What it means
Shipowners, port operators, shipyards and stevedoring firms carry a patchwork of liability policies for different risks, including protection and indemnity cover, charterers' liability and employers' liability for dock workers. Each has its own limit, and a single serious incident can easily exceed any one of them.
A bumbershoot policy sits on top of that patchwork and responds when a claim breaks through the limits beneath it. The structure matters because marine losses are rare but very large.
A collision in a shipping lane, a crane dropping a container onto a vessel or a pollution incident in a harbour can produce claims in the tens of millions, far beyond what a sensible primary limit would cover. Buying a huge primary limit for every separate policy would be prohibitively expensive, so the industry buys modest primary layers and one large excess layer above them.
The cover is usually described as excess of a stated attachment point, which is simply the total of underlying limits that must be used up first. Premiums are much lower per dollar of cover than primary insurance, because the insurer only expects to pay in a genuinely severe year.
Bumbershoot wordings often also include a degree of cover that the primary policies omit, which is why the broker's comparison of wordings matters as much as the limit. For a finance team, the policy is a balance sheet decision dressed as an insurance purchase.
It converts an open-ended liability that could threaten the business into a known annual premium, which in turn affects what lenders and charterers will accept in their contracts. Many shipping contracts and port concessions require evidence of excess liability cover before work can begin.
The nuance is in the gaps. If an underlying policy is cancelled, under-insured or excludes the very event that occurs, the bumbershoot layer may not attach at all, leaving the business exposed in the middle.
Careful annual reconciliation of the whole programme, not just the top layer, is the standard remedy.
In practice
Real-world examples.
Example
A dry bulk shipowner with four vessels carries protection and indemnity cover plus charterers' liability, then buys a single bumbershoot layer across both. When a grounding leads to a salvage and pollution claim larger than either primary policy, the one excess layer responds rather than two separate disputes.
Example
A shipyard bidding for a naval refit contract is told the contract requires $40,000,000 of liability cover. Rather than raise every primary limit, its broker arranges a bumbershoot policy above the existing programme and issues a certificate that satisfies the tender.
Example
A stevedoring firm reviews its programme after a near miss in which a container fell between ship and quay. The finance director increases the bumbershoot limit from $15,000,000 to $30,000,000 for an additional premium of $110,000 a year, judging the cost worth the removal of a company-ending risk.
Formula
Calculation
Amount paid by the bumbershoot layer = total claim - underlying primary limits, capped at the bumbershoot limit
Any claim above the total of all layers remains the responsibility of the insured business.
Worked example. A port services company carries $5,000,000 of primary marine liability cover and buys a bumbershoot policy of $25,000,000 excess of that primary layer, so the policy attaches at $5,000,000 and runs to a total of $30,000,000.
A crane accident damages a vessel and injures two workers, producing settled claims of $18,000,000.
Primary insurer pays = $5,000,000
Bumbershoot layer pays = $18,000,000 - $5,000,000 = $13,000,000
Company pays = $0, because the claim sits below the $30,000,000 total.
Now assume a worse event with claims of $34,000,000. Primary pays $5,000,000, the bumbershoot layer pays its full $25,000,000, and the company is left with $34,000,000 - $30,000,000 = $4,000,000 of uninsured cost.Case study
Seen in the real world.
The following is an illustrative, fictional example. Calder Quay Marine Services operates two tugs and a small container terminal and has historically bought insurance one policy at a time, with limits set years apart and never compared. A new finance director maps the whole programme on one page and finds that the largest realistic incident she can describe, a tug colliding with a loaded barge in the channel, would produce claims roughly four times the largest limit the company holds.
She restructures rather than simply buying more of everything, keeping primary limits at $5,000,000 and adding a $25,000,000 bumbershoot layer for an annual premium of $180,000. The following year a crane failure causes a $12,000,000 claim, the primary layer pays $5,000,000 and the bumbershoot layer pays the remaining $7,000,000.
The illustrative moral is the one her board minutes record: the money was well spent, but the real work was drawing the single page that showed where the cover stopped.
Watch out
Common mistakes.
- Assuming the bumbershoot layer will pay for anything the primary policies refuse, when in most wordings it only responds once a valid underlying claim has exhausted the limit beneath it.
- Letting an underlying policy lapse or shrink without telling the excess insurer, which can open a gap between the layers that nobody is insuring.
- Comparing two quotes on limit and premium alone, without reading which covers each wording includes and excludes.
Questions
People also ask.
Why is marine excess cover called a bumbershoot?
Bumbershoot is old slang for an umbrella, and the policy acts as a single umbrella stretched over several separate liability policies.
Is a bumbershoot policy the same as a general umbrella policy?
The idea is the same, but a bumbershoot wording is written for marine and shipping exposures and typically sits above marine liability covers rather than ordinary commercial ones.
Who decides how large the limit should be?
The business does, usually by describing its worst realistic incident with its broker and buying cover above that figure, because insurers will quote almost any limit the company is prepared to pay for.
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