Creating and Using a Personal Umbrella Comparison Form
June 2007
In article "Plugging
Liability Insurance Gaps with the Personal Umbrella Policy," I
introduced many of the additional coverages provided by a good personal
umbrella policy that are not, as a rule, covered under primary automobile
and homeowners insurance policies. In this article, I show you the process I
use to create a comparison spreadsheet on different personal umbrella
policies I represent. "Choosing
the Best Umbrella Policy: Case Study" illustrates how it's used.
by
Jack Hungelmann
Corporate
4 Insurance Agency, Inc.
Since uninsured lawsuits can be financially devastating to clients, one of
the ways I practice personal risk management with clients is to become familiar
with available personal umbrella policies and how well those policies cover
liability risks not otherwise insured by underlying liability policies. My goal
was to have at my fingertips a tool to quickly and accurately pick an umbrella
policy that covers all, or at least the vast majority, of the uninsured liability
exposures in my client's underlying insurance policies. After analyzing various
umbrella forms and mandatory endorsements, I created an umbrella comparison
form that shows what each policy covers and does not cover. This form shows
umbrella policies used in Minnesota and was last updated in November 2006 to
reflect analysis of Progressive's new personal umbrella policy as well as the
significantly revised Harleysville personal umbrella policy.
Umbrella Comparison
Spreadsheet*
This form was developed over several years as I identified the different
types of risks that were not then covered by primary coverage but in most cases
could be covered by umbrella policies. Here are some examples of clients' liability
risks I've encountered:
- Chartering 30-foot sailboats to sail with friends on Lake Superior
- Serving on the board of the Eden Prairie Minnesota Hockey Association
- Serving on a church board that oversees the Fall Festival with gambling
and liquor exposures
- Renting a restaurant to host his daughter's wedding party, which will
involve signing a contract to indemnify the restaurant for any lawsuits
arising out of the event
- Driving a company-furnished car with no coverage for injuries to coworkers
- Transferring the ownership of a home to a trust
I would then take these uninsured exposures and add them to my list of risks
potentially covered by an umbrella policy. It's a never-ending process.
Examining My Umbrella Comparison Form
The first part of the Comparison Form compares underwriting issues. It lists
a form number and edition date so I know that, when I'm working with a new client,
the umbrella policy form I'm referring to is the one still in use by the specific
insurer. I list the A.M. Best rating because I believe as a rule of thumb that
the minimum Best rating for an umbrella policy of $1 million or $2 million is
A; the minimum Best rating for umbrella policies of $3 million or more should
be A+ or A++. Also, on the Underwriting Comparison part of the form, the underlying
insurance liability limits required for each umbrella are listed as a quick
reference. I also include which underlying policies are required to be placed
with each insurance company in order to obtain the umbrella policy for that
particular company. The maximum limit available with each company is noted as
well as its binding authority. Finally, the amount of the self-insured retention/deductible
for those claims covered by the umbrella but not covered by underlying insurance
is shown.
Since personal umbrella policies cover virtually all personal lawsuits not
otherwise excluded for bodily injury or property damage, as well as many types
of personal injury claims, they are, in effect, a type of "all risks" contract
where coverage is found not in a list of covered losses, but rather in the definitions
and/or exclusions. Like a special perils property form, generally "if it ain't
excluded, it's covered."
Using the Comparison Form To Evaluate an Umbrella Policy
Once you have built your comparison form criteria, you can use those criteria
to evaluate the quality of each of your umbrella policies. For example, one
insurer recently introduced a freestanding personal umbrella policy. Since not
many personal insurance markets offer an unsupported personal umbrella policy,
it would be a real asset if the policy coverages were strong. Using my form,
here are some things I discovered about the policy's coverage:
- Its minimum umbrella limit is $500,000 rather than $1 million.
- Its maximum is $2 million.
- It has worldwide liability coverage, but only for suits that are brought
in the United States or Canada (not likely to happen in a car accident on
vacation traveling in Europe). It's the only company I represent that has
that limitation.
- No aircraft coverage of any kind, even if there is underlying insurance.
