So the obvious question might be: "Why aren't you writing the umbrella
policy in the same company as the underlying insurance?" Here are a few of
the more common reasons.
- The price. USAA is a great example
of that. It is extremely competitive on automobile and homeowners
policies but, for some reason, is not competitive on the umbrella, in my
opinion.
- Driving record. One or more of the
drivers in the family may have a recent driving while under the
influence (DUI) ticket or one too many tickets and/or accidents to
qualify for the underlying insurer's umbrella policy.
- The financial strength of the umbrella
insurer. For example, the underlying insurance insurer may have a
B+ A.M. Best rating—good enough for the primary insurance coverage but
not good enough for a $5 million or $10 million umbrella policy.
- Plugging liability insurance gaps.
To find coverage for one or more significant liability exposures not
covered by primary auto or homeowners policies nor by the underlying
insurer's personal umbrella policy. How to accomplish just that is the
focus of this article.
- Higher limits. The need for higher
limits on the umbrella policy than are available from the primary
insurer. For example, many insurers only offer $2 million limits
maximum. Most limit their maximum offering to $5 million. This is not
enough for an affluent client needing $10 million or more coverage.
- Excess uninsured/underinsured motorist
coverage. An insured may desire to have excess uninsured and
underinsured motorist coverage—an option not available through most
primary umbrella insurance companies.
For this article, I review the following four different umbrella policies
for which underlying insurance is not required.
- Auto-Owners—a preferred market in
17 states available through contracted agents. Auto-Owners, with
supporting underlying coverage, has one of the broadest umbrella
policies on the market. Without the underlying coverage support, the
policy loses a lot of its substance. To Auto-Owners' credit however, it
is one of the few remaining preferred insurance markets to offer any
kind of stand-alone umbrella policy.
- RLI—available to independent
insurance agents. Endorsed by the
Independent Insurance Agents and Brokers of America. One of the
positives of RLI's umbrella is that it automatically includes coverage
for trusts and trustees if covered by underlying policies.
- USLI—available to agents through
surplus lines brokers.
- American Alternative Insurance Company
(AAIC)—available in all 50 states through
www.PersonalUmbrella.com. In 2010, American Alternative assumed the
PersonalUmbrella.com book of business from Navigators. One of the great
strengths of this program is that it can cover just about any entity as
a co-named insured including partnerships, corporations, LLCs, trustees,
and trusts, etc. The downside of being so comprehensive is that AAIC has
had to make most of the coverages "following form," making this contract
mostly a straight excess rather than a true umbrella. It is a great
choice, however, if you need to cover multiple individuals and/or
entities under one contract and don't have other liability exposures not
covered by underlying policies.
Click here for the Stand-Alone Umbrella Policy Comparison Chart.
Note that these analyses are done by me personally; I share them with
readers for illustrative purposes only. I compare all umbrella policies as
to how well they cover the gaps—common liability risks not covered by auto
or homeowners policies and for which coverage is also not available. The
umbrella policy forms may be different in your state or may contain
endorsements unique or specific to your state, so it is critical that
readers perform their own analysis when selecting insurance policies.
Here are some features common to the group as a whole.
- All but Auto-Owners can write risks with multiple tickets and
accidents.
- All but Auto-Owners offer optional lower required
underlying liability limits.
- All but RLI offer up to $10 million
limits. RLI's maximum is $5 million.
- RLI, USLI, and American
Alternative have excess uninsured and underinsured motorist coverage
available. (Auto-Owners offers it only in some states where it's
required.)
- All four companies have an A.M. Best rating of A+ or
A++
- All but RLI offer worldwide coverage. RLI limits its
worldwide coverage to lawsuits brought in the United States or Canada. (Not
a good umbrella choice for someone who travels abroad.)
The number one
most important factor in choosing any umbrella is to get coverage for as
many of the coverage gaps as possible. To identify those gaps in coverage, I
find that some kind of checklist or questionnaire is very helpful. (See
Creating an Umbrella Coverage Checklist.)
Case Studies
Using my
comparison form for stand-alone policies, here are 10 examples of gaps and
how each of these 4 policies covers them.
