Umbrellas are not just for rainy days

                                                                      Photo by: Victoria Borodinova

 

An area of insurance coverage that sometimes gets overlooked is that of personal excess liability insurance, commonly known as an “umbrella policy”. Umbrella insurance picks up where the liability portion of your auto and homeowner’s insurance ends.

One of the best things about living in a society of laws is that anyone has the right to bring a civil action against someone who has wronged them. It is also one of the worst things about our society of laws, because sometimes those civil actions are frivolous. If you’ve ever been hit with a frivolous lawsuit, you know that being “innocent” doesn’t always mean much, since you still have to go through the time and expense of defending yourself.

Many of our clients might be considered good targets for lawsuits.

Anyone with a higher net worth along with a higher profile in society makes them a prime target for civil actions.

Are you:

• • • A corporate insider (section 16 officer) who has their name in the paper periodically? Are you required to report your stock holdings to the SEC which can be accessed via the internet?
    • Are you a business owner who regularly welcomes patrons into their establishment?
    • Are you a school superintendent who has their salary published in the paper every time their contract is renewed?
    • Are you a physician? Even if you are retired, will a quick Google search let people know you are a Doctor (and presumably have a lot of wealth)?
    • Do you donate a lot to charity, and will your name show up in annual publications listing the dollar amount of your gifts?
    • Do you own more than one home? (a sign of wealth).
    • How about a plane, a boat or an RV? (more outward signs of wealth).

These are just a few examples of high-profile individuals who might be easy targets for lawsuits.

What if you don’t fit into any of these categories above, you keep a low profile, and your name never appears in Google? If you have over $1 million of assets, then you’re a target as well.

What if you have a low-net-worth because you are younger and haven’t been in the working world that long, but you earn a high salary (with an expectation of an even higher salary in the future)? You’re a target too.

A lawsuit against a young person might not be able to take any current assets, but your future wages could be garnished, which might be significant if you are in a high-earning profession.

Is there anyone who is not a target?

Anyone with a modest net worth, under $500,000, and retirees living on a fixed income. For those individuals, any lawsuit would most likely focus on just the limits available under your existing auto and homeowner’s insurance coverage. For everyone else, you could be a potential target.

Frivolous Lawsuits

We’ve all heard stories about outlandish frivolous lawsuits, defined as not having any serious purpose or value. Here’s one of my favorites:

Overton v. Anheuser-Busch Co.

In 1993 the makers of Budweiser beer were sued by a customer for false advertising. Richard Overton claimed that he drank a 6-pack of Bud Light, and the beer failed to produce a group of beautiful women on a beach as suggested by Budweiser’s advertising campaign. He sued for $10,000 of damages due to emotional distress brought on by their deceptive marketing.

Most people reading the basis of that claim would agree that the case was frivolous. The court agreed, and the case was dismissed. Even though Anheuser-Busch prevailed, they still had to go through the time and expense of defending themselves.

It’s easy to laugh at outlandish claims like the Budweiser case above, but not all lawsuits are frivolous.

What if you were to get in a car accident, and the other driver had substantial medical bills and was out of work for six months? If someone with a modest net worth was responsible for the accident, any lawsuit might end with a request for medical bills and lost wages. If a high-net-worth person was involved, the lawsuit might request a significant settlement to cover the “pain and suffering” the victim endured, well in excess of the actual medical expenses and lost wages. Are you a good target?

 

How can you protect yourself and your family?

Try Lawsuit Insurance

                                                                         Photo by: Victoria Borodinova

 

Very seldom do you hear about “lawsuit” insurance, but that is the primary role of umbrella insurance. Umbrella insurance picks up where the liability portion of your auto and homeowner’s insurance ends.

Most auto and homeowner’s insurance policies have liability limits of $100,000 to $300,000. If you were in a car accident and were ordered to pay $1 million, you would be responsible for any award above your policy limits. Umbrella insurance would cover the amount of the award above your auto insurance limit, rather than you needing to liquidate assets to pay the judgment.

Umbrella insurance is for more than just auto accidents. You can think of umbrella insurance as “family lawsuit protection insurance”.

