PERSONAL UMBRELLA LIABILITY INSURANCE OVERVIEW

(July 2022)

Umbrella insurance is also called “excess” insurance because its coverage is triggered when protection provided by an auto, home or other underlying policy is exhausted (runs out). In some instances, personal umbrella policies have insuring agreements that extend to claims that are not covered by underlying liability insurance. In such instances, an umbrella policy responds to the loss on a primary basis.

A schedule of primary insurance is part of the umbrella contract, and such insurance must be maintained (kept in force) during the term of the umbrella policy.

Various 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.

COVERAGE

Personal Umbrella Liability policy wording differs among insurers according to their independent underwriting and legal judgment. However, the coverage objectives are similar. While it is critical to examine a particular company’s umbrella policy, insuring agreements in general provide the following protection:

Personal Liability Coverage
Uninsured or Underinsured Motorists Coverage
Defense Coverage

Personal Liability Coverage

This pays (on behalf of an insured) the amount of damages that exceed the retained limit (see "Definitions"). Coverage is for an occurrence that results in an insured's obligation to pay for bodily injury, personal injury or property damages. 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 worldwide in scope.

Uninsured or Underinsured Motorists coverage

If this coverage is applicable, it pays for bodily injuries sustained by an insured in an auto accident for which the insured has a legal right to recover from the owner or operator of an uninsured or an underinsured auto who is responsible for a loss to the insured. The insurer's responsibility to pay is subject to the terms and conditions of pertinent coverage in the insured's primary policy as well as according to applicable state law. Typically, the umbrella insurer will pay an amount of loss in excess of the greater of either:

· The total amount of insurance any insured is entitled to receive under any other uninsured, underinsured motorists or auto liability insurance, or

· The minimum limit for bodily injury liability required by law in the state in which the accident occurs.

Again, this protection feature is not universally incorporated in all umbrella policies, so its availability must be confirmed by the party using a given policy.

Defense Coverage

This pays the cost to defend any claim or suit for damages because of personal injury or property damage arising out of an occurrence which is covered by the policy. The time at which this coverage begins depends upon the following:

· Any retained limit amount shown in the declarations

· Whether primary insurance has responded to the claim

· Whether primary insurance exists but does not respond because its limits are exhausted.

If the insurer defends a suit or claim for damages under the policy, it will pay the following amounts in addition to its specified limit of insurance:

1. Expenses it incurs in defense

2. Costs taxed against an insured in the suit

3. Interest accrued on a judgment after it is entered in a suit defended by the insurer

4. Premiums on bonds required in the suit

5. Expenses incurred by an insured when assisting the insurance company. Also pays up to $250 per day for earnings lost when assisting the insurance company.

UNDERWRITING

There are a number of concerns that must be addressed when underwriting umbrella insurance. Since umbrellas are following forms, the underwriting issues are an extension of what is acceptable to the primary lines of business (auto, home, RV, watercraft, etc.).

UNDERLYING INSURANCE REQUIREMENTS

Agents and brokers must keep current with the underwriting requirements of companies with which they arrange personal umbrella protection. This precaution allows an insurance professional to handle renewals and new policies without unnecessary delays and problems. One practical, time-saving step is to make certain that underlying insurance is renewed at current required limits so that such policies need not be endorsed with higher limits at the time of renewal or when new umbrella insurance is ordered.

The minimum required limits may vary by insurance carrier and are established for personal liability, automobile liability and other vehicle or craft liability policies. Depending upon the state or company preference, the limits may be expressed as split limits or as combined single limits. It is rare for required limits to be below $100,000 and much higher limits are likely.

It is a condition of coverage that underlying insurance for the limits specified in the declarations be maintained during the term of the umbrella insurance. This includes, in addition to Automobile and Comprehensive Personal Liability, any other declared underlying insurance such as Watercraft, Owned Recreational Vehicle, and Professional Liability insurance.

RATING

Premiums vary by company and according to different factors such as amount of underlying limits, number of insured properties, number of vehicles, etc.