cover any of these losses. My recommendation is that you check each of your personal umbrella contracts to determine if they would cover each of the claims that I will share with you.
Many insurance agents and insureds ask, "Why should anyone purchase a personal umbrella policy?" The best way to answer that question is to look at some examples of actual claims.
No two umbrellas have the same wording. There are differences in the coverages provided by personal umbrella policies. It would be incorrect to assume that all of the personal umbrellas you are using would cover all of the losses I will share with you. Some insurance professionals might be tempted to say that none of the personal umbrellas they use would
cover any of these losses. My recommendation is that you check each of your personal umbrella contracts to determine if they would cover each of the claims that I will share with you.
The first one came about as a result of a dating relationship between a 16-year-old girl and her 19-year-old boyfriend. The young man had a bad heart condition for which he had been hospitalized, and he was taking medication for it on a regular basis. The young man often visited the home where the girl lived with her parents. On one such evening, after the daughter and boyfriend had been together in the basement recreation room for a while, the daughter came running upstairs and told her parents to dial 911 as her boyfriend was having difficulty with his heart.
Just after the parents had called for help, the boyfriend came running upstairs and told them that he did not need any help and they should cancel the call for the ambulance. So, the parents dialled 911 a second time and canceled the call.
The daughter and boyfriend returned to the basement. A short time later the daughter came upstairs for a second time and told her parents to call 911 for her boyfriend as he was really having difficulty with chest pains. This time, the boyfriend did not come upstairs to cancel the 911 call. He was dead as a result of his heart condition.
About two years later, the mother of the young man sued the girl's parents. She alleged that they did not like her son and deliberately let him die. This claim was referred to the couple's homeowners insurer. For about two years, the homeowners insurer tried to settle the claim but could not. Finally, nearly four years after the incident, the umbrella carrier was notified. The umbrella was not written with the same insurer that wrote the homeowners policy.
This claim shows how large claims can come from situations other than bad automobile accidents. It also shows how several years can elapse between an incident, the claim, and the eventual involvement of an umbrella policy.
Another case involves the daughter of an electrical contractor. She was driving to college in her boyfriend's car when she hit a parked car. There was no insurance on the boyfriend's car.
All of the electrical contractor's vehicles were titled and insured in the name of the corporation he owned. As the daughter's trip was not on behalf of the electrical contractor, there was no coverage under the non-owned auto provisions of the contractor's business auto policy.
There were no vehicles titled in the father's name, so he did not have a personal auto policy. A personal auto policy would have covered the damage caused by the daughter's non-owned auto accident. There appeared to be no coverage for the daughter's accident as the business insurance did not respond to the loss nor was there a personal auto policy to respond.
The electrical contractor and his wife did have a personal umbrella policy with a $250 retention. Damage to the parked car was about $800. Payment for the damage, less the $250 deductible, was made under the personal umbrella contract.
After this loss, drive other car coverage covering the parents and the children was added to the electrical contractor's business auto insurance program. Drive other car coverage, added to the electrical contractor's business auto policy, is another way (the preferred way) to provide coverage for the non-owned auto loss that happened.
Sometimes parties or celebrations can lead to umbrella claims. A Wisconsin husband and wife hosted a pool party for their high-school-age children and their friends during the 1970s. While the host did not provide it, alcohol was available. After leaving the party, one of the minors was severely injured and the injury was attributed to the drinking of alcohol. The home owner was sued as a result of the injury.
This case went to the Wisconsin Supreme Court which decided that anyone who sells or furnishes alcohol to a minor is responsible for the minor's injuries and the injuries caused by the minor. In the case in question, the opinion was that the home owner should have prevented any alcohol consumption on the premises. Based upon the court's ruling, the home owner had no defenses that could apply, and both the homeowners policy and personal umbrella policy responded for this claim.
To verify that your personal umbrellas cover a loss due to drinking, you need to be sure that the contracts do not contain any exclusion pertaining to alcohol.
Umbrella policies also should be checked to see if they contain any care, custody and control exclusion. One umbrella claim, some 25 years ago, resulted from a man's borrowing a friend's prize palomino horse. While the man with the borrowed horse was driving down the road, the horse trailer had a flat tire. So that the trailer would not jiggle and bounce around while changing the tire, he took the horse out of the trailer. The horse jumped in front of a passing car and was killed.
The owner of the horse wanted several thousand dollars as payment for the horse. At that time, a homeowners policy would provide $250 of coverage for damage to the property of others. A check for $250 was issued by the homeowners insurer. There was a $250 retention on the individual's personal umbrella, and the umbrella did cover damage to the personal property of others. Hence, the personal umbrella paid the remainder of the claim.
Some insurance agents tend to forget that an umbrella provides coverage for non-auto exposures. While your clients may not borrow a horse, they might have similar loss exposures involving care, custody and control. A teenage son may "try out" a friend's motorcycle. Or a family member may borrow the snowmobile or jet ski of a friend.
Several umbrellas that I know of do not cover a loss such as the dead horse, damaged jet ski, wrecked motorcycle, or destroyed snowmobile. An insurer will typically exclude damage to these or other non-owned personal property items with an exclusion stating there is no coverage for non-owned personal property of a specific kind. Another way that a personal umbrella may exclude damages to non-owned personal property is by having a care, custody or control exclusion. Of course, if you do not find an exclusion(s) that applies to these types of claims, your umbrella(s) would probably cover these kinds of losses.
