Jenkins Company purchased a commercial umbrella policy with a $10 million limit and a $100,000 self-insured retention.The insurer required Jenkins Company to carry a $1 million per-occurrence limit on its general liability policy and a $1 million per-occurrence limit on its business auto policy.Jenkins purchased these required limits.A Jenkins driver was negligent while operating a company vehicle and killed another motorist.The court ruled that Jenkins must pay $5 million.How much of this amount will be paid by the umbrella policy?

Question

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The total limit of coverage available for this claim is $1 million from the auto policy and $1 million from the general liability policy. Since the damages awarded by the court exceed the total available coverage under these policies, the umbrella policy will be triggered.

First, the self-insured retention of $100,000 will be applied. Then, the remaining balance of the claim ($5 million - $100,000 = $4.9 million) will be split between the primary policies and the umbrella policy.

Since both primary policies have $1 million per-occurrence limits and have already paid out their limits, the umbrella policy will have to cover the remaining balance of $3.9 million ($10 million umbrella limit - $100,000 retention - $1 million auto limit - $1 million general liability limit = $7.9 million umbrella coverage remaining, which is enough to cover the $3.9 million balance of the claim).

Therefore, the answer is C) $4.0 million, which is the amount to be paid by the umbrella policy after the application of the self-insured retention and the primary policy limits.

Jenkins Company Purchased a Commercial Umbrella Policy with a $10