Georgia Adjuster Practice Test

What can an insurance company providing an umbrella policy do if the underlying liability policy's limit is exceeded?

1. Automatically pay the additional costs

2. Appeal the case at its own expense

3. Refuse to cover any claims

4. Reduce future policy limits

The correct answer is: Appeal the case at its own expense

When an insurance company is providing an umbrella policy and the underlying liability policy's limit has been exceeded, the appropriate action it can take is to appeal the case at its own expense. This is because umbrella policies are designed to provide additional coverage when primary policy limits are insufficient, but they still require the underlying policies to be valid and in force. If the limit of the underlying policy is exhausted due to a claim, the umbrella insurer has the option to challenge the amount of the claim in court. By appealing the case, the insurer may seek to potentially reduce the liability or reach a settlement that is financially beneficial for both parties. This course of action acknowledges the complexities of liability claims, including legal nuances and the evidential burden of proving damages. The other options do not align with standard practices in the insurance industry. Automatically paying additional costs could expose the insurance company to greater financial liability without addressing the underlying issues of the claim. Refusing to cover any claims would not be in the interest of policyholders who rely on the coverage of their umbrella policy, and reducing future policy limits would not address the immediate situation of claims that have already been incurred.