At what dollar amount would you be comfortable liquidating tangible assets to comply with a legal judgement in the event you are sued? This may be a difficult question to answer. Within our litigious society, peace of mind can be hard to find. The potential for involvement in a third-party incident can happen when least expected. It may not be top of mind to review excess liability policy limits and how they align or don’t align, with one’s personal net worth. The best line of defense is knowing how you may be exposed and being properly protected by the coverage you have in place.
How can I be liable?
- Significant property damage
- Serious bodily injury
- Landlord liability
- Libel and/or Slander
- Malicious prosecution
- Frivolous lawsuits
Consider the following real-life examples:
Motorcycle Accident in the state of South Carolina– While traveling through an intersection, a motorcyclist was hit by an oncoming vehicle that failed to stop at a red light. The accident was fatal. The family sought damages for wrongful death and both compensatory and punitive damages . $50,000,000 Settlement
Dog Bite in the state of Florida- While taking out the trash, a man was attacked by 3 dogs owned by his neighbor that escaped their fenced yard. The man sustained multiple lacerations and a lower back injury – $7,700,000 Settlement
Bodily Injury in the state of New York- A heating and cooling technician sustained injuries after falling through the floor of a customer’s attic. After a fall of nearly 20 feet, the homeowner was liability for the injuries to his back, hand, foot, ribs, shoulder and wrist– $8,900,000 Settlement
How much coverage should my family have?
- At a minimum, it is recommended to select a coverage limit near or equal to your net worth.
- We encourage you to think about any future income opportunities and possible business liquidation events.
- If you are an executive-level employee, you may require a more sophisticated amount of coverage.
If I have an Excess Liability Policy, will I automatically be sued for that amount?
Although insurance documents are typically gathered from the negligent party during the discovery period of litigation, there are several factors that are considered when judgements are calculated:
- Collection of medical invoices to calculate the amount of financial injury that has occurred.
- Lost wages are calculated.
- Legal fees incurred.
- Non-economic damages are considered as they relate to emotional, mental, or physical hardship.
- In a court of law, damages are mathematically calculated based upon a jury’s findings and/or on a basis of a precedent set in prior cases of similar nature.
What factors may increase my need for additional liability limits?
- Ownership of vacant land or tenant rentals
- Pools or trampolines
- Client visits at home or other entertaining
- Home renovations
- Ownership of vehicles, boats, or other recreational conveyances
- Children- of driving age, attending school away from home, social media usage
- Social stature, prominence; are you “known” in the community?
What else should I consider?
- Defense costs: Will the excess liability limit be eroded by defense costs paid by the insurance carrier?
- Does your policy include the ancillary coverages needed for any domestic staff that you employ?
- Have you researched how you are protected by any Directors and Officers policy in place for your Not-For-Profit board affiliations?
- What is the cost to increase your coverage to a higher limit?
- If Uninsured/Underinsured Motorist coverage is not included in your excess policy, you may want to consider adding $1,000,000, minimally.
- If you are a business owner, it is important to understand the separation between personal and professional liabilities. A review of liability coverage for the business is also strongly encouraged.
Excess Liability vs. Umbrella Liability
An Excess Liability policy can differ from an Umbrella Liability Policy. It is always important to read over the insurance contract or ask your agent to confirm which policy you are purchasing. Historically, Excess Liability policies were deemed a ‘follow-form’ policy which means coverage provided is only in excess of coverages that are not excluded in the underlying policies. In other words, Excess Liability terms, coverages, and exclusions would mirror those included in your home or automobile policies.
In certain scenarios, a “true” Umbrella policy includes its own insuring agreement and may provide alternate coverages that the underlying policies do not. For example, new exclusions may apply or there may be broader coverage offered (e.g. rented auto coverage or worldwide liability). The policy language can vary by insurance carrier and may use the names interchangeably, so it is best to read over the contract to ensure your coverage. Learn more about How an Umbrella Policy can Provide Peace of Mind for Your Organization.
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