Legal Definitions - excess policy

An excess policy is a type of insurance coverage that provides additional protection beyond the limits of a primary, or "underlying," insurance policy. It only begins to pay out once the coverage provided by the primary policy has been completely exhausted. Essentially, an excess policy sits "above" the primary policy, offering an extra layer of financial protection against very large or catastrophic losses.

• Example 1: Business Liability

  A mid-sized construction company holds a primary general liability insurance policy with a coverage limit of $5 million. Recognizing the potential for a catastrophic accident on a large project, such as a crane collapse or a major structural failure, they purchase an excess policy for an additional $15 million in coverage. If a lawsuit arises from an incident and results in a $10 million judgment against the company, the primary policy would pay its full $5 million limit, and then the excess policy would cover the remaining $5 million.

• Example 2: Personal Auto Insurance

  Dr. Anya Sharma, a physician with substantial personal assets, carries a standard auto insurance policy with a liability limit of $500,000. To safeguard her assets further in the event of a severe accident where she is found at fault, she also invests in an excess policy that provides an additional $2 million in liability coverage. If she causes an accident resulting in $1.2 million in damages to another party, her primary auto policy would pay its $500,000 limit, and the excess policy would then cover the remaining $700,000.

• Example 3: Professional Malpractice

  A prominent architectural firm carries a primary professional malpractice insurance policy with a $7 million limit per claim. Given the high stakes and potential for significant financial damages in large-scale building projects, they decide to purchase an excess policy providing an additional $10 million in coverage. If the firm faces a lawsuit alleging design flaws that lead to $15 million in damages, the primary policy would cover the first $7 million, and the excess policy would then pay the remaining $8 million.