PERSONAL UMBRELLA LIABILITY PROGRAM UNDERWRITING CONSIDERATIONS

(July 2022)

OVERALL ELIGIBILITY

Vehicle/Craft

Most parties who qualify for underlying auto coverage, such as the ISO Personal Auto Policy, are eligible for coverage under the ISO Personal Umbrella Liability Policy Form. This is also true of operators who are insureds in good standing under recreational vehicle, motor home and watercraft liability policies. The DL 98 01–PUP Form is broadly designed to provide excess coverage for most personal driving exposures such as:

· Personal transportation (including cross-country travel)

· Commuting

· Carpooling (though with restrictions on newer, ridesharing trends)

· Limited business use

· Limited use of substitute vehicles

· Personal use of recreational vehicles, motorcycles, and motor homes

· Other motorized methods of travel, including certain types of boats.

Note: The types of vehicles or craft that may be ineligible for coverage are, typically, excluded by the applicable primary carrier's rules or forms.

Comprehensive Personal Liability (Homeowner Section II)

The DL 98 01–PUP is meant to provide excess coverage for liability related to residential ownership and for loss involving personal injury. Again, as the PUP is an excess policy, its scope of coverage is defined by the exposure accepted by the underlying carrier. Its eligibility mirrors what is permitted by the standard to preferred homeowner programs offered by most insurance carriers. In other words, the PUP is intended to extend the liability protection available for persons owning well-maintained residential property which does not include any significant business or farm exposure. Of course, the PUP could be exposed to a broader range of losses if the underlying coverage has been endorsed to provide such coverage.

The PUP has its own set of exclusionary provisions and endorsements to bar coverage for inappropriate exposures that would (and should) be protected by commercial lines umbrellas or high-limit, specialty policies. Carriers in both markets are better prepared to underwrite and rate such risks.

If, in essence, an umbrella is an extension of underlying coverage, is there any challenge in underwriting the exposure? Well, yes! The underwriting of underlying coverage is dominated by evaluating the physical risk (such as the size, and condition) of owned property. This creates the potential that the liability side could be overlooked, vulnerable to the assumption that a good risk written for lower limits is automatically a good excess exposure. While this may apply to writing the same policy for different limits, it is not a good assumption for writing two different liability policies. Umbrellas (or excess policies) should not be equated merely with increasing coverage limits.

AUTO LIABILITY UNDERWRITING

Which Autos/Crafts Are Covered

Generally, coverage is available for:

· Private passenger automobiles

· Pickups and vans with a gross vehicle weight no greater than 10,000 pounds

· Any private passenger auto, pickup truck or van that an insured controls under a long-term (six months or longer) written lease

Note: It is likely that the reference to a longer-term lease means the length of the original contract. It would not make sense for a leased vehicle to fall outside of the definition merely because the remaining length of the lease arrangement becomes shorter than six months.

· Motorcycles

· Private passenger motor vehicles

· Mopeds

· Motor homes

· And, only while being towed by a private passenger motor vehicle:

- Trailers,

- Farm wagons, and

- Farm implements

Operator Information

It is critical to have a complete list of all operators including family members and relatives who are members of the insured’s household who may be using the vehicles. Remember that family members include wards and foster children. Besides listing all of the operators in a household, it is also important to have the following information:

· Where permitted, each driver’s gender and marital status

· Each driver’s name, date of birth, and driver's license number

· The vehicle/craft operated by person (on a primary and secondary basis)

· Each operator’s motor vehicle record:

o existence of any accidents or violations

o frequency of infractions

o severity of infractions

· Each operator’s level of experience

· The existence of and reasons for any driving restrictions

· Where applicable, each driver’s occupation

The above factors are the minimal required to fully evaluate the vehicle/craft related portion of a personal umbrella liability exposure. When applicable, underwriters must gather additional information on youthful and senior operators.

Attention to “Complete” Vehicle Exposure

When evaluating a PUP applicant, it is critical that the underwriter gathers together and studies the application and any primary policy underwriting files. It is important that, before deciding, the exposure to all vehicles is understood.

Note: The PUP uses a defined term, “auto,” in describing vehicles that are covered under the PUP. This definition is broader than “private passenger automobile.” Therefore, there may be situations where a vehicle that doesn’t qualify for underlying coverage could be a “drop down” exposure under the PUP. Look for any indicators of an increased exposure to non-owned vehicles or atypical vehicles. It may be helpful to look for any information concerning hobbies or interests or, if this information isn’t available on the application, to make a separate request. A standard application may not include the necessary information to thoroughly underwrite the exposure. It could well be an applicant’s hobbies and interests that motivated him or her to apply for excess coverage.

Example: Jerry Greatfan has an RV policy which lists a motor home as well as a small bus as the covered vehicles. Jerry applies for an umbrella policy from Unwilling Motorists Insurance. The Unwilling underwriter approves an umbrella policy after finding out that Jerry has a good driving record and the underwriting file indicates that the vehicles are only used for personal trips and vacations.

If the underwriter had dug further, she would have discovered that Jerry is an avid booster of Great Central University’s (CGU) athletic programs. Every year, Jerry uses his small bus to take the local GCU Alumni chapter to their homecoming game. He also transports chapter members to GCU basketball games. Some of the trips are weekend excursions for games in neighboring states. There have been incidents of near accidents during hazardous winter weather and heavy drinking during travel is common (especially after victories). While these certainly are personal uses of the bus, Unwilling may not want to cover such regular exposure to potentially catastrophic losses.

PERSONAL LIABILITY UNDERWRITING

Generally, liability coverage is available for the named insured, his or her spouse, and relatives who are residents of the insured household. Coverage is extended for damages arising out of the legal liability for causing bodily injury, property damages or personal injury to others.