- No coverage for damage caused to rented vehicles, boats, rental dwellings
(such as vacation condominiums), rented snowmobiles, and recreational vehicles,
i.e., no relief from the underlying policies' exclusion for damage to property
in the insured's "care, custody or control." ·
- No coverage for driving nonowned vehicles if there is no underlying
personal automobile policy, i.e., when the only vehicle is a company car
or when the insured has no owned vehicles but occasionally uses nonowned
vehicles.
- No coverage for vicarious liability for other drivers' negligence. An
example of this is when your elderly client with suable assets but no personally
owned vehicle receives rides from well-intentioned friends and neighbors
to the doctor's office. The driver causes an accident, and your client gets
sued vicariously because the car was on the road for the sole benefit of
your client.
- There is no coverage for motorcycle guest passenger liability (compared
to two other policies that also do not include that coverage).
- There is no coverage for premises injuries related to home business
activities unless covered by underlying insurance (requires modification
of the homeowners basic coverage). There is coverage for children's business
activities if a minor and limited to part-time babysitting, caddying, lawn
care, etc.
- No automobile liability coverage for business deliveries, like delivering
pizza or newspapers (major exclusion, as the standard personal auto policy
generally excludes only things like taxi cab services, a.k.a. public or
livery conveyances). This is a very worrisome exclusion.
- There is apparently liability coverage for injuries to domestic employees
if workers compensation policies are neither required nor provided.
- No coverage exists for child care activities except occasional part-time
home care (i.e., babysitting) if covered by
underlying insurance.
- There is coverage for bodily injury and property damage liability for
service on a nonprofit board.
- There is no coverage for sailboat racing, even though such racing is
covered by most underlying homeowners insurance policies. There is no coverage
for any vehicle racing—not even coverage for that done in an amusement park,
for example.
- There is no coverage for newly acquired motor vehicles, recreational
vehicles, or watercraft after 30 days (this is a serious gap and a major
agent errors and omissions exposure because in order to have coverage, the
agent will need to notify this umbrella insurer within 30 days as to the
specifics of any of these newly acquired instruments. Very unlikely with
a freestanding umbrella policy.).
- There is no assumed contractual liability coverage—not even for incidental
residential contractual assumptions, such as a contractual obligation to
defend and indemnify a landlord for your negligence—not even if the contractual
liability assumption is covered by underlying policies.
- There is no pollution coverage of any kind—not even sudden and accidental
spills or heating oil storage tank leaks.
- There is no coverage for punitive damage awards—not even in states that
allow those awards and not even if such awards are covered by underlying
policies.
- There is no coverage for mold liability.
- No available excess uninsured/underinsured motorist coverage exists.
In summary, as a result of going through this exercise of analyzing this
personal umbrella policy, I would not recommend this umbrella policy in its
present form to any of my customers. I would, however, consider using the policy
if the coverage pitfalls of the current form were removed, especially considering
the insurer's strong A.M. Best financial rating. I cannot stress the importance
of keeping up with insurer policy changes which necessitate another pass through
your umbrella comparison form.
What This Comparative Analysis Has Taught Me
I discovered that there are huge differences in scope of coverage of umbrella
policies, as you can see from the chart. In at least one instance, the umbrella
is more restrictive than a straight excess policy. Most insurers that offer
subpar policies often are unaware how restrictive their policies are. I know
of no umbrella policies that would receive a perfect score of 10.
I have learned that I need to first identify with my clients what their noninsured
liability exposures are under their underlying policies, then check my comparison
table to see which companies offer those missing coverages under their umbrella.
To get my clients the best umbrella for their needs, I sometimes need to choose
the umbrella first and then place their underlying policies there too if required
to get that umbrella.
Conclusion
Just how serious is an agent's obligation to know the strengths or weaknesses
of the umbrella markets? I was just hired as a consultant on a case where an
insurance agent is being sued for major injuries that were not covered by an
umbrella policy that he had placed on his client that could have been covered
in at least one other market. It is very serious indeed.
Disclaimer:
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.