What is a commercial umbrella policy and why do apartment owners need one?

A commercial umbrella policy sits above your primary liability policies (general liability, commercial auto liability, and employer's liability) and provides additional coverage when claims exceed the limits of those underlying policies. For example, if your general liability policy has a $1,000,000 per-occurrence limit and you face a $2,500,000 judgment, an umbrella policy would cover the $1,500,000 excess.

Apartment owners face liability exposures that can easily exceed standard policy limits. A serious injury in a common area, a drowning at a pool, a fire that injures multiple tenants, or a negligent security claim following a violent crime can all result in judgments well into seven figures. Without an umbrella policy, the owner's personal assets and property equity are at risk for amounts above the underlying policy limits. Fannie Mae's Multifamily Selling and Servicing Guide (Part III, Chapter 6) requires minimum general liability limits of $1,000,000 per occurrence for DUS loans and may require umbrella coverage for larger or higher-risk properties. HUD's MAP Guide (Chapter 7) similarly establishes minimum liability insurance thresholds for FHA-insured multifamily projects.

Umbrella policies are relatively affordable given the amount of additional protection they provide. Premiums for $1,000,000 to $5,000,000 in umbrella coverage typically range from $1,000 to $5,000 annually for small to mid-size apartment properties. The umbrella insurer generally requires minimum underlying limits (such as $1,000,000 per occurrence on the general liability policy) as a condition of coverage.