In Plugging Liability
Insurance Gaps with the Personal Umbrella Policy, I introduced you to many
common liability exposures not covered by primary auto and homeowners polices,
and the four-step process I use to do my own comparisons. In
Creating and Using
a Personal Umbrella Comparison Form, I shared my 5-page spreadsheet and
showed how to use it to analyze the strengths and weaknesses of Progressive's
newly introduced umbrella policy. In this final part of the series, I use a
case study to show you how to help a client choose among the umbrella policies
to best cover liability risks not covered by primary policies.
Case Study
This case study is a composite of actual risks from my client files. Assume
your client does not yet have a personal umbrella policy and you are charged
with helping them choose an umbrella that best covers their otherwise uninsured
risks. Joe and Mary Smith call you. They will be renting a houseboat on Rainy
Lake for 2 weeks with another family. Joe is the only one who is signing the
rental contract. The boat is 40 feet long, powered by two 150-horse power outboard
motors. Its value is $300,000.
The rental contract requires your clients to return the houseboat in the
same condition as when it was leased and to be responsible for any and all damages
no matter how caused. There is also an indemnity agreement in which Joe has
agreed to defend and pay any judgment against the boat owner for injuries or
property damage to third parties arising out of your client's use of the boat.
How would you know that these risks existed? Certainly not from your client
telling you. If you're going to practice personal risk management, it is essential
that you read every personal contract your client signs. That is the only way
you can accurately identify those risks assumed in that contract and help your
client effectively manage those risks.
Here are some other liability risks facing Joe and Mary that are not generally
covered by primary insurance policies.
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Joe serves on the board of directors for his church. He has a 20-year-old
son (college student) who repairs bicycles for neighbors' kids out of the
garage during summers off and is paid for his services. There are no employees.
He makes about $4,000 a year to help pay for college costs.
-
Joe has his own woodworking business at another location that has full
business insurance. He also does a lot of office work out of his home and
occasionally employees or couriers stop by with business-related deliveries.
-
Mary is a salesperson for a drug company and is furnished a company car
in which her supervisor and other coworkers often ride on joint calls with
her.
-
Both Joe and Mary like to vacation abroad about every other year and
occasionally rent cars there.
-
They live in a rural area in a home that's heated with heating oil.
These are the liability exposures facing this client, which are not covered
by most auto and homeowners policies. If you were Joe and Mary's insurance agent,
which umbrella policy or policies would you recommend, using my
Case Study – Choosing the Best Umbrella?
On this spreadsheet, I have listed the various uninsured liability risks
I've identified, along with each of the companies, to help you choose which
company or companies are the best choice for this particular client's umbrella
policies. For each of the risks, I have identified how each of the umbrella
policies covers those risks by indicating a "yes," "no," or "FF" (following
form).
Umbrella
Comparison Spreadsheet*
Because of following form issues, assume that
all underlying insurance is with the same insurer as the umbrella.
If this were your client and they came to you with these exposures in their
personal life and if you had my particular umbrella markets available to you,
you would probably choose AutoOwners as the best choice for them, with Chubb
a close second. (Chubb doesn't cover the son's business because he is over 18.)
AutoOwners covers 10 of the 12 risks automatically and will cover the premises
slips and falls for courier deliveries by adding the incidental occupancy endorsement
to the underlying homeowners policy. It will cover the sudden and accidental
pollution liability from the heating oil tank if the underlying homeowners policy
does not exclude that liability.
The five liability exposures pertaining to the houseboat rental are significantly
important because they pose one of the greatest likelihoods of a substantial
uninsured claim occurring at the present moment. If these 5 boat rental risks
were Joe and Mary's only concern, both General Casualty and MetLife would cover
these tort and assumed contractual risks.
The worst performing umbrella policies for this client are Western National
(a modified AAIS form) and USLI (a surplus lines market), covering only 2 of
the 12 risks and Progressive covering only 3. Harleysville, General Casualty,
and MetLife get an honorable mention for covering 8 to 9 of the 12.
Conclusion
There you have it. This is the process I go through to help clients choose
the best umbrella policy for their particular unique liability exposures. Please
note that this analysis is done for demonstration purposes only. There is no
warranty of accuracy. Also, this applies to Minnesota-approved products only,
and the coverage forms and endorsements may not apply exactly as shown in your
particular state.
I hope I have enlightened you on how dramatically different personal umbrella
policies can be, and how critical it is to recognize these differences. Doing
so helps you choose the umbrella policy that is going to provide the best coverage
for the exposures not covered by underlying insurance. Here is some additional
food for thought. The time is coming, if it hasn’t happened already, where an
insured is sued for injuries or property damage not covered by either his primary
policies or his umbrella that would have been covered by another umbrella. As
a result, the insured sues his broker for damages caused by a professional error
in not recommending the umbrella policy that would have covered this lawsuit,
and a jury agrees. Following an organized umbrella selection process, like the
one outlined above, is your best defense.
Jack Hungelmann's book Insurance for Dummies,
contains much of this information and is available at your favorite bookstore
or
online. For more information on his risk management and insurance business,
go to www.JackHungelmann.com
where you can check out sample newsletters, brochures, other articles written
on various issues. For background information, see Mr. Hungelmann's
biography.