Introduction

Underwriting

What is an "auto"?

Liability coverage

Exclusions

Additional liability coverage

 Introduction

Because the form is a "late entry" into the number of umbrella forms already available, many carriers might well elect to continue with their existing forms. However, the advantage of the ISO form lies in the fact that the language is similar to that in the underlying ISO homeowners and auto forms. Therefore, much of the language has already been tested in the courts. Each individual company can determine whether to adopt the form, or portions thereof, as their membership with ISO allows. Individual companies also determine underlying limit requirements, deductibles, retention amounts, and coverage limits.

 Underwriting

Insurers will also formulate underwriting guidelines. Many insurers require that they insure both the applicant's auto and home; others will write an umbrella policy when they insure only the auto or only the homeowners. Requirements vary, so checking with the insurer prior to submitting an application is advisable. Because the personal umbrella form includes coverage for auto exposures, an insurer will often require underlying auto insurance, even if the insured does not own any autos. For example, an insured might live in an area where owning a personal vehicle is not feasible ( New York City ), or might be furnished an auto by an employer. In these situations, the umbrella insurer might require a named nonowner policy (see Named Nonowner Coverage for more information on this topic). If the prospective insured has no license and owns no vehicles, this should be discussed with the insurer prior to submitting an application. Additionally, because of the amount of