Everybody Needs a Good Umbrella!

Ever get caught in a rainstorm without an umbrella? In short order you can find yourself soaked to the bone. It’s a handy thing to have, but you have to think ahead to have it on hand when the rainstorm comes. In the same way, individuals and businesses need to think ahead to anticipate what might affect them in the future. There is an insurance “umbrella” as well—it protects you from judgments against you for any of your activities.  It’s not just a “handy” coverage to have; it’s an absolute necessity for everyone these days.

Today, lawsuits can be filed for almost any reason. Lawsuits are filed because of auto accidents, slips and falls and dog bites. Businesses get sued because they failed to meet terms of contracts. It’s understandable when a person gets injured as a result of someone’s negligence, or when poor conditions in a store cause a patron to fall, or when a business can’t complete an order because their supplier did not provide the proper parts on time. However, we have all heard about situations where lawsuits were filed when the company essentially did nothing wrong.

Most of us are aware of the McDonalds “hot coffee” case. A customer bought a cup of coffee and put the coffee between her legs as she drove off. The cup spilled over and the customer was severely burned by the coffee. She sued claiming that McDonalds’ negligence was the cause of her injuries. In another case, a hardware store sold a table saw to a carpenter. The carpenter removed the safety guards on the table saw to make it easier to use the saw. When the carpenter accidentally cut off some of his fingers, he sued the hardware store for his injuries. It’s very apparent that lawsuits can be filed for almost any reason, even when the merits of the case appear to be weak. 

Most individuals and business will buy liability coverage to protect themselves from these lawsuits. In most cases, the limits purchased through homeowner, auto and business policies will be sufficient to pay any losses that might arise as a result of injury or damage to others. Individuals typically buy limits of $300,000 to $500,000 on their homeowner and auto policies. Businesses typically buy $1 million limits for their liability coverage. However, with today’s increasing number of lawsuits, these limits may not be enough to protect the individual or the business from the lawsuit that may be filed against them. In order to protect themselves from the high awards that are being sought in many lawsuits, every individual and business should buy umbrella insurance coverage.

Umbrella insurance coverage is an extension of liability coverage. Umbrella policies are usually purchased in $1 million dollar increments. Most homeowners will buy $1 million to $3 million of umbrella coverage. Businesses will buy umbrellas for the same amounts, but some businesses will buy even higher limits up to even $20 million dollars worth of coverage. The umbrella coverage will pay for losses that exceed the coverage under the primary insurance policy. For example, if the insured has an auto accident and the victim wins a judgment higher than the limits of the auto insurance policy, the umbrella will pay the amount of the judgment above the auto insurance limit. If the auto policy has a $500,000 limit and the judgment is for $1 million, the umbrella policy will pay the additional 500,000.

This feature can protect the personal assets of the individual and the business, and enable a business to continue operations even after a major judgment against it.

The second feature of some umbrella policies is that umbrella policies will sometimes provide liability coverage even when the primary policy excludes a loss from coverage.

In some primary policies, libel and slander is excluded from coverage. However, some umbrella policies will provide coverage for a loss due to libel and slander. The umbrella policy becomes the primary coverage in this situation.  So umbrella policies can not only provide coverage over the primary policies, but they can also provide coverage in situations where there is no primary coverage.  

For business owners, the coverage is called “excess insurance” rather than umbrella insurance. This is because the primary purpose of the policy is to provide additional dollar coverage for the same exposures as the primary insurance policy. The additional limits are “excess” over the primary insurance policy, and only come into play when the limits of the primary insurance policy—the auto, homeowner or business policy—are completely exhausted by the judgment.

Umbrella policies can provide a safety net for both individuals and businesses and should be considered a critical part of any insurance program.

WGIS has access to a number of major umbrella insurance carriers. If you are interested in umbrella coverage or if you have questions about your current coverage, please contact me at 949-885-2287 or gnelson@wga.com.