Here are some examples of where your assets could be at risk through actions of your family members:

• One of your grade school children invites a friend over after school. The children are wrestling with the family dog, and the dog gets overly excited and bites the friend. The friend needed a trip to the emergency room for stitches, but otherwise was okay. You get sued for not only the medical expenses paid by the other family, but for the pain, suffering, and mental anguish the animal attack caused the child. The lawsuit is seeking $1 million.
• You volunteer to be a chaperone on an overnight school trip for your high school daughter’s class. The class is visiting Washington, DC and spending the night. One of the students sneaks alcohol into the hotel, and four students were drinking. Your daughter was not involved. One of the students who was drinking slips in the stairwell and hits their head hard, requiring a trip to the emergency room. The injured student suffered a concussion, as well as a large gash on their forehead, requiring plastic surgery. The student has since had trouble concentrating in school and their grades have suffered. Despite the plastic surgery, the student still has a visible scar. You and the other chaperones are sued for $3 million for failure to properly supervise and protect the students.
• Your son in high school always seems to butt heads with his soccer coach, who is also his math teacher. The coach frequently yells at the players, and some of the players start spreading rumors about the coach behind his back. Your son posts several disparaging remarks about the coach on social media over a period of months, and the local newspaper picks up the story. Even though the rumors are not true, the issue has caused quite a scandal, embarrassing both the coach and the school, and the coach is ultimately fired. The coach sues you for $4 million, claiming that your son’s online campaign of misinformation cost him not only his current job, but also adversely affected his prospects for future employment.   The coach claims he cannot find any other employment because of the information that appears when his name is searched in Google.

Most parents believe their children would never intentionally bring a financial risk upon their family, and they would be right.

The trouble is the risks that come about from unintentional behavior and/or the behavior of others.

You don’t want a single dog bite from an otherwise loving family pet to reduce your retirement assets by $1 million or more.

The Great Fireworks Debacle

                                                                       Photo by Ray Hennessy

 

I met with a long-time friend and client a couple of weeks ago and gave him a preview of this article. He smiled and told me he is a big believer in umbrella insurance, especially after the “great fireworks debacle” of a few years ago. He told me the story, and I asked if I could use it in this article anonymously.

For the past several years his adult son has purchased a large number of professional fireworks to use on the 4th of July. His son sets up the display on the shoreline of their lake house, and the various fireworks are supported by cinder blocks. The son’s fireworks display caps off the 4th of July festivities with friends, family, and neighbors in attendance.

The fireworks display had always gone off with no issues, until a few years ago. The small crowd of friends and family gathered for the show, and the son lit the fuses. As he was running away from the lit fuses in the dark, he tripped and knocked over one of the cinder blocks bracing the fireworks. He thought he had just fallen. In the darkness he didn’t realize that he moved the cinder block out of position in the process.

A few seconds later, when the fireworks started exploding, they found out the hard way that the cinder block had been dislodged, which caused one of the roman candles to be pointed directly at the audience. It started firing directly at their friends, family, and neighbors.

Although people were hit, thankfully there were no serious injuries. In the words of our client, “It was bad. If it had been anyone other than our neighbors that were hit, I know we would have been sued”.

Duty to Defend:

A large umbrella policy provides an additional benefit of aligning the insurance company’s interest with your interests. Most policies have a “duty to defend” clause requiring the insurance company to defend you against liability lawsuits. If the maximum claim the insurance company might have to pay is only the $100,000 liability limit of your auto or homeowner’s policy, they will provide you with a legal team capable of protecting their $100,000 exposure. If the maximum claim is the $5 million limit of your umbrella policy, I believe the quality of the legal representation you will receive will reflect that greater risk to the insurance company.

Next Steps:

                                                                      Photo by Adrianna Calvo

Umbrella insurance is typically inexpensive relative to the coverage it provides. Most families can purchase a policy covering $1 million of excess liability coverage for approximately $300 annually. A $3 million policy might cost approximately $800 annually. This is a small cost for the peace-of-mind these policies can provide.

Please note: Not all policies will cover the same risks. Please make sure to review your coverage with your insurance agent for specific details on coverage and exclusions. This article should not be construed as legal advice, nor is it a solicitation to sell insurance. Only your insurance agent can recommend the appropriate policy for you and your family, and only a licensed insurance agent can sell you a policy.

 

 

About the author

William B. Burns, Jr. CFP® is a CERTIFIED FINANCIAL PLANNER professional and President of Burns Matteson Capital Management, a Financial Planning and Investment Advisory Firm with clients throughout the United States. He helps high-net-worth families reduce the worry and anxiety sometimes associated with wealth, allowing families to reclaim that time to reinvest back into their family, social, and professional relationships. www.BurnsMatteson.com