Like commercial umbrella insurance policies, personal umbrella insurance policies generally provide insureds with the same catastrophe protection benefits consisting of the following

·Increased coverage limits over and above scheduled underlying primary insurance

·A drop-down provision that provides for the coverage attachment point to drop down to become primary coverage in the event the underlying limit becomes reduced or exhausted through the payment of loss

·Potentially broader coverage than is afforded by underlying insurance

The typical personal umbrella liability policy covers bodily injury, property damage, and personal injury, including libel, slander, false arrest, invasion of privacy, and possibly other alleged occurrences. Coverage is generally excess of primary liability coverage provided by the insured's homeowners, personal auto, watercraft, and other scheduled underlying liability policies. Professional liability and workers' compensation are usually excluded although a few states require worker's compensation for domestic workers.

At one time personal umbrella policies were most often purchased by persons with very high incomes and significant assets or who were high profile individuals such as professional athletes, entertainers, high ranking corporate executives, or political figures. These were most often the persons with the highest exposures to loss, and because very few people were actually purchasing such coverage, premiums by today's standard were high.

Today however personal umbrella coverage is widely marketed by personal insurance agents and brokers and often recommended by estate and financial planners for households with modest incomes and assets. The reason is that society has become far more litigious than it was just a generation ago, and persons or families engaged in routine day-to-day activities can be at serious risk of being sued should their personal nonbusiness activities result in actual or alleged personal or bodily injury to others. Common activities that can result in significant liability include but are not limited to

·Owning and operating personal automobiles

·Owning and operating personal watercraft

·Owning and operating personal aircraft

·Owning waterfront or farm properties

·Hosting parties or other entertainment

·Volunteering

·Political or civic activities

·Owning firearms

·Owning pets

In addition to potential liability from these and other activities, defense can result in significant legal expenses that can easily exceed tens of thousands of dollars or even $100,000 or more. Limits of protection typically range from $500,000 to $5 million, however, much higher limits of $10 million or more may be available. In some instances, especially for high net-worth individuals, personal activities can be far-reaching with the distinction between business and personal pursuits blurred. In these instances great care is needed to coordinate and synchronize personal umbrella coverage and coverage an insured may have under a commercial or business policy.

Personal Umbrella Structure

Also similar to commercial forms, there is a wide variety of unique personal umbrella forms in additional to a handful of standard policies such as developed by the Insurance Services Office (ISO) and others. In general however personal umbrella forms are available as either a stand-alone contract or on a so-called following-form basis. As discussed previously in FC&S Umbrella, a stand-alone policy is one that is a separate and distinct policy that relies on its own various policy terms and conditions to establish the scope of coverage provided. A following-form based policy should incorporate or follow the form, terms and conditions of the underlying coverage policy or policies. In practice however many personal umbrellas may include elements of both approaches including the use of standard and specialized endorsements to modify the scope of coverage of the personal umbrella form. Keep in mind too that personal insurance is widely regulated at the state level and specific coverage provided or available under a personal umbrella policy can vary accordingly.

Unlike commercial umbrella forms, personal umbrella forms often include or can be endorsed to provide coverages not generally available under a commercial umbrella policy. These coverages include but may not be limited to:

·Excess uninsured/underinsured motorist

·Excess uninsured/underinsured personal liability coverage

·Not-for-profit director and officer liability

·Coverage for discrimination, harassment and abuse

Personal umbrella liability forms also may include or can be amended to provide the following enhancements not normally covered by underlying homeowners and personal auto forms

·Enhanced auto coverages including fellow-employee, drive other car, collision damage for rental cars including contractual and extended coverage outside the US.

·Premises business pursuits liability or for third parties injured on your personal premises while conducting business pursuits.

·Business pursuits of minors such as babysitting, gardening and similar activities

·Non-owned aircraft and watercraft liability coverage

·Non-owned watercraft physical damage

·Non-owned recreational vehicle coverage for bodily injury, physical damage

·Excess employer's liability for insureds with domestic workers such as personal assistants, handymen, child or elder care attendants and others.

·Certain pollution exposures such as for liability and cleanup of home heating oil storage tanks

Personal Umbrella Pricing and Underwriting

For personal umbrella coverage, pricing varies considerably and there are no universally established rates or rating structure. In many instances there is little individual loss history from which to base appropriate insurance rates and insurers have developed a variety of approaches regarding underwriting. Generally however insurers will establish a base charge and use a variety of credits and surcharges based on:

·Geographical territory of primary residence

·Number and type of other insured properties

·Number of insured vehicles

·Age and records of drivers including losses and violation

·Number and type of recreational vehicles and watercraft owned, leased or chartered

·Aircraft exposures including owned, leased and chartered

·Home based business or similar operations

·Limits and scope of underlying coverage

·Desired limits of personal umbrella protection

·High risk activities such as sky-diving and extreme sports

·Other extensions of coverage

Of the listed exposures, underwriters often carefully consider automobile and watercraft/recreational vehicle exposures as these tend to represent the greatest risk of loss. Large settlements involving automobile and recreational vehicles in excess of $1 million or more are not uncommon. Even so, the cost of personal umbrella coverage is low with premium for $1 million in coverage starting at around $200 for insureds with minimum exposure and ample underlying coverage. This low cost is partially the result of the fact that personal umbrella coverage is widely promoted by insurance agents and brokers, financial advisors, and the legal profession. In addition, such coverage has been embraced by consumers and as an overall book of business enjoys a favorable loss ratio for insurers.

