Umbrella Insurance? What is it?
In the simplest of terms, “you don’t have to be a millionaire to be sued like one.” Contrary to popular belief umbrella policies are not just for the wealthy. Like an umbrella that protects you from the rain, an “excess liability policy,” commonly known as an umbrella policy provides an extra layer of insurance for coverage over your standard liability policies for covered claims. An umbrella can protect your existing personal assets, your earnings and future earnings. If you were to lose a lawsuit, in excess of your auto and home liability limits, you would likely have to pay the winning party for pain and suffering, medical expenses, lost wages, etc. Even if you have no assets your wages can be garnished.
Who needs an Umbrella Policy?
Whoever drives a motor vehicle in the State of Florida should consider this coverage a must-have regardless of their income or lack of assets. The majority of claims filed under umbrella policies are auto-related, and since virtually all of us drive it should be a no-brainer and here’s why. As of October 1, 2015, there were 19,913,964 vehicles registered in Florida; 14,266,560 being autos and pickups. There are several millions of cars on the road without liability insurance: there are many more millions of vehicles on the road with inadequate liability limits, in the event of a serious or fatal accident. An umbrella policy with $1 million in coverage (up to $5 million available), adding the Uninsured Motorist (UM) Underinsured Motorist (UIM) Rider will offer you a minimum $1,250,000 in coverage in the event of an accident that causes serious injuries or death, and you are not at fault. In the event the accident is your fault your interests are protected to the limit of the policy.
Here is an actual occurrence that recently occurred:
Accident occurred on a 6-lane roadway, separated into 3 lanes in each direction by lane marking. Vehicle #1, was traveling east in the left lane of a 3 lane roadway. Vehicle #2, was traveling west in the left lane of a 3 lane roadway making a left turn, and struck vehicle #1, causing driver’s neck to be broken in 2 places, plus other injuries, and totaling the vehicle. Driver #2 was 100% at fault. While attempting a left turn, failure to yield to on-coming vehicles is a prima facie case; vehicle #2 is negligent unless the vehicle had a green arrow.
Driver #1 had $100/300.000 bodily injury and uninsured motorist limits. They did not have an umbrella policy, and, therefore, could not have UM/UIM coverage. Driver #2 had a policy with $100/300.000 in coverage. Driver #1 collected $100,000 from both the other driver and their own UM/UIM. As driver #1 was left with chronic pain for the rest of their life, attorneys involved agreed that this could have been 7 figures.
Why do I need an Umbrella Policy? In case you are negligent.
- You have a momentary distraction while driving. Even the best driver can cause an accident with serious injuries, or even death.
- Your swimming pool attracts both invited and uninvited guests, regardless of the tallest fence or the most thorough precautions.
- Your teenager, while driving friends to a school event, runs a stop sign causing a major accident.
- You seriously injure a water skier while boating.
- While playing golf you hit someone causing a serious head injury.
- Today, parents can be sued because of something their teenagers write on Facebook. A blog post about a CEO, an entertainer or anyone could result in a defamation lawsuit.
Whether these lawsuits from traditional or newer risks are valid or not, customers often have to defend themselves, which can cost many thousands of dollars in out-of-pocket expenses, if an umbrella policy is not in place.
How much do I Need?
The right umbrella amount depends on where you live, your profession, your personal assets, future income and assets, etc. Liability coverage in home and auto policies rarely exceeds $500,000, yet “13% of personal injury liability awards and settlements are $1 million or more,” according to the report, citing data obtained from “Jury Verdict Research.” The amount of coverage you choose should bear some relation to your net worth. If you’re worth $1 million, a $1 million dollar umbrella is not going to protect you from a $2 million dollar judgment, since it would still be worth a lawyer’s time to go after your personal assets. It is not unusual to hear of $2 million, $5 million, or even $10 million court judgments against individuals.
Underlying Insurance Requirements: What is required?
Because an umbrella policy is designed to be a form of secondary insurance, it will have underlying insurance requirements. This means you will have to obtain a certain amount of auto, home, and boat, coverage as a condition of being approved for an umbrella policy. Personal Injury exposure such as false arrest, libel, slander, malicious prosecution, etc., is different from bodily injury and property damage, and is defined separately in liability policies.
