4.3 Umbrella, Inland Marine, Crime, and Other Coverages

Personal and Commercial Umbrella / Excess Liability

An umbrella policy provides high-limit excess liability coverage (commonly $1 million or more) that sits on top of the insured's underlying policies — personal auto and homeowners for a personal umbrella, or commercial auto, general liability, and employers liability for a commercial umbrella.

The umbrella does three things:

1. Excess limits — pays after the underlying policy's limit is exhausted.
2. Broader coverage / drop-down — when a claim is covered by the umbrella but excluded by the underlying policy, the umbrella "drops down" to act as primary, subject to a self-insured retention (SIR).
3. The self-insured retention is the amount (often $250 to $25,000) the insured pays out of pocket on a drop-down claim before the umbrella responds — it functions like a deductible for losses the underlying coverage does not reach.

The insurer typically requires the insured to maintain stated minimum underlying limits; if the insured lets underlying coverage lapse, the umbrella pays only as if those limits were still in force.

Inland and Ocean Marine

Inland marine insurance grew out of ocean marine and covers property that moves or is movable — goods in transit, property held by a bailee, and instrumentalities of transportation/communication (bridges, pipelines, radio towers). Its scope is set by the Nationwide Marine Definition, which lists the classes eligible for inland marine writing.

Floaters are inland marine forms that cover property wherever it goes. A personal articles floater (PAF) schedules valuables — jewelry, furs, fine art, cameras — usually on an all-risk (open-perils) basis with no deductible and often agreed value, broader than the homeowners policy's sub-limits.

Ocean marine insures property exposed to the perils of the sea. It has four traditional parts:

• Hull — physical damage to the vessel.
• Cargo — the goods being shipped.
• Freight — the shipping revenue/income lost if a voyage fails.
• Protection and indemnity (P&I) — the vessel owner's liability to others.

Ocean marine uses concepts such as general average (loss shared proportionally by all parties to a voyage when property is sacrificed to save the venture) and particular average (a partial loss borne by the owner of the damaged property alone).

Crime, Fidelity, Equipment Breakdown, and Surety

Crime and fidelity coverage protects against intentional dishonest acts. Fidelity / employee dishonesty coverage pays for loss of money, securities, or property caused by an employee's dishonest acts. Other crime insuring agreements cover theft, robbery, burglary, forgery, and computer fraud by outsiders. Crime forms are written on a loss-sustained or discovery basis.

Boiler and machinery, now called equipment breakdown, covers sudden, accidental mechanical or electrical breakdown of pressure vessels, boilers, HVAC, and electrical equipment — losses the standard property policy excludes — and usually includes inspection services to prevent accidents.

A surety bond is a three-party agreement and is not insurance:

• Principal — the party who must perform the obligation.
• Obligee — the party protected by the bond.
• Surety — guarantees the principal will perform; if the principal defaults, the surety pays the obligee and then seeks reimbursement from the principal.

The key distinction: in insurance the insurer does not expect to recover paid losses from the insured, but in suretyship the surety does expect reimbursement from the principal.

Flood and Earthquake

Flood is excluded from standard homeowners and commercial property policies. It is written through the federal National Flood Insurance Program (NFIP), sold directly or by private insurers under the Write-Your-Own (WYO) program. NFIP policies have a 30-day waiting period before coverage takes effect.

Earthquake is also excluded from standard property forms. It is added by endorsement or written as a separate policy (in California, often through the California Earthquake Authority), typically with a high percentage deductible based on the dwelling's value rather than a flat dollar amount.

These two catastrophe perils are excluded from standard forms for the same underwriting reason: both produce severe, correlated losses that strike many insureds at once, defeating the spread-of-risk that ordinary property insurance depends on. That is why flood is federally backed and earthquake uses large percentage deductibles and separate capacity — insurers must isolate and price these exposures rather than bury them in a homeowners policy.

Exam Distinctions to Remember

Keep the specialty lines straight: inland marine covers property on land that moves or is movable; ocean marine covers property at sea (hull, cargo, freight, P&I). Fidelity covers dishonesty by employees, while other crime agreements cover theft by outsiders. Equipment breakdown covers mechanical/electrical failure the property policy excludes. And a surety bond is a three-party guarantee that expects reimbursement — the single feature that separates it from true insurance.