In most instances insurers will only offer personal umbrella coverage when the insurer also writes the underlying insurance. This is primarily because much of the underwriting that is required of the umbrella policy is already performed at the primary insurance level such as collection and maintenance of loss information and driving records. The insurer also avoids problems related to ensuring continuity of underlying coverage because they are already monitoring whether the underlying policy is in force or has been cancelled for example due to non-payment of premium. It is this packaging of multiple policies that increased efficiency and allows insurers to keep premium reasonable.

Emerging Personal Umbrella Issues

One of the more interesting and disturbing developments relative to personal umbrella liability coverage involves potential liability arising from so-called cyberbullying or electronic aggression.

There are various definitions of cyberbullying but most describe bullying or aggression by a child using electronic technology such as cell phones, computers or other devices and utilizing social media sites, text messages, chat, and websites to torment, threaten, harassed, humiliate, embarrass or target another child. According to the Center for Disease Control and Prevention cyberbullying is a form of youth violence, which they describe to include the intentional use of power, threatened or actual, against another person or group that results in or has a high likelihood of psychological or physical harm.

In extreme cases cyberbullying has resulted in profound psychological harm and even suicide. In response to the increased incidence and awareness of such cases there is a new wave of activism against electronic aggression that involves civil lawsuits against parents and changes to state and federal laws.

In some instances, it may be possible to purchase specific coverage for so-called cyberbullying as an endorsement or separate coverage part of a primary homeowners' liability policy. Where available coverage usually is limited to a certain aggregate amount ranging from just a few thousand dollars to up to $60,000 or more. When purchased coverage can include costs resulting from wrongful termination, false arrest, wrongful discipline in an educational institution, or diagnosed debilitating shock, mental anguish or mental injury leading to the inability of a family member to attend school or work. Covered expenses typically cover compensation for psychiatric services, rest and recuperation, lost wages, temporary relocation services, education expenses, professional public relations services, and cyber security consultants. Many personal umbrella liability forms include or are endorsed to include a so-called “cyberbullying” exclusion. Such exclusion may also be referred to as an “electronic aggression” exclusion as this is the term used by the U.S. Centers for Disease Control to describe behavior that can result in bodily or personal injury.

Coverage for lawsuits claiming damages from cyberbullying is a complex issue and hinge on a variety of technical issues involving definitions of “bodily injury” whether “personal injury” protection is covered by a particular policy and how the definitions of “occurrence” and exclusions (such as the expected or intended injury exclusion) are worded.

Variations in Forms

Although it is well known among insurance professionals and corporate buyers that commercial umbrella policies vary significantly form insurer to insurer many personal umbrella liability policy consumers we interviewed believe personal umbrella policy forms are highly standardized such as homeowners and auto liability policies. As such, it is common for consumers to make purchase decisions based primarily on price without consideration for variations in coverage, which can sometimes be significant. Although the Insurance Services Office (ISO) introduced a standardized Personal Umbrella Liability Policy (PUP) along with numerous endorsements in 1998, with some exceptions the new form was filed nationally only on behalf of ISO and not on behalf of ISO subscriber insurance companies. This was in part because at the time many personal lines insurance companied had developed and had filed their own forms with local insurance departments or did not offer umbrella liability coverage. Even with the introduction of a standardized personal umbrella policy personal umbrella policies have not been standardized to the extent of homeowners and personal auto policies. Because of the number of programs filed, considerable differences exist between one personal umbrella policy and another.

Alternative Approaches to Catastrophe Protection

While FC&S Umbrella focuses on commercially available umbrella liability insurance, readers are encouraged to seek out and examine possible alternative approaches to structuring catastrophe liability protection. Although traditional commercial umbrella liability insurance has proven satisfactory for most organizations and individuals, there has been a strong movement beginning in the 1970s to find alternatives to commercial insurance not only for liability but for property and other coverages, at least among certain business sectors.

This movement was initiated by public entities in response to experiencing significant difficulties in the early 1970s in purchasing affordable and appropriate insurance coverage. During this time the commercial insurance market had abandoned public entity clients who were considered bad underwriting risks due to erosion of the concepts of sovereign immunity. Overnight, public entities once considered good risks because of legal protections, were now shunned by the entire insurance market. At a time many public entities went without liability insurance others began to band together and formed various risk sharing pools. Although the marketplace quickly recovered, the original risk sharing pools flourished and today there are hundreds of such risk sharing pools throughout the United States. Risk pools, group purchasing and various combinations of the two approaches represent viable alternative to traditional liability catastrophe protection for many large and small public entities as well as not-for-profit and public and private corporations. All insureds should investigate such potential alternatives when structuring catastrophe liability programs.