One Size Does Not Fit All

Agents Beware of Coverage Differences in Personal Umbrella Policies

A condominium board is involved in a lawsuit that results in a board member being sued. A neighbor’s child is playing in the backyard, falls off a swing and sustains injuries. A teenager is driving too fast, loses control, and the car damages a neighbor’s property. All of these circumstances can involve your clients and place their personal and business assets in jeopardy.

Every day newspapers run stories about lawsuits filed for every possible reason. These lawsuits range from those in which serious injuries occurred as a result of a tragic accident to those suits that border on the ridiculous. Currently, millions of lawsuits are filed in the United States every year, and there seems to be no end in sight.

Even in today’s difficult economy, with discretionary spending being limited, the importance of purchasing a personal umbrella policy cannot be overstated. A personal umbrella policy with sufficient coverage can save an insured’s personal and business assets should a catastrophic suit be filed; however, not all policies are the same. With many companies offering personal umbrella coverage, it’s important agents and insureds understand the differences between those policies.

True Umbrella Coverage

One of the most important things agents can do is make sure the policy they suggest provides true umbrella coverage. Some personal umbrellas are referred to as “following form” or “excess liability.” This means they contain the same coverage and exclusions as the underlying policy, so there is no added protection. Frequently, excess liability coverage is added to an insured’s homeowners policy as an endorsed coverage for a minimal premium.

A true umbrella “drops down” and provides coverage that can be considerably broader with important additions for supplementary defense costs and personal injury. Personal umbrella coverage also varies greatly. In some instances, it’s more restrictive than the coverage provided by an underlying policy.

Another issue to consider is policy definitions. The definitions of insured, business and pollution are not always described in the same way policy-to-policy. Differences in policy language could exclude coverage for:

• Some family members under 21;
• Certain voluntary director and officer situations, such as serving on condominium boards;
• In-home business instances; and
• Pollution liability for common situations, such as burning leaves and fuel tanks with capacities in excess of 100 gallons.

A careful review of policy definitions is crucial to make sure coverage gaps are avoided.

Benefits

One of the common benefits of purchasing a personal umbrella is enhanced personal injury coverage. Unfortunately, some umbrella polices restrict coverage in the event of a personal injury claim that typically involves libel, slander or defamation. Side-by-side comparisons show certain personal injury elements involving discrimination, mental anguish, shock or mental injury can be excluded from some policies.

Additionally, there can be important differences in how various personal umbrellas treat the “care, custody and control” exclusion found in most underlying policies. Certain umbrellas can exclude liability for damage to rental vehicles, watercraft, snowmobiles and other recreational vehicles.

Individual circumstances vary, so careful consideration should be given to purchasing personal umbrella coverage that is adequate to protect a client’s assets. With a society becoming more litigious each day, it’s now more important than ever for agents to advise their clients properly. Being aware of the differences in personal umbrella and knowing that one size does not fit all situations will help agents form partnerships with their clients and ensure their personal and business assets are properly protected from a potential disaster.

Topics Lawsuits Agencies Numbers