| Personal Liability Update | |||
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Personal umbrella Umbrella coverage is not just excess liability. Let's take a look at this coverage and recent changes made to it. Background of the umbrella Personal Umbrella coverage was first adopted in the U.S. in the early 1950s. By the 1960s, it was in widespread use. The first million-dollar award was recorded in 1962. Currently the umbrella market is in a state of flux. For one thing, policy language is changing. For another, prices are increasing. The umbrella covers the insured for catastrophic loss and provides broader coverage than underlying policies. There are no standard forms. Companies use non-specific titles in their umbrella policies. Umbrella coverage is typically written in increments of $1,000,000. The policy has a drop provision in the event of reduction of underlying insurance. This policy should also drop down in the event of a loss that is covered in the umbrella but is not covered in the primary liability policies. This type of policy should contain at least one enhanced area of coverage that is not found in the underlying insurance policy(ies). Furthermore, the umbrella should also contain a duty to defend the insured. Excess umbrella An "excess umbrella" is used when additional limits are needed than is available from the company providing the umbrella. This may also be referred to as "excess liability." Always double check that the excess umbrella policy follows from the language in the umbrella policy rather than from the underlying primary coverage. Self-Insured Retention (SIR) Self-Insured Retention is the total amount the insured is legally obligated to pay as damages for a covered loss. Although referred to as an SIR, the coverage usually treats this more as a deductible. This only applies when the underlying policy does not cover the loss but the umbrella does. This may or may not include defense costs. Excess liability Excess liability provides high limits of liability over primary coverage. Excess liability is a kind of following form. Normally if something is covered in the primary policy, then it will be covered in the excess liability coverage (sometimes this is called a "straight excess"). The same goes for exclusion. Normally if something is excluded in the primary policy, it's excluded in the Excess. The excess liability carrier effectively writes its own version of the coverage provided. There may be areas where the excess liability coverage is narrower than the primary coverage. Personal umbrella features Some key features of an umbrella policy include: Umbrella coverage issues Personal Injury definition may include any or all of the following: There are also coverage issues surrounding certain non-owned watercraft and aircraft, such as watercraft in excess of 26 feet and aircraft chartered with a crew. Most umbrella underwriters really dislike any type of watercraft or aircraft exposure and may completely exclude from coverage. Coverage considerations It's a good idea to keep these umbrella coverage considerations in mind. Pollution exclusion The pollution exclusion is probably absolute. The homeowner's liability coverage does not address "pollution" as covered or not covered. So even though an umbrella policy is excess over primary, pollution is too often a catastrophic loss, and the insured will naturally look for any excess coverage in a pollution claim. Punitive damages The umbrella policy may specifically exclude punitive damages. Defense costs may in included in the limit of insurance as opposed to outside the limit. Defense costs may also be included in the Self-Insured Retention. Pay on behalf vs. indemnify Does the policy allow the insured to choose attorneys, defense, and settlement of claim, or does the insurance company still dictate these items? Who needs an umbrella? All insureds need an umbrella policy. All insureds are susceptible to a high-loss judgment against them in today's legal climate. Remember: the award is based on the injured party's worth, not necessarily the insured's worth. Quoting an umbrella is a good defensive move from an Agents Errors & Omission point of view. We offer value-added service. That means offering additional lines of insurance and requiring the insured to sign off on the quote. The limits of liability One of the key considerations in determining the limits of liability are the current and future assets of the insured. However, this is only one measurement, and should not be the sole consideration. Exposure to loss--in terms of frequency, severity, or both--should also be considered, especially since it has high public visibility. Underwriter considerations When considering an umbrella policy, the underwriter should look for broad underlying coverages. The umbrella policy should be done through a financially sound primary carrier--usually an A Best rating or approved non A rating. |
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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.
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