Excess Insurance
Insurance that responds only after primary coverage is exhausted, providing additional limits above the primary layer. Two principal types: (1) following-form excess, adopts the terms of the underlying primary policy with limited modifications; (2) umbrella, broader coverage that may respond to losses not covered by primary policies (filling gaps). Critical for managing liability exposure beyond primary policy limits. Common in commercial programs at $5M, $10M, $25M, and higher attachment points.
Excess insurance is insurance that responds only after primary coverage is exhausted, providing additional limits above the primary policy. Excess coverage is critical for managing liability exposure beyond primary policy limits, a single severe claim can exceed common $1M-$2M primary CGL limits, and without excess the insured pays the difference. The two principal types of excess coverage, following-form excess and umbrella, operate differently. Sophisticated commercial programs typically include multiple excess layers stacked on primary policies for managed liability tail risk.
Following-form excess
Following-form excess coverage adopts the terms of the underlying primary policy with limited modifications. The excess policy typically references the primary policy and provides "follow form" coverage subject to (1) the excess limits, (2) the attachment point, and (3) any specific endorsements or exclusions in the excess policy. Following-form excess is the most common excess structure for CGL, the excess insurer provides additional limits above primary CGL, with the same coverage terms and exclusions. Most M&A and large-project liability stacks use following-form excess for predictable, layered coverage.
Umbrella coverage
Umbrella coverage is broader than following-form excess. Umbrella policies typically: (1) provide excess limits above multiple primary policies (CGL, auto, employer's liability); (2) include "drop-down" coverage where the umbrella responds to losses not covered by primary (filling gaps); (3) have their own coverage terms that may differ from primary; (4) include broader coverage in some areas (e.g., broader personal injury). Some policies sold as umbrella coverage operate much like following-form excess with limited drop-down, so the label alone does not settle what the policy covers.
Attachment point structure
Excess coverage has an attachment point, the threshold above which the excess responds. Common structures: (1) primary $1M, excess $5M xs $1M, primary covers the first $1M; excess covers $5M above $1M (total $6M); (2) primary $1M, $5M xs $1M, $5M xs $6M, three-layer stack with $11M total; (3) quota share excess, multiple excess insurers share the same layer (e.g., 50/50). Higher attachment points typically have lower premium per dollar of limit. Sophisticated programs stack multiple layers from different carriers to diversify counterparty risk and obtain cost-efficient capacity.
The "horizontal" vs. "vertical" exhaustion debate
When losses implicate multiple primary policies (e.g., losses spanning multiple policy years), a key question is whether excess attaches after horizontal exhaustion (all primary policies in all years exhausted) or vertical exhaustion (primary in the year of loss exhausted). The answer starts with the exhaustion and other-insurance language of the excess policies at issue. Long-tail losses (environmental, construction defect, mass tort) raise complex attachment issues that have been heavily litigated.
Following the primary's defense
Most excess policies adopt the primary's defense obligations through following-form provisions or specific reference. Some excess policies provide independent defense once primary is exhausted; others "tail in" to existing defense arrangements. The exhaustion point, when any excess defense obligation begins, has substantial cost implications.
Stowers-type claims in excess
Excess insurers can pursue the insured's Stowers-type claims against the primary insurer through equitable subrogation. American Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480 (Tex. 1992), allowed an excess carrier to bring an equitable subrogation action against the primary carrier and defense counsel for mishandling a claim. The court declined, at least on the facts before it, to permit a direct action by the excess carrier. This creates significant pressure on primary insurers to settle within their limits when reasonable demand is made.
Common provisions and pitfalls
Important excess provisions: (1) concurrent coverage requirements, excess often requires specific primary policies in place; if required primary coverage lapses, the insured may have to bear the missing layer itself, depending on the policy wording; (2) exhaustion language, when primary is "exhausted" can be ambiguous (paid? agreed to pay? settled by judgment?); (3) insolvency of primary, many excess policies state that they do not "drop down" if the primary insurer becomes insolvent; (4) defense within or outside limits, affects total available coverage; (5) specific exclusions, excess may exclude items covered by primary. Sophisticated insureds review excess policies for consistency with primary; gaps and inconsistencies create coverage disputes.
For Texas commercial parties, excess and umbrella coverage manages tail risk above primary limits. Recurring issues in reviewing an excess program are attachment points and exhaustion language, consistency between excess and primary terms, the number of carriers across layers, Side A excess for directors in a D&O program, and what happens if a primary insurer becomes insolvent. Where primary defense costs erode the primary limit, the primary layer can exhaust faster than its face amount suggests.