In order to qualify for personal liability coverage, the damages have to be the result of a covered act by an eligible insured. The Personal Umbrella Liability Policy Declarations page includes a coverage limit that applies to bodily injury, property and personal injury damages.

Personal Liability Information

The underwriting information that is typically pertinent to the personal liability portion of a personal umbrella exposure is a selected combination of the concerns found under the residence/structure and applicant categories:

· The applicant's occupation

· Employer information

· Number and type of additional or "other" structures at the described location

· The type of security and safety devices installed in the structure

· Number of household residents

· General housekeeping

· Existence of swimming pools and whether they're in ground or above ground

· Existence of any other attractive nuisances

· Information on additional insureds

· Requests for additional coverages

Studying the above factors can give an underwriter some insight regarding a particular exposure. Information indicating very old premises and other structures may indicate a higher probability of persons being injured on the insured property because of poorer maintenance or general conditions such as old pathways or walks.

Employer and occupation information may provide clues to unacceptable situations or ones that bear additional scrutiny. Self-employed persons may have an unacceptable in-home business exposure. Celebrities, athletes or public figures may present higher than desired exposures to liability.

Example: Sarah Graffix just had her homeowners, auto and umbrella policy approved by Understaffed Mutual Insurance. Unfortunately, the underwriter took no special notice of the fact that Sarah is an independent Website Developer who works from her home. Besides routinely seeing clients, Sarah constantly works with Internet Service Providers (ISPs) to arrange for Websites for her customers. Two months after she gets her umbrella coverage, Sarah is sued because of her 'blog." At her site, Sarah complains that the management of a new ISP is incompetent and inefficient. The ISP sues Sarah for slander, alleging they suffered loss of subscribers and several key accounts after her comments spread around the "Net."

Related Court Case: Defamation Is Not an Occurrence

LOSS AND VIOLATION HISTORY

A driving household’s loss and violation history is quite important in underwriting a personal umbrella liability account. Loss history should include the date, time of day, driver, vehicle identification, description of the accident or loss, and the final amount of the settlement. Naturally, considering that we’re discussing excess coverage, the focus on losses may involve loss severity. However, loss frequency involving minor losses may be just as important as severe losses; it depends upon the loss circumstances. In fact, it is the loss details that bear the most scrutiny when considering a request for umbrella coverage. A severe loss due to some freak occurrence should be less of an underwriting concern than a smaller loss that might indicate factors that could contribute to a future, severe loss.

Example: Let’s use Jerry Greatfan again. In this instance, instead of a clear driving record, his application includes a $2,790 loss in 2018 and a $32,000 loss in 2020. On the surface, the greater underwriting concern should be the $32,000 loss, with the smaller loss appearing to be a minor affair. However, should the underwriter’s interest change by the following loss details?

· The larger loss was an uninsured motorists claim where a drunken driver of an uninsured pickup truck ran a red light and savagely broad-sided Jerry’s motor home while he was going through an intersection.

· The smaller loss involved a single vehicle collision. Jerry’s bus, while transporting a dozen GCU fans to a December basketball game, slid off the interstate and the bus exterior was scraped by a metal median barrier.

OTHER CONSIDERATIONS

Gathering detailed information may be even more important for evaluating umbrella business than for writing underlying coverage. However, the effort has to be balanced against the rights of the applicant (new business) and insured (renewal business). Individual insurers must be certain that their procedures for collecting underwriting information comply with any regulations for securing it. Insurers must stay informed about legal developments concerning individual privacy rights. Further, they must be sure that vendors who provide them with supplemental underwriting information operate in a manner that respects individual privacy. Compliance with regulations is especially critical whenever a company includes health or personal finances as part of its underwriting criteria.

CUSTOMIZING UMBRELLA LIABILITY COVERAGE

Because of the broader nature of the Personal Umbrella Liability Policy, underwriting considerations must include whether the basic policy coverages are too broad or too narrow for a specific applicant or insured. While, in some instances, the umbrella policy may be endorsed to modify coverage, the breadth of coverage provided by such policies may best be controlled by adding wording or eliminating exclusions in underlying policies. This policy activity may result in additional premium at the discretion of the insurer.

Since the need to modify coverage may be addressed by endorsing underlying coverage, options for making direct changes to the umbrella are fairly limited. Specifically, there are options to eliminate coverage for indicated persons, vehicles or crafts. An insurer also has the ability to convert the umbrella policy to, basically, an extension of existing coverage by use of a “following form” endorsement.

SCRUTINY OF UNDERLYING ENDORSEMENTS

If the umbrella policy is not a “following form,” an underwriter must look at the underlying coverage with fresh eyes or an investigator’s care, especially if the umbrella carrier is different from the carrier writing the underlying coverage. Besides having complete information on the underlying insurance, it may be prudent to request a copy of the underlying declarations pages. The declarations should contain full details about any endorsements attached to the policy. A careful underwriter will take the additional step of examining all of the form numbers shown in the underlying policy declarations and requesting an explanation of each form. If the explanation is unsatisfactory, a copy of the actual endorsement should be requested. Steps should be taken to be certain which coverage is granted by the underlying policies. Once this is done, the underwriter should make the decision to provide excess coverage over the underlying policies or restrict coverage as necessary.

DEDUCTIBLES

Another important topic to consider in any underwriting evaluation of the PUP program is the need for deductibles. The Personal Umbrella Liability Policy, depending upon loss circumstances, applies either a conventional deductible or a self-insured retention. Unlike conventional deductibles, self insured retentions can be substantial, perhaps up to $10,000, so they may act as a valid method to control losses. At the very least, they may be effective in controlling the instances when the umbrella has to respond on a primary basis.