When will umbrella policy kick in?

[Danny Yang]

Hi folks,

I'm new to insurance and have searched online to acquire some basic understanding of Umbrella policy.

I was approached by my Farmer's Insurance agent about purchasing an Umbrella policy for my property. I think that's a good way to increase liability coverage, and am pretty excited to learn about it. But I have concerns if there are cases that the insurance company won't pay for it when there's a claim against me for example. (maybe I was affected by movies / rumors about how insurance companies trying hard not to pay).

So my questions are:

1. If an accident happens near the property, and the owner is determined to be responsible / at fault, will Umbrella policy guarantee payments? I'm not talking about that the owner of the property intentionally committed a crime or hurting people. But for cases like, uneven sidewalk / driveway so a neighbor fell and hurt himself. Or for example a fallen tree (tree branch) that hit a neighbor, and it's determined to be the property owner's responsibility

2. In general what would be the cases that the Umbrella insurance denies to pay?

Thanks

 

[djs]

Nobody likes writing a Million dollar payout, but insurance companies do it every day. It is what they get paid premium $$$$ for.

All umbrellas have exclusions to them but generally speaking, they cover what the homeowners and auto policies cover for liability. In some cases, the coverage of an umbrella policy is a bit broader then the underlying policies.

The thing to keep in mind about umbrellas is they cover over the top of the home / auto policies (for personal umbrellas, which I assume you are asking about), they don't replace them. If your home policy lapses and you have an attachment point of $300,000 to the home policy, you would be liable for the first $300,000 in loss, the umbrella above that to the limit of the umbrella. Of course, if your home policy is in force, then it covers that first $300K.

Don't overthink it. I don't know of any situation where a homeowners policy would pay a liability claim that an umbrella wouldn't extend if needed. There may be one or 2, I just don't know of any.

 

[adjusterjack]

Don't overthink it. I don't know of any situation where a homeowners policy would pay a liability claim that an umbrella wouldn't extend if needed. There may be one or 2, I just don't know of any.

I don't know of any either and I spent 35 years in the P&C business.

I'm new to insurance and have searched online to acquire some basic understanding of Umbrella policy.

Here is a sample ISO (Standard Form) Personal Umbrella Policy. It's an old edition but it will give you an idea how it is written and you can ask your Farmers Insurance agent to give you a sample policy booklet.

 

[InsCommentary]

Umbrellas and excess policies usually have some exclusions not found in the underlying policies, but not many. Umbrellas usually provide no additional "fire legal liability" coverage, they often provide no or limited uninsured motorist coverage. They might not provide excess coverage for BI from owned or kept animals of certain varieties, etc. But, again, coverage is usually very broad and well worth the money. One of the best values in insurance is an umbrella policy.

Most mainstream HO policies (including renters forms) include $100K of liability coverage. Some carriers include or offer more. That is grossly inadequate for damage to property that someone is renting. I lived in an apartment building years ago and one of the 12- or 16-unit buildings was destroyed by a tenant with an out of control charcoal grill. Burned the building to the ground, along with all of the contents of the tenants in that building. Luckily no one was injured or killed. How far does $100K go in a claim like that. Renters may be better candidates for umbrellas than homeowner, not that most would buy one.

 

[adjusterjack]

How far does $100K go in a claim like that. Renters may be better candidates for umbrellas than homeowner, not that most would buy one.

About that, I present the following in case it might be of interest to readers.

1 - The standard renters policy limits coverage for the tenant's negligent damage to the landlord's property to fire, smoke or explosion. Which is not to say that a tenant isn't responsible for other damage caused by his negligence. There's just no liability coverage for it.

2 - What is not well known, even among insurance people, is that the majority of states treat a tenant as being co-insured under the landlord's property insurance and prohibit a landlord's insurance company from subrogating against a negligent tenant after paying the landlord's claim. See the attached state by state analysis.

3 - As for most tenant's not buying an umbrella policy, they typically have no assets worth protecting and can easily file for bankruptcy when faced with a large debt cause by their negligence.

 

[InsCommentary]

"What is not well known, even among insurance people, is that the majority of states treat a tenant as being co-insured under the landlord's property insurance and prohibit a landlord's insurance company from subrogating against a negligent tenant after paying the landlord's claim."

That is true. Great point.

Bankruptcy won't release your from a court assessment. I don't know the variation among states, but I was involved with two claims adjudicated in federal court where the tortfeasors were hit with 10-year wage garnishments, each being able to be extended by another 10 years if not fully paid. Of course, getting folks like this to buy an umbrella is next to impossible.

I gave my son a lecture that he buys liability coverage for more than the protection of his assets and future earnings. There is a moral component to being able to compensate others for your negligence. The less your assets and income, the greater the need for umbrella coverage. I think he understands that view of social responsibility and personal accountability and I told him if he's ever unable to afford the premium, I'LL pay it.

On a related note, I've seen example after example of where an attorney or financial adviser recommends a family put a teenage kid or other family member on his own policy at minimum limits because he has no assets. Aside from the parents, if liable, not having coverage under their own auto policy and perhaps umbrella (a coverage issue for another time), the kid's future is exposed. In one case, as told to me by a private client risk manager, a pre-med student killed two people in an at-fault accident and had his income garnished for 20 years. In another case, a teenager stood to inherit $2-3M at age 25 or something like that...he ended up giving the money to the survivors of a fatal crash he caused.

Insurance is serious stuff. Lives can be destroyed and not only financially. That's why I get ticked off when I see sassy giggling lizards and goofy box store clerks with 'price guns' being the face of an industry, proclaiming "You get the SAME COVERAGE, often for less!"

 

[Danny Yang]

Thank you folks for responding.

One more question:

My agent told me that Farmers Umbrella coverage could be anywhere from 1M to 10M from Farmers, in the increment of 1M.

If I wanted to have better coverage, say $3M or $5M (since I saw the comment above that a suit can be multi-millions), will there be an approval or audit process needed if the coverage is as high as say $5M?

Or how often can I raise it if I don't feel my initial choice is enough anymore?

Thanks!

 

[marindependent]

There are all sorts of reasons that a personal umbrella will not pay out. However it may be more helpful for you to review the personal homeowners insurance form and understand the exclusions to that policy first. Most umbrella policies general match the underlying policies to some extent.

Umbrellas can though also broaden the liability policy for some home insurance policies if they are not broad to begin with.

If you do not understand how umbrellas work, Id ask more questions of the person that you are working with.

Lastly, as a general rule, I would not be concerned with an umbrella company not paying out because of exclusions as much as their ability to financially pay the claim.

Have you checked the financial strength rating of the firm? AM Best, etc?