The parties all agree that Western provided an umbrella policy that provides excess coverage. The intent of umbrella policies, to serve a different function from primary policies, is reflected in their rate structures. There is no dispute that the overall pattern and purpose of the umbrella policy is that of an excess carrier. Therefore, the premium charged for such a policy is substantially lower than for a primary policy. This stands to reason.
Insurance companies charge premiums based upon statistics.
Because the risk was diminished for the umbrella policy, it could and did charge a smaller premium. This is especially so in light of the exclusion of punitive damages coverage in the umbrella policy. Western was thereby assessing risk and charging a premium based upon compensatory damages statistics in issuing the umbrella policy. Concomitantly this is what the insured was both bargaining and paying for. In general, umbrella policy premiums are relatively small in relation to the amount of risk .