explain what falls outside its protection.
Mistake #7
Choosing Price Over Proper Coverage
When shopping for commercial umbrella liability insurance, some contractors focus exclusively on finding the lowest premium. Price matters, but the cheapest policy is not always the best value.
Several factors influence commercial umbrella insurance cost, including your coverage limits, underlying policy limits, claims history, and the type of work you perform. A lower premium might mean lower limits, higher deductibles, or narrower coverage terms.
Insurance companies differ in how they handle claims, their financial stability, and the specific terms of their umbrella policies. A policy that costs slightly more but provides broader coverage and better claims service may save you significantly when you actually need to use it.
Work with an agent who understands construction liability risks. At Farmer Brown, we help contractors compare options from multiple insurers to find coverage that balances cost with proper protection.
Commercial umbrella insurance is one of the most valuable policies a general contractor can carry. It provides an extra layer of liability protection when claims exceed your underlying policy limits. Yet many contractors either skip this coverage entirely or purchase it without fully understanding how it works.
At Farmer Brown, we have helped contractors across all 50 states navigate their insurance needs for nearly three decades. During that time, we have seen the same mistakes repeated over and over. This guide breaks down the most common errors general contractors make with commercial umbrella insurance coverage and how to avoid them.
Mistake #1
Assuming General Liability Limits Are Enough
The most dangerous mistake contractors make is believing their general liability insurance provides sufficient protection on its own. A standard general liability policy typically offers $1 million per occurrence and $2 million aggregate. That sounds like a lot until you face a serious claim.
Consider what happens when a worker suffers a catastrophic injury at your job site. Medical expenses alone can reach hundreds of thousands of dollars. Add lost wages, rehabilitation costs, and pain and suffering, and you are looking at a claim that easily exceeds $1 million. If you are found liable and your policy limits cannot cover the full judgment, your business assets are on the line.
Commercial umbrella insurance exists specifically for these situations. It kicks in when your underlying coverage runs out, providing additional liability coverage that can mean the difference between surviving a lawsuit and losing everything.
Small business owners often think umbrella coverage is only for large operations. That is simply not true. One slip and fall injury, one vehicle accident, one piece of equipment failure can generate a claim that overwhelms your general liability limits regardless of your company size.
Mistake #2
Not Understanding the Gap Between Underlying Limits and Umbrella Requirements
Here is a technical mistake that catches many contractors off guard. Insurance companies require minimum limits on your underlying policies before they will sell you a commercial umbrella policy. If your current coverage falls below those thresholds, you have a gap that leaves you exposed.
For example, most umbrella insurers require at least $1 million per occurrence on your general liability policy and $1 million combined single limit on your commercial auto insurance. They also typically require specific limits on your employer’s liability insurance.
The problem arises when contractors purchase umbrella coverage without verifying their underlying policy limits meet these requirements. If a claim occurs and your primary coverage falls short of the umbrella’s required minimums, you could be personally responsible for the difference.
Before you purchase commercial umbrella insurance, review every underlying policy. Make sure your general liability, commercial auto, and employer’s liability limits satisfy what your umbrella insurer requires. This simple step prevents a costly surprise when you actually need to file a claim.
Mistake #3
Confusing Excess Liability Insurance with Commercial Umbrella Coverage
Many contractors use the terms “excess liability” and “commercial umbrella” interchangeably. They are not the same thing, and confusing them can leave gaps in your protection.
Excess liability insurance follows the exact terms and conditions of your underlying policy. If your general liability policy excludes a certain type of claim, your excess coverage excludes it too. Excess policies simply extend your existing liability limits without adding anything new.
Commercial umbrella insurance coverage works differently. It provides broader coverage that may protect against claims your underlying policies do not cover. Umbrella policies also typically sit over multiple primary policies simultaneously, covering your general liability, commercial auto, and employer’s liability all at once.
For general contractors facing diverse liability risks across multiple job sites, a commercial umbrella policy usually offers more comprehensive protection than excess liability insurance. Make sure you understand which type of coverage you are actually buying.
