Legal Definitions - excess limits

Excess limits refers to a type of insurance coverage that provides an additional layer of protection for financial losses that surpass the maximum payout of an initial, primary insurance policy. Essentially, it steps in to cover costs once the underlying policy's coverage has been completely exhausted.

Here are some examples to illustrate this concept:

• Commercial General Liability: Imagine a manufacturing company that holds a primary general liability insurance policy with a coverage limit of $1 million. A severe accident occurs at their factory, leading to a lawsuit where the company is found liable for $3 million in damages. Their primary policy would pay out its maximum of $1 million. However, if the company also had an excess limits policy, that policy would then activate to cover the remaining $2 million, protecting the company from having to pay that amount directly out of its own assets.

• Professional Malpractice: A surgeon carries a professional malpractice insurance policy with a $500,000 per-claim limit. A patient sues the surgeon for alleged negligence, and a jury awards the patient $1.2 million in damages. The surgeon's primary malpractice policy would pay its $500,000 limit. An excess limits policy, if purchased, would then cover the additional $700,000, ensuring the surgeon is protected against the full extent of the judgment beyond their initial coverage.

• Automobile Liability: Consider a driver who has a standard auto insurance policy with a bodily injury liability limit of $250,000 per accident. This driver causes a multi-vehicle collision resulting in severe injuries to several people, and the total medical bills and lost wages for the injured parties amount to $700,000. The driver's primary auto policy would pay its maximum of $250,000. If the driver had an excess limits policy (often called an umbrella policy in this context), that policy would then cover the remaining $450,000, preventing the driver from being personally responsible for that substantial difference.