Umbrella Insurance
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People are always misplacing their umbrellas. Leaving them in restaurants, office buildings and such. If you have a nice umbrella, you may want to insure it. However, that is not what umbrella insurance is about. It's about providing you with additional liability coverage and often broader protection than what is provided by your home and auto insurance policies. One brisk December evening, Dr. Dennis Markson, a thirty one year old orthopedic surgeon, was driving home following a long day at the hospital. He was thinking about the Holidays and looking forward to trimming the Christmas tree with his wife and three children when he was suddenly struck, head on, by a speeding drunken driver. It took over two hours for the rescue squad to extract him from the tangled metal of his car. He was rushed to the emergency room with multiple internal injuries and broken bones in his face, rib cage, arms and hands. The joints of the middle and index fingers of his surgery hand were badly crushed. His surgery career was ended. The driver of the car that collided with Dr. Markson was the teenage daughter of a successful local businessman, Eric Coley. Fortunately, Mr. Coley had a large auto liability policy plus a personal umbrella with limits covering from $500,000 to $5 million. Because of his young age and the destruction of his surgery career, Dr. Markson’s financial losses alone, were clearly in excess of $5 million. To avoid the expense and delay of litigation, Dr. Markson simply made a written policy limits demand on the primary and umbrella companies who insured Mr. Coley and his daughter. Months went by with no response from the companies. Dr. Markson wrote again. Still no response. Finally, with a statute of limitations applicable to personal injury cases about to run out, Dr. Markson was forced to retain a lawyer and file suit. It was later that Dr. Markson discovered that there was a $200,000 gap between Mr. Coley’s primary and umbrella limits. In other words the primary policy which was supposed to cover up to $500,000 only covered up to $300,000. The reason the insurers had not responded was that the primary agent, the excess agent and the two insurers were all fighting about who was responsible for the $200,000 coverage gap. The insurers and agents finally all agreed that it was none of their faults and was actually the fault of Mr. Coley. And so, despite his having paid premiums for years for $5 million in Umbrella limits for auto liability protection, Mr. Coley was told that he would have to pay $200,000 out of his own savings and assets, if the case was to settle. In the meantime, Dr. Markson was forced to litigate, pay thousands of dollars in legal fees and costs, and to wait for over three years to resolve what was an extremely straightforward, clear liability, claim.
Most Common Umbrella Insurance Controversies The most common umbrella insurance problems involve the following issues:
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Filing an Umbrella Insurance Claim
Let's take a detailed look at the Medical Insurance policy, learn how to understand how to ensure we get what we're paying for, then how to use that knowledge in the event of a claim.
Umbrella insurance increases the dollar limits of underlying liability insurance. This is generally so whether the underlying insurance if for Homeowners, Auto, business or any other type of liability. Umbrella coverage is generally much less expensive than your primary policy. The reason it is cheaper is because umbrella coverage is not available in most cases until after the limits of you primary coverage are exhausted. For example, if your homeowners’ liability coverage limit is $500,000, and you are sued by a neighbor who is severely injured on your property, your homeowners policy would only cover the first $500,000 in damages and/or defense costs. If the injuries suffered by your neighbor were so severe that you were liable for $800,000 in damages to your neighbor, your homeowner policy would cover the first $500,000 in defense costs and damages, and your umbrella policy would pay for the balance up to the policy limits. Without the umbrella policy, you and your assets would be exposed for the balance. The same analysis applies to auto insurance. If for example, you cause an accident and your primary auto insurance limits are $500,000, your umbrella policy which covers liability of from $500,000 to $1 million would not be triggered. If, on the other hand, the damages you cause could exceed $500,000, your personal assets would be protected up to your full umbrella policy limits. Umbrella policies are important for anyone who has assets that might be at risk if they cause serious harm involving an act covered by their insurance. In addition, umbrella policies protect your future earnings. This is so because if you cause damage to a third party and do not have enough insurance or assets to pay for the resulting losses, a court could allow the damaged individual to garnish a portion of your earnings each month to pay off this debt, or to take other steps which would imperil your future earnings.
In addition to increased liability limits, umbrella policies often provide additional coverage. Umbrella polices often provide coverage for personal liability claims such as libel, slander, defamation, malicious prosecution, wrongful eviction, false imprisonment, assault and battery, or other claims that are generally not covered by homeowners, auto, and other liability policies. Some umbrella policies also provide coverage if you face liability arising from your service on the board of civic, charitable, or religious organization. Most umbrella policies exclude coverage for these types of claims if they occur in the context of a business transaction.
