Insuring Against Large Losses: What Size is Your Umbrella?
Today, more and more people are becoming concerned about
protecting themselves and their families from liability exposure and
damages they might incur in the wake of a serious accident. More people are
purchasing personal umbrella policies to cover those large exposures should
the worst happen.
The well-trained insurance professional will take great
care in procuring such a policy, and with good reason. Significant E&O
claims have arisen out of the marketing and procurement of personal
umbrella policies and the lack thereof. Let's take a look at some landmines
that we have seen blow up on an agent placing personal umbrella coverage.
1. UM/UIM- Does the personal umbrella
policy provide coverage above the primary auto policy on an underlying
Underinsured Motorist (UIM) or Uninsured Motorist (UM) claim?
Personal lines carriers vary on whether their policies cover this
exposure. The cautious insurance professional should always check with the
umbrella carrier to see if their policy covers UIM or UM coverage above the
primary limits and advise the customer in writing if it does not.
Otherwise, if the customer is involved in a catastrophic accident and the
umbrella does not provide coverage, they could – and
often do – turn to the agent and their E&O carrier for
relief. This is a growing area of concern in the E&O world because
umbrella claims tend to involve substantial damages.
2. Late notice– Failure to promptly report
claims to the carrier is another common trigger of E&O claims. That
includes those involving umbrella policies. The agency notifies the
primary carrier of an accident or loss involving one of its policyholders,
but fails to notify the personal umbrella carrier at the same time. The
most common reason for such failure is that the underlying loss does not
appear serious at first blush. Sometimes the initial investigation is
inaccurate or the facts change as the investigation progresses.
Another possible scenario – the policyholder confidently assures the
agent that he or she was not at fault for the accident.
Invariably, the agency is never made aware of a change in
circumstances with respect to the underlying claim and therefore does not
report the loss to the personal umbrella carrier. The problem is, most
personal umbrella policies contain language requiring the loss to be
reported to them as soon as possible or as soon as practicable.
To avoid this exposure, it is critical to report every
claim to every potential carrier as soon as the agency is aware
of the claim. This way, the agency has satisfied their duty to report the
claim, eliminating a potential future E&O exposure for failure to
3. Mind the gap - The thorough insurance
professional will determine whether the primary policy limits satisfy the
requirement of the umbrella policy. That is particularly true if the
primary and umbrella policies are with different carriers. A common
example: the customer procures his own primary auto policy from one of
several 'direct' carriers, while the independent agent places homeowners
and personal umbrella coverages. Umbrella policies usually have an
attachment point that requires a certain amount of underlying coverage
before their coverage will attach. The agent should always get a copy
of the declaration pages for all primary policies and should advise the
customer in writing of potential gaps in coverage.
4. Changes in circumstances- The agency
should handle any policy change request from the customer with fresh eyes.
For example, if an insured couple gets divorced, the agent should follow
state law in executing any policy changes. Information regarding who is to
be insured following the divorce has to be received in writing, clearly
stated. Any policy change with respect to named insureds should be
communicated to all parties in writing, especially if a separated spouse
winds up with less coverage than they had in the marriage.
5. Limits - Does the umbrella policy
provide the amount of protection needed by the client? For example,
is a $1 million umbrella enough? The savvy insurance professional will
carefully review the umbrella policy with the client to confirm that the
umbrella policy meets the client's expectations with respect to limits and
the exposures it covers. As in many other lines of insurance, personal
umbrella policies differ in the amount of limits they offer and whether
they "follow form" to cover the underlying risks covered by the
Placing personal umbrella policies can result in large
E&O claims if the placement is not handled with care. Imagine a storm
is coming and you hand your customer an umbrella that is too small, has
holes in it, or simply does not open. Will they be pleased
with the service you provided? Doubtful. Experience tells us that your
agency is likely to be soaked financially by the time that customer is
through with you.
Brian Butcher is a vice president, claims expert with
Swiss Re Corporate Solutions and teleworks out of the office in Overland
Park, Kansas. Insurance products underwritten by Westport Insurance
Corporation, Overland Park, Kansas, a member of Swiss Re Corporate