Coverage is provided by an excess liability or umbrella liability insurance policy that will pay for liability payments that exceed the amount in an underlying policy. Individuals who have an excess liability policy may have coverage for $1 million and $300,000 of liability coverage from an underlying policy. If an individual is sued for $700,000 the underlying policy would cover the first $300,000 and the excess liability policy would cover the additional $400,000.
Underlying policies which include an automobile and homeowners insurance do not cover certain types of liability claims. These can include defamation of character, libel, slander and false arrest. This leaves a coverage gap with no protection. However, these types of non-business liability claims can be covered by the purchase of an excess liability or umbrella liability insurance policy.