Today's personal umbrella liability insurance needs to be renamed. "Umbrella" was once an accurate title because the policy acted as extra protection that shielded insureds from additional sources of loss. A more appropriate term is "personal excess insurance." It provides individuals and families with added protection that applies on an excess basis over any personal liability-homeowners, automobile and other forms of personal liability insurance.
Regardless of the title, personal umbrella coverage responds to high-level damages caused by personal, rather than business or professional, activities. The policy is "excess" insurance because the coverage is not usually triggered until protection provided by a homeowners, auto, or other underlying policy runs out. In some instances, personal umbrella policies may also handle losses that are ineligible for underlying liability insurance. In such instances, an umbrella policy "drops down," responding to the loss on a primary basis.
It used to be that the target market for personal umbrellas was individuals with unusually high income. Generally, executives, management people, professionals, and recognized community leaders would rank high on a list of those especially vulnerable to high-dollar lawsuits. Of course, different companies have underwriting guidelines which may bar coverage for certain "high-profile" applicants. However, it is becoming increasingly common for individuals and families to face catastrophic liability losses. Daily living presents the following exposures to potential "umbrella-worthy" events:
* automobiles on the highways
* wide-ranging travel activities
* liability connected to owning and using a primary dwelling, seasonal, and rental property
* boating accidents on increasingly congested lakes and waterways
* involvement in civic affairs
* libel and slander allegations
The current need for umbrella insurance may now be greater than it has ever been.
The insured's liability is covered with respect to "personal injury" (a concept broader in scope than "bodily injury") and for damage to property belonging to other parties. Personal umbrella liability insurance is written with a minimum limit of liability of $1 million, with higher limits available. Payments for occurrences that are not covered by the insured's primary policies (such as defamation lawsuits) are subject to a self-insured retention or SIR. SIRs typically range between $500 to $10,000 and represent an out-of-pocket expense for the insured.
A schedule of primary insurance is made a part of the umbrella contract, and such insurance must be kept in force during the term of the umbrella policy. Maintenance of underlying coverage is usually a specific policy provision. It is common for an umbrella to respond to a loss as if the required coverage were in place. In other words, an umbrella will rarely drop down to cover a loss because the underlying coverage was modified or has been terminated.
Some companies provide umbrella coverage by endorsing a homeowners policy. Such an endorsement is a self-contained contract, with provisions and conditions comparable to those found in a separate umbrella policy.
Some companies offer an option of including excess professional liability coverage in their umbrellas. The availability of this special coverage depends upon the nature of the insured's profession and the underwriting practice of the company involved. Generally, it pays only for occurrences covered by the scheduled underlying professional liability insurance and only after such insurance has been exhausted.
Personal umbrellas usually provide personal liability coverage and frequently also offer a secondary layer of UM and UIM protection. Personal liability includes both bodily injury and property damage, as well as damages caused by slander, libel, defamation, detention, confinement, and related allegations. Of course, this coverage acts on a primary basis when underlying liability insurance isn't applicable to the loss. This coverage is subject to specific exclusions and conditions and is often worldwide in scope.
Generally an umbrella excludes losses that should (or could) be covered by workers compensation or similar laws. It also bars protection for intended acts, damages involving property that is owned or controlled by an insured, aircraft liability, and losses related to either business or professional liability.
While standardization of the personal umbrella product is increasing (offered by both ISO and AAIS), there are still plenty of unique considerations that would make it dangerous to make assumptions about the coverage, limitations, etc.
Personal umbrella books of business are vulnerable to adverse selection as persons seeking the coverage are typically highly motivated to do so. The coverage is also prone to pricing problems and it is a very unforgiving line. The modest books of personal umbrella business held by many agencies and companies can, after only a loss or two, become unprofitable. Because of these considerations, many companies handle umbrellas as an accommodation rather than aggressively seeking clients.
It may make more sense to offer comparable liability limits under a homeowners policy. This may become a more viable option as the trend toward limiting umbrella coverage to strictly excess protection continues.
