Lessor’s Risk Only Insurance Explained: Coverage and Exclusions

When retail agents advise clients on liability insurance, especially in complex or high-risk industries, understanding how layers of coverage interact is essential. Two common tools used to extend liability limits are follow form excess policies and umbrella policies. And while they’re often grouped together, they serve distinct purposes and function differently in the event of a claim.

This guide breaks down what follow form excess and umbrella liability policies are, how they work, and what insurance retailers should keep in mind when placing them. With litigation risk and claim severity on the rise, choosing the right structure for your clients’ liability programs can make the difference between adequate protection and major financial exposure.

What Is a Follow Form Excess Policy?

A follow form excess liability policy is a type of coverage that sits above the primary insurance policy (or policies) and mimics its terms, conditions, definitions, exclusions, and endorsements, hence the term “follow form.” This means that if a claim is covered by the underlying primary policy, the excess policy will also respond, once the primary limits are exhausted.

Key Features:

• Strictly follows the primary (or “scheduled underlying”) policy
• Does not introduce new coverage terms or exclusions
• Only pays when the underlying limits are used up
• No broader protection than the primary policy provides

When it’s used: Follow form excess is ideal for clients who need higher limits without expanding coverage scope. It’s often used in industries like construction, energy, and manufacturing, where contract requirements or high exposure levels necessitate increased liability capacity.

What Is an Umbrella Policy?

An umbrella liability policy, by contrast, provides excess coverage over multiple underlying policies, typically general liability, auto liability, and employer’s liability. They may offer broader protection than what those policies provide. In some cases, an umbrella policy will “drop down” to provide primary coverage when the underlying policy doesn’t respond, as long as the loss would have been covered under the umbrella's terms.

Key Features:

• Provides additional limits above multiple primary policies
• May include broader coverage not found in the underlying policies
• May drop down to fill certain gaps in coverage
• Can include self-insured retention (SIR) requirements when dropping down

When it’s used: Umbrella policies are well-suited for clients who want a broader safety net across several lines of coverage, including the possibility of coverage for certain claims not covered by underlying policies.

Follow Form Excess vs. Umbrella: Core Differences

While both products increase liability limits, their mechanisms and flexibility differ. Here’s a breakdown of how they compare:

For insurance retailers, the key is to understand what your client’s primary policies cover, and, critically, what they don’t. If those underlying policies are restrictive or include narrow definitions and exclusions, a follow form excess policy will replicate those gaps. An umbrella policy, however, might offer a path to patch those exposures.

Where Follow Form Excess Can Fall Short

Because follow form excess policies provide no broader protection than the scheduled primary policy, they can fail to respond in cases where:

• The primary coverage has restrictive language
• The primary policy includes exclusions not shared by the umbrella layer
• A loss falls into a “gray zone” where trigger definitions differ across layers

Example: If a subcontractor’s general liability policy excludes Action Over claims but the follow form excess layer mirrors that exclusion, the client remains exposed, even if they have high liability limits.

In these scenarios, an umbrella policy with broader language (or no such exclusion) might have filled the gap.

How Umbrella Policies Can Create a False Sense of Security

While umbrellas can offer broader protection, they aren’t automatically comprehensive. Retail agents must be diligent in reviewing:

Drop-down triggers: Not all umbrellas drop down when underlying doesn’t cover a loss. Some require that the underlying policy apply, even if it denies coverage.

Self-Insured Retention (SIR): When an umbrella drops down, a retention amount, essentially a deductible, may apply before coverage kicks in.

Policy definitions: Even slight differences in the definition of “occurrence,” “bodily injury,” or “property damage” can create disputes between layers.

Clients should be educated that an umbrella is not a one-size-fits-all solution. It may be broader, but it’s not necessarily better unless it aligns with their actual exposures.

Coordinating Layers for Seamless Coverage

Whether your client is in construction, manufacturing, transportation, or another risk-sensitive industry, layering policies correctly is crucial. Here are best practices for ensuring coordination between primary, umbrella, and excess policies:

1. Review Underlying Terms and Endorsements.

Make sure the umbrella or excess policy doesn’t introduce gaps or conflicts with primary coverage.

2. Confirm Schedule of Underlying Insurance.

Most policies will list specific underlying coverage that must be maintained. Any changes or cancellations in those primary policies can jeopardize excess or umbrella coverage.

3. Understand Retentions and Drop-Down Triggers.

If an umbrella policy includes drop-down provisions, ensure the client understands any retentions and how they work in the event of a claim.

4. Use Consistent Carriers When Possible.

Layering with the same carrier often improves alignment between policies, reduces disputes, and simplifies claims handling.

5. Watch for Exclusions Unique to Excess Layers.

Some follow form excess policies still add their own exclusions, especially around asbestos, silica, pollution, or employment practices. These should be flagged and negotiated if possible.

When to Use Follow Form Excess vs. Umbrella

Use Follow Form Excess when:

• You want to strictly increase limits without changing coverage terms
• The primary policy has already been carefully negotiated
• The client has tight contractual requirements that match the primary form

Use an Umbrella when:

• The client has exposures not fully addressed by their underlying policies
• You want one policy to sit above multiple lines (e.g., GL + Auto)
• You need coverage that can drop down in the event of a denied claim

Novatae’s Take: How We Support Retail Agents

At Novatae, we work closely with retail brokers to identify and close liability gaps before they lead to uncovered claims. Whether you’re structuring a complex construction program or advising a manufacturer with multi-jurisdictional risks, we’ll help you determine whether follow form excess, umbrella, or a combination of both offers the best protection.

Our wholesale and MGA capabilities allow us to access both admitted and non-admitted markets, negotiate tailored terms, and structure layered programs to meet your client’s exact needs. When exposures grow, we ensure coverage does too.

Final Thoughts

Follow form excess and umbrella policies are not interchangeable, and as a retail agent, understanding the distinctions allows you to better protect your clients and differentiate your guidance. While follow form excess is clean and consistent, umbrella policies can offer critical flexibility. The best choice depends on your client’s industry, existing coverages, and risk appetite.

Need help placing excess or umbrella coverage? Contact Novatae’s liability experts today to explore custom solutions that fit your clients’ needs.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.