Trade associations provide invaluable services for entire industries. They offer benefits such as training, advocacy, networking events, and publications to support companies and professionals within a field.
However, in carrying out these activities, associations also face substantial risks and liabilities that could result in lawsuits and claims exceeding their primary insurance coverage limits. Excess liability insurance can provide extra protection for trade groups when losses blow past initial policy caps.
What is Excess Liability Insurance?
Excess liability insurance, sometimes called follow-form excess insurance, kicks in when damages and legal expenses from a covered claim go above the limits of the association’s underlying liability insurance policies.
For instance, if a trade group has $2 million in general liability coverage but faces a $3 million claim, their excess liability would pay the additional $1 million not covered by the original policy (up to the excess policy’s limits).
Excess liability insurance extends the capacity of primary liability policies without actually expanding the scope of coverage itself.
It provides extra peace of mind in case of catastrophic claims that completely drain primary limits. This contrasts with umbrella insurance, which overlays a range of underlying policies and fills gaps in primary coverages.
Why Trade Associations Need Excess Liability Coverage
Trade associations have broad exposures spanning events, services, publications, products, and day-to-day operations. Even with general liability and other primary policies in place, lawsuits and negligence claims can sometimes result in massive settlements and judgments far eclipsing policy limits.
Excess liability insurance is the financial safety net associations need when legal action leads to seven or even eight-figure losses. Some of the key factors that make excess liability coverage indispensable for trade groups include:
Large-scale industry events and conferences. Trade shows, fundraisers, galas, annual meetings, and other major gatherings heighten risk. One serious accident with long-term effects in a crowd of thousands can lead to enough damages to drain general liability and umbrella limits combined.- Utilization of third-party venues. Instead of owning the facilities they use, associations rent convention centers, hotels, resorts, theaters, and more for big events. Even with venue contracts in place, the group could still share in liability for accidents if, for example, unsafe stairs caused an attendee injury.
- Alcohol service. Open bars are common at association mixers, networking functions, and hospitality events. However, liquor significantly increases the likelihood of slip-and-falls, fights, and other alcohol-fueled accidents. General liability policies often exclude alcohol-related claims, making robust excess coverage essential.
- Member services and publications. Associations provide many membership benefits, from newsletters to helplines to discounted group products. Defective merchandise or flawed professional guidance could trigger injury claims and product liability lawsuits.
- Directors and officers exposures. Well-meaning but legally questionable decisions by association leadership can lead to allegations of mismanagement or negligence by members. The resulting D&O claims can rack up hefty defense bills and settlements.
In essence, almost everything a trade association does in the normal course of business presents some degree of claims exposure. Excess liability insurance is the last line of financial defense when the worst-case scenario becomes reality.
Excess Liability Insurance Provides Critical Protection
Commercial excess liability insurance truly earns its keep when liability claims completely drain primary policy limits, but legal action continues. Here are some of the most important protections it can provide:
- Shielding remaining assets. If a multi-million dollar verdict or settlement exceeds the associations’ combined primary and umbrella limits, excess liability coverage helps safeguard the group’s finances from potential insolvency.
- Lifting the pressure on primary policies. Excess takes the brunt when losses keep ballooning well past expected levels. This prevents primary liability limits from being wholly consumed on one massive claim.
- Enabling settlement within policy limits. Even if a claim exceeds primary limits, having excess liability means the group can settle within the full coverage tower. This disincentivizes plaintiffs from pressing for judgments far above the policy caps, hoping for a payday from the association’s funds.
- Supporting the group’s risk tolerance. Since associations cannot easily raise dues or acquire assets, losing even one large claim could severely impact their financial standing for years. Excess liability coverage aligns with the low appetite for risk such groups require.
- Promoting leadership and member confidence. Knowing their association has reinforcements to withstand worst-case claims scenarios reassures directors, executives, and members alike. This enables a focus on providing industry benefits rather than worrying about legal exposures.
Key Factors in Purchasing Excess Liability Coverage
Securing adequate coverage is essential because commercial excess liability insurance provides such important protection for associations. Some key considerations include:
Primary policies covered. Excess liability attaches to the above general liability, directors and officers (D&O), employer’s liability, and other underlying policies. The association must strategically select which risks to protect with excess coverage.- Desired limits. Associations should assess their most extensive, realistically foreseeable claims to choose appropriate excess liability limits, factoring in legal climate and jury award trends. Umbrella insurance also plays a role in the total limits structure.
- Insurer financial strength. Since excess coverage handles the most significant losses, the back-end insurer’s stellar fiscal ratings and claims-paying ability are more essential than primary policies.
- Premium costs. Obtaining the most robust excess coverage for an affordable premium is key given associations’ budget constraints. An independent broker can secure quotes from competing carriers. Higher limits raise costs, so groups must find the ideal balance between premiums and coverage amounts.
- Specialized policy enhancements. Individual excess liability policies have provisions associations should be aware of, such as coverage for punitive damages, the duty to defend clauses, and continuity features if a policy is canceled. Working with an expert broker is invaluable when evaluating these nuances.
Partner with JMG Insurance Agency to Protect Your Trade Association
With claims trends showing no signs of reversing, trade associations need every bit of protection to fulfill their missions without fear of financial ruin from a legal proceeding. Excess liability insurance provides the last line of defense trade groups require in our increasingly litigious society.
Associations would be wise to reexamine their current excess coverage, or lack thereof, before their next big event or the renewal of an existing policy. CI Solutions has years of experience and expertise guiding associations to customized excess liability solutions for their unique risk profiles.
Contact us today at 703.988.3665 or online so we can help you evaluate your current coverage and secure the robust yet affordable excess protection your association requires to fulfill its mission.