- Auto insurance: Bodily Injury coverage of $250,000 per person/$500,000 per accident.
- Auto Insurance: Property damage coverage of $100,000 per accident.
- Homeowner’s insurance: Personal liability coverage of $300,000.
- Homeowner’s insurance: Personal Injury coverage may not be automatic in the homeowner and umbrella policy. Some homeowner policies require an endorsement to add the coverage for an additional premium. To avoid having a “gap” in coverage you should make certain that personal injury coverage is provided in both the homeowners and umbrella coverage.
Who is covered? (Check your own policy)
- The insured and spouse; if the spouse is living with the insured
- Resident relatives
- Household residents under the age of 21 who are under the care of the insured
- Anyone using a vehicle with permission of the insured; owned by the insured; covered under the umbrella policy.
- Any person or organization that is legally responsible for the insured, while the insured is using a covered motor vehicle
What is covered? (Check your own policy)
Here are some of the prominent items covered by umbrella liability insurance: It is wise to check your own policy.
- Additional protection above your auto, homeowner, boat or rental property policies.
- Protection from claims by others for personal injury or property damage caused by you, a member of your family or household, or hazards on your property.
- Personal liability coverage for occurrences on or off your property.
- Protection against non-business personal injury liabilities such as slander, libel, false arrest or wrongful eviction.
- Legal defense costs and associated court costs for covered loss. If you are sued and held liable for $1 million, and your legal defense costs are $200,000, then a policy providing $1 million in coverage will pay the full claim plus the $200,000 for legal costs.
- Some policies provide worldwide coverage. An accident in a foreign country where your present liability insurance does not apply. For example, if you want to rent a car or jet ski when you are on vacation in Europe, you are covered.
What are some exclusions? (Check your own policy)
Some umbrella policies may be “follow form,” which means that if the coverage is not covered in the homeowner policy, then there is no coverage by the umbrella.
- Intentional torts or other willful acts by the insured (tort: an action, other than a breach of contract, that wrongly causes harm to someone, but that is not a crime, and is dealt with in a civil court)
- Damages arising out of business or professional transactions
- Intentional acts, such as sexual harassment, discrimination, assault
- Committing a crime (such as driving under the influence) and are forced to pay restitution
- Drag racing or any other high-risk unnecessary use of your vehicle
- Damage to your own car or residence (your auto and homeowners policy should cover it if not excluded)
- Directors and Officers Liability
Words from Jack Lesser Author
From four (4) decades of insurance experience (28-New York, 13-Florida), one of the most important things that I’ve learned is “there’s only one way to write insurance, and that’s the right way.” Taken to the logical extension, I believe that not protecting yourself, and your family, with the aforementioned coverage could have far reaching implications for your lifestyle and well-being. This is not a hair-splitting exercise in semantics; it is fundamental coverage that must be in place if your drive a vehicle. Other insurance programs are available to protect your lifestyle and the lifestyle of your loved ones.
People of both modest and princely means should be seeking out experts to help them protect their income and their lifestyle. The good news is that we at Oyer, Macoviak & Associates, have the experience which we will make available to you. We’re here to offer you a clear understanding of your insurance needs, but the final decision rests with you.
**As of October 1, 2015, there were 19,913,964 total vehicles registered in the State of Florida: 14,266,560 consisting of autos and pick-ups. According to the Insurance Information Institute, “26.7% of the registered vehicles have NO LIABILITY INSURANCE!” Furthermore, it is estimated that a preponderance of those vehicles have inadequate limits of liability, in the event of a serious injury or death resulting from an auto accident. Hence, the need for UM/UIM.
This article is intended to inform the reader of potential liability exposures. The information in this article is general in nature. Any description of coverage is necessarily simplified. This article reflects general principles only and does not render legal advice. Whether a particular loss is covered depends on the specific facts and the provisions, exclusions and limits of the actual policy. Readers should consult legal, financial, insurance, and other advisors if they have specific concerns.
Jack “The Insurance Dude” Lesser has over 40 years in the insurance industry. He believes the best client is the educated client and he provides the necessary coverage for the least expensive premium.