How does an "excess" liability policy function?

An "excess" liability policy is designed to provide additional coverage above and beyond the limits of primary liability policies. This means that if a claim exceeds the limit of the underlying primary insurance, the excess policy will cover the remaining costs, ensuring that the insured has additional financial protection in case of severe claims that surpass standard liability limits.

For example, if a business has a general liability policy with a limit of $1 million and a claim arises that amounts to $1.5 million, the excess liability policy would kick in to cover the additional $500,000, provided that the claim is within the terms of the excess policy. This mechanism allows for greater financial security and peace of mind for businesses that face higher risks.

The other options describe scenarios that do not accurately depict the function of an excess liability policy. It does not limit its coverage to specific high-risk activities; rather, it supplements existing policies regardless of the activities covered. It does not replace the need for primary liability insurance, as it is designed to work in conjunction with those policies. Additionally, it does not only cover the first dollar of a claim; that characteristic is more aligned with primary insurance policies.