Interfamily lawsuits, which are permitted in some states, can result in umbrella claims. Such was the case in Wisconsin during the 1980s when a woman sued her husband claiming that his negligent driving caused her to give birth to an impaired child. She was pregnant and riding with her husband in the car when the auto accident occurred. Two years later the suit was filed, and the auto carrier tried to settle the case. Another two years went by before the umbrella carrier (a different insurer) received notification of the claim.
Prejudgment interest
The length of time it can take to settle cases raises another important point about umbrella policies. Some insurers cover prejudgment interest while other insurers do not. This is not to be confused with postjudgment interest, which all liability policies cover--interest on a judgment from the date the court renders its decision until the time the insurer actually makes payment to the injured party.
In many cases postjudgment interest becomes a moot point because if the insurer is satisfied with the conduct of the court proceedings and does not plan to appeal the case, it will issue the check to the injured party right in the courtroom after the verdict has been handed down. When it is done this way, the insurer pays no interest at all because no time has elapsed between the time of the verdict and when the payment is made.
Sometimes, however, an insurer will appeal a court's decision. For example, if six months have elapsed between the original trial and the date that the appellate court renders its decision upholding the lower court's decision, the insurer will owe for the amount of the original award plus six months' interest on the award. This six-months' interest is postjudgment interest and all liability policies cover it.
Although not all courts follow this practice, starting in the 1970s, some courts said that insurers owed interest on the award commencing with the date of the injury. Interest earned on an award for the period from the date of the injury until the lower court's verdict is rendered is called prejudgment interest.
Umbrella losses rarely settle quickly. For instance, in the first loss mentioned in this column, involving the family whose daughter's boyfriend died, nearly five years elapsed between the date of injury and court date.
Here's an example of how prejudgment interest could affect a settlement. Let's assume an award is for $100,000 and five years elapses between the date of injury and the date of the award by the court. Per the court, 12% interest is to be paid on the award commencing with the date of injury. The insurer issues the check as of the day the court award is made. Including the 12% interest compounded annually, the total amount to be paid is $176,234. Of the $176,234, $100,000 is the amount of the judgment and $76,234 is the amount of prejudgment interest on the award.
With a personal umbrella that includes coverage for prejudgment interest, the insurer would issue a check for $176,234. If the insurer's umbrella does not provide coverage for prejudgment interest, it would pay $100,000, the amount of the judgment. In other words, despite having an insured loss where the limits were not exceeded, the insured would be paying almost as much as the insurer!
My opinion is that coverage for prejudgment interest is very important. In evaluating which personal umbrella is a better contract, a personal umbrella contract that covers prejudgment interest tends to indicate a superior contract.
While conducting seminars for thousands of insurance agents, I have observed that many agents do not think their clients need a personal umbrella policy. They do not seem to feel that an insured may incur a large bodily injury claim.
Here is an illustration that I used many times to aid insurance agents in accepting the idea that their insured(s) might sustain a large loss. The scenario is a simple one. Does your insured drive on a highway? Might your insured have a loss with a semitruck? How much is such a truck worth and how much auto property damage coverage does your client carry?
If the insured has split limits, $100,000 is the maximum amount of coverage for property damage liability that he or she will typically have. An insured with combined single limits might have limits of $300,000. How do these limits compare to the value of a semitruck? These numbers are indications of values that an insured might encounter if he or she has an accident with such a vechicle. For about $100,000 one can purchase a new semitractor. A semitrailer might have a value between $20,000 and $100,000. Cargo values cover a wide range. While $200,000 might be a common value, at least one firm where I was involved in underwriting their cargo insurance had a cargo exposure of $1,400,000 per semitrailer. Totaling the value of a semitractor, a semitrailer and cargo, you will see that normal personal automobile limits would not be adequate to cover the physical damage loss to a semitractor trailer unit. Personal umbrellas can be used to provide the necessary high limits needed to protect against this exposure.
Closing ideas
Most insurance agents and many insureds are aware of personal umbrella coverage. A common reason for buying an umbrella is to have high limits in the event an auto accident causes severe bodily injury. Many claim files would bear out this idea.
Losses such as the one brought against the parents whose daughter's boyfriend died or the home owner who threw a party for high school students illustrate that large claims can result from situations other than those involving an automobile.
Not all umbrella claims involve large limits. Losses for damage to the personal property of others are usually not very large. Many agents and insurance company personnel describe a personal umbrella's coverage as being excess over the underlying homeowners and auto coverage. Claims such as the personal property ones described here illustrate that personal umbrellas do provide coverage that is broader than that provided by the underlying auto and homeowners insurance contracts.
In my opinion, coverage for prejudgment interest is a significant plus for any personal umbrella. It is typical for umbrella claims to be settled in court years after the date of injury. Our example indicates that compound interest from the date of injury until the date a court renders its verdict can be a substantial amount of money. Only by having a personal umbrella policy that covers prejudgment interest will an insured be protected for this exposure. *
©COPYRIGHT: The Rough Notes Magazine, 1998