8
9 | 1
2 |
Client rents an 80-foot houseboat for a 2-week vacation. Risks
include:
1) Bodily injury and property damage to others.
2) Legal and contractual liability for damage to a $250,000 boat. | 1) Choose USLI. (RLI covers rented boats only up to 45 feet.)
2) None of the four companies covers this gap. Auto-Owners will
cover you if you place your homeowners coverage there. |
| 10 | 3 |
Your client owns a tractor
and often plows the driveway or cuts the lawn of an elderly neighbor. (The
homeowners policies often exclude use of service vehicle if
ever used off the resident's
premises). | Choose all but American Alternative. |
| 11 | 4 |
Your client is retired and has no personal automobile. But
he does need "drive other cars" coverage when he rents or borrows other
vehicles (i.e., on vacation). | Choose all but American Alternative. |
| 12 | 5 |
Your
client has a company-furnished vehicle and no other personal automobile. Her
employer has broad form DIC coverage for her use of nonowned vehicles. But
the business auto policy contains the usual exclusion for injuries
your client causes to coworkers riding with her (i.e., the
fellow-employee exclusion). | Choose RLI. It's the only freestanding umbrella policy to cover
this gap without requiring an expensive named nonowner policy as primary
coverage. |
| 13 | 6 |
Joe is 80 years old. He has no car and no longer drives, but
he occasionally needs to be driven by others to doctor appointments,
shopping, etc. Under principal/agency statutes and caselaw, Joe can be sued
if his driver causes an accident, but Joe has no personal auto
insurance policy and therefore no coverage. | Choose USLI, who provides vicarious auto
liability without requiring underlying insurance. |
| 15 | 7 |
Bill works occasionally from home (telecommutes). His homeowners
policy excludes injuries to those who come on the premises for
business purposes. (Like a courier or UPS delivery person who falls
on Bill's icy driveway while delivering a business package.) | Choose anyone but USLI, and be sure the client adds
an incidental occupancy or business pursuits endorsement to his
homeowners policy because the umbrella coverage is following form. |
| 16 | 8 |
Tom's 22-year-old son repairs neighborhood bicycles from the garage
during the summers. Both the premises liability risk and the
completed operations/products liability risk are probably uninsured.
Homeowners policies exclude business-related lawsuits. | Choose Auto-Owners only. Summer
part-time jobs would not be considered business because they are not the
individual's "trade, profession, or occupation." American Alternative
does cover this risk but only if the child is under age 21. |
| 17 | 9 |
80-year-old Charlie needs some help getting dressed and eating. So
his family helps him hire a part-time care provider to come into his
home. He buys a small workers comp policy which includes employer's
liability coverage, but he's looking for excess coverage. | Buy the umbrella with Auto-Owners or USLI. Both
require underlying employers liability coverage, so be sure to buy
enough extra employers liability coverage to meet the threshold. |
28
| 10
|
Your clients have a strong desire for excess uninsured and
underinsured motorist coverage. | Choose RLI, USLI or American Alternative. (Depending on
the state, Auto-Owners may offer it as well.) |
Keeping Score
So how did
these stand-alone umbrellas fair? Out of a possible 10, Auto-Owners would
cover 5. RLI covers 5 also. USLI scored 6. And American Alternative just
covered 1. Interestingly, with supporting underlying coverage, Auto-Owners
covers 9 of the 10 coverage gaps listed, and Chubb's new 2010 umbrella
covers all 10! Click here to see the All Companies Umbrella Comparison that includes the new
2010 versions from Chubb and RLI.
Conclusion
Obviously, none of the
four policies I've looked at here cover all of the different types of risks
listed in the chart. But virtually no client ever has that many exposures in
their lives that are not covered by primary policies. The secret is to know
what your umbrella policies do or don't cover, to use some kind of
questionnaire to identify what gaps your client has that aren't covered by
the primary policies and can be covered by umbrella policies. And then,
third, to know enough about your umbrella policies' coverages to be able to
choose the policy for the customer that covers the most important gaps, even
if it can't cover all of them. I hope that this article helps you with that
process.
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.