This is the third and final part of my series on comparing personal umbrella policies. The premise for all three articles is the importance to the personal risk management process of knowing the strengths and weaknesses of the umbrella policies you have access to.
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.
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.
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).
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.
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.
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