Agenda Outline definitions and details of personal excess liability coverage Identify key questions to ask regarding personal liability coverage Define solutions for addressing liability needs within a risk management plan and a financial plan.
Personal and Excess Liability Definitions and Details
What is Personal Liability Coverage? Coverage that an individual purchases to protect current assets and future earnings from a covered lawsuit or settlement. Coverage for damages a covered person is legally obligated to pay for bodily injury (personal injury) or property damage which takes place anytime during the policy period and are caused by an occurrence, unless stated otherwise or an exclusion applies.
Liability Example A guest at a client’s pool party — a 16-year-old boy — dives unknowingly and unwarned into the shallow end of the pool, and suffers devastating paralysis and injuries. The client is sued for an enormous sum of money.
Liability Example A client turns a corner in his car and accidentally injures a successful entrepreneur in the crosswalk. Medical costs, lost earnings and damages amount to millions.
Liability Example A client is having a wide-screen television delivered to her home, and one of the deliverymen slips and falls on the icy steps and breaks his leg. The client is sued for medical bills, lost earnings and damages.
Liability Example A client volunteers on the board of directors of his condominium association. The board installs a playground with a faulty swing and a fellow association member's child is injured. The board is sued for negligent oversight and there is inadequate professional liability coverage (D&O) for the loss. As a result, the board members are named personally in the lawsuit, thereby exposing their personal assets.
How Does It Work? Lawsuit is brought against individual. If coverage is in place, the insurance policy pays for the costs of the lawsuit up to the policy limit. For coverage to be triggered, the individual must be covered on the policy, the lawsuit must allege bodily injury or property damage and there must be an occurrence within the policy period.
Types of Personal Liability Coverage Primary liability Excess liability Umbrella liability
Underlying Insurance Required types and amounts of primary liability insurance that must be maintained in order for the excess liability policy to respond without a gap. Primary $300,000 Excess (from $300,000 up to $5,000,000) Example
Common Underlying Liability Limits Personal Liability (Homeowner Limits)$50,000 Registered vehicles Combined Single Limit $300,000 Split Limit $250K/500K/100K Unregistered vehicles$50,000 Watercraft less than 26 feet or 50 hp $50,000 more than 26 feet or 50 hp$500,000
Personal and Excess Liability Coverage Key Considerations and Questions to Ask
Who is covered? Individual Family members in household Family members away from home Unmarried couples or partners (both individuals must be listed on policy) Trusts and LLCs (must be listed on policy) Corporations (must be listed on policy)
How is it underwritten? Motor Vehicle Records Age/ Occupation Underlying Limits Public profile of individual Boats & yachts Residential risks
What are the coverages? TIER 1 Personal injury vs. bodily injury Defense costs included in the policy limit or outside of the policy limit Defense costs capped or uncapped SIR or no deductible Medical payments/Property damage to others
What are the coverages? TIER 2 Worldwide coverage Non-Profit Directors and Officers Liability Excess Uninsured/Underinsured Motorist Coverage
What are the coverages? TIER 3 Identity fraud Credit card coverage Rented or borrowed vehicles Kidnap expense Employment practices liability coverage
How do I select the right insurer? What excess liability limits does the company offer? Does the company write more than $1 million in excess liability? What’s the financial rating of the company? A.M. Best P&C Financial Strength A++ Corporate Senior Debt aa- Standard & Poor’s P&C Financial Strength AA Corporate Senior Debt A Moody’s P&C Financial Strength Aa2 Corporate Senior Debt A2 How does the company handle defense costs and access to legal counsel?
Who Needs Excess Liability Coverage? Affluent individuals who: Own a home or drive a vehicle Employ domestic staff such as a housekeeper or nanny Use wireless technology or have children who use the internet Have teenage children who are driving Operate a home-based business Serve on the boards of a non-profit organization Maintain a high public profile
What is the cost of excess liability coverage? Example: Household Details 2 homes (one in Illinois, one in Florida) 3 vehicles 1 yacht (40 feet long, more than 50 horsepower) ____________________________________________________ $1,000,000 of excess liability$558 $5,000,000 of excess liability$1,166 $10,000,000 of excess liability$2,442
How Much Is Enough? How much is there to lose? Considerations Physical assets (home(s), personal property, valuable possessions, etc.) Investable assets Future earnings Potential inheritance The legal environment Risk profile and potential for loss
Risk Assessment Questions Do you frequently entertain guests in your home? Do you have a long commute to work or take long automobile trips? Do you conduct business from your home? Do you make statements to the press? Do you have children who drive or use the internet? Do you employ domestic staff? Do you serve as a director or officer of non-profit or for profit organization?
What’s The Likelihood? Personal lines lawsuits comprised $82.5 billion of the $219 billion of tort costs in 2003.* One of every six jury awards now tallies $1 million or more.** The 6 th largest verdict in 2004 was larger than the 1 st largest verdict in 2003.** Defense costs can be equal to or greater than the final amount of the settlement *Insurance Information Institute**Jury Verdict Research, 2004, latest available
Claim Case Study A wealthy client’s son (age 35 – non-household member) borrows his father’s car while visiting the family’s country home. After an evening out on the town with friends, he accidentally puts the car in reverse and hits and injures several bystanders. Insurance company reserve:$20,000,000 (plus legal fees)
Claim Case Study A client’s daughter who attends a university in California goes to a concert with three friends. After the concert, they get back into the car and two occupants do not fasten their seatbelts. The driver of the car falls asleep at the wheel and flips the car, ejecting two of the passengers. Insurance company reserve:$10,000,000 (plus legal fees)
Trusts, Estates and LLCs Increasingly popular vehicles for affluent and high net worth individuals for tax and wealth transfer purposes. Personal insurance policies are inherently designed to protect individuals, not entities such as trusts, estates or LLCs Some insurers such as Chubb can address the need for the trust, estate or LLC to be listed as an insured. Notice must be given to the insurer so that appropriate policy modifications and underwriting can occur. Financial planners must recognize that insurance exposures can be created when personal assets are placed in the name of a trust, estate or LLC and work with a qualified risk expert to align personal property and liability coverage.
Personal Risk Management and Financial Planning Addressing Liability Exposures
Wealth Creates Risk Personal liability is one of the most critical components of a personal insurance portfolio. A client’s personal liability program should be reviewed annually, just like a financial plan. An independent agent or broker is best qualified to address an affluent individual’s personal insurance exposures.
Components of an annual Personal Liability Assessment Evaluation of liability risk/potential for loss Analysis of current coverage (Does the policy provide the protection the client needs?) Analysis of current insurer (Is the client with the right insurance company?) Recommendations for limits, specialty coverages Recommendations of loss control measures to control liability exposures
How Chubb can help Understand the financial planning process and where risk management fits in that process. Provide information and education on personal risk management topics Serve as a personal risk management resource for financial planners. Align financial planners with top agents who specialize in personal insurance and employ a risk management approach.