Costs Covered Under Umbrella Insurance Most Umbrella policies cover both defense and indemnity costs once the primary policy limits are expired. But in most states, although it has to defend against punitive damages allegations, umbrella policies do not have to indemnify for a punitive damages judgment against you.
The most important thing you have to analyze in considering the purchase of Umbrella insurance is the issue of your assets. Many people don’t realize the extent of their net worth. You should consider the total value of your and your spouse’s savings, investments, retirement accounts, home equity, business value, personal property (jewelery, art, boats etc.) and income generating potential. Add it all up. The converse of Bob Dylan’s famous: “If you ain’t got nothing you got nothing to lose” line, is true. The more you’ve got, the more you’ve got to lose. Next, ask yourself what kinds of coverage for liability causing activities that might not be covered by underlying insurance, you may need to insure against. Some of these things might include suits alleging such things as defamation, invasion of privacy, malicious prosecution, assault and battery, wrongful eviction (of a tenant), wrongful termination (of a household employee), and a variety of intentional acts. What can we tell you? Suits over such things do occur. And they would not ordinarily be covered under “primary” homeowners, auto, and other liability policies. However at least some of this might be covered under an Umbrella Policy containing what is called a “drop down” provision. Such a provision can sometimes cover some things that are not covered in your primary insurance policies. So, if your assets are substantial and your family is like most, you’d better think about this. Some umbrella policies also provide coverage if you face liability arising from your service on the board of civic, charitable, or religious organization. However most umbrella policies exclude coverage for claims if they occur in the context of a business transaction. In any event make a list of the questions you come up with from thinking about all of this. Your checklist should include such issues as:
Then sit down for a heart to heart with an Umbrella agent. Bring your notepad.
Punitive damage insurance As mentioned, in most states, umbrella policies will not cover a punitive damages judgment. It is thought to be against public policy, and the purpose of punitive damages, to allow someone to just go out and buy this insurance and then proceed to take a sledgehammer to an obnoxious neighbor’s swimming pool.
False allegations against you Protection against claims and lawsuits like these, is often more about the cost of defending them than about the threat of losing. Even if a lawsuit against you is false and frivolous, you could still face very significant expense in the legal fees generated defending against it. Not only an Umbrella Policy but underlying liability insurance, is often responsible for paying the defense costs in such cases. There is often wording in these policies specifically to that effect. If the malicious allegations turn out to be true, however, well, that’s another matter.
As soon as you have notice of a claim, or possible claim, that could invade the threshold of your umbrella limits, you should put the carrier on notice of all of the facts and circumstances surrounding the claim. Notify both the primary and the umbrella carriers and proceed as instructed. If an Umbrella carrier disputes the coverage, proceed as you would under the Homeowners liability section of this website.
Negotiating: If your insurance company denies or terminates a disability claim it will send you a letter explaining why. The letter will quote the language in your policy, or the facts surrounding your claim that are the basis for the denial. If you disagree with your company's decision, you should take the matter up with a claims manager or supervisor. Think through the reasons for your disagreement carefully and talk to the manager or supervison about the situation. If that fails, put your thoughts in writing. It is often wise to obtain advice from an insurance expert before writing this letter. In addition to the above, most disability policies provide for an appeal process within the company. This, more formal, process bumps the claim to a higher level within the company. Mediation: Mediation is a process whereby an independent third party, chosen by the agreement of both sides and experienced (in this case in insurance matters), steps in and tries to facilitate a resolution of the disagreement. Mediation, unlike certain types of arbitration, is not binding. No decisions are made by the mediator. Instead the mediator simply tries to bring the two opposing sides together in a joint effort to avoid litigation. There are professional mediators available through organizations such as The Judicial Arbitration and Mediation Services (JAMS), and other organizations which promote mediation services. Be sure your mediator is objective and does not have a built-in tendency to favor one side or the other.
Statutes of Limitations and Contractual Limitations: Statutes of limitations are laws setting time limits for the filing of civil lawsuits. The time limits differ according to the state you reside in and according to the type, or theory, of the lawsuit in question (negligence, breach of contract, intentional infliction of mental distress and bad faith can all have different statutes of limitations). Contractual limitations, on the other hand, are provisions in contracts which may alter or change a state's statutes of limitations. You should be aware of both your state's statutes of limitations and of any contractual limitations in your insurance policy. Both types of limitations restrict your ability to sue if you disagree with a decision your insurance company has made. If you do not file a lawsuit within the time period set forth, you may lose all of your rights to contest any adverse decision)(s) made regarding your claim.
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Umbrella Insurance Line