Mistake #4
Buying the Minimum Coverage to Satisfy Contract Requirements
General contractors often encounter projects that require specific insurance limits. A commercial client might demand $5 million in total liability coverage before awarding a contract. Many contractors respond by purchasing the exact minimum required and nothing more.
This approach treats insurance as a box to check rather than protection for your business. Contract requirements represent what the project owner wants for their protection, not necessarily what your business needs.
Think about your total exposure. How much are your business assets worth? What would happen if a lawsuit resulted in a judgment exceeding your coverage limits? Liability claims from bodily injury, property damage to someone else’s property, or employee lawsuits can quickly reach seven figures in serious cases.
Commercial umbrella insurance cost is relatively modest compared to the protection it provides. Most small business owners pay between $500 and $2,500 annually for $1 million in additional coverage. Increasing your umbrella policy limits often costs less than you expect, and the extra protection could save your business.
Mistake #5
Waiting Until Something Goes Wrong
Too many contractors operate without commercial umbrella insurance until they face a near miss or an actual claim. By then, it may be too late. Insurance companies review your claims history when determining whether to offer coverage and at what price.
A contractor with a clean record can purchase umbrella coverage at competitive rates. A contractor who just had a significant claim may find coverage more expensive or difficult to obtain. Waiting until you need the protection often means paying more for it or being unable to get it at all.
The best time to add commercial umbrella insurance to your business insurance package is before you need it. Protect your business operations while your claims history is clean and premiums are favorable.
Mistake #6
Ignoring What Umbrella Insurance Does Not Cover
Commercial umbrella insurance provides valuable protection, but it does not cover everything. Contractors who assume their umbrella policy handles all liability risks set themselves up for unpleasant surprises.
Most commercial umbrella policies exclude professional liability claims, which require separate errors and omissions coverage. They typically exclude intentional acts, pollution liability, and certain employment practices claims. Damage to your own property or work usually falls outside umbrella coverage as well.
Understanding these exclusions helps you build a complete insurance program. Your umbrella policy works alongside your other coverage, not as a replacement for it. Review your commercial umbrella insurance policy carefully and ask your agent to explain what falls outside its protection.
Mistake #7
Choosing Price Over Proper Coverage
When shopping for commercial umbrella liability insurance, some contractors focus exclusively on finding the lowest premium. Price matters, but the cheapest policy is not always the best value.
Several factors influence commercial umbrella insurance cost, including your coverage limits, underlying policy limits, claims history, and the type of work you perform. A lower premium might mean lower limits, higher deductibles, or narrower coverage terms.
Insurance companies differ in how they handle claims, their financial stability, and the specific terms of their umbrella policies. A policy that costs slightly more but provides broader coverage and better claims service may save you significantly when you actually need to use it.
Work with an agent who understands construction liability risks. At Farmer Brown, we help contractors compare options from multiple insurers to find coverage that balances cost with proper protection.
How to Get Commercial Umbrella Insurance Right
Avoiding these mistakes comes down to understanding what commercial umbrella insurance actually does and making informed decisions about your coverage. Here are the key steps:
Review your underlying policies to ensure they meet umbrella requirements. Check your general liability limits, commercial auto coverage, and employer’s liability insurance before purchasing umbrella coverage.
Calculate how much coverage you actually need based on your business assets and risk exposure, not just contract minimums. Consider the medical expenses, defense costs, and potential judgments that could result from a serious claim.
Read your policy carefully and understand what it covers and excludes. Ask questions about anything unclear.
Purchase coverage before you need it while your claims history is clean and rates are favorable.
Work with specialists who understand contractor risks. Generic business insurance providers may miss important details specific to construction operations.
Protect Your Business the Right Way
Commercial umbrella insurance provides essential liability protection for general contractors who cannot afford to let a single catastrophic claim destroy their business. The mistakes outlined above are avoidable with proper planning and the right guidance.
If you have questions about commercial umbrella insurance or want to review your current coverage, fill out a quote request today. Our team at Farmer Brown will contact you within one business day to help you find the right umbrella policy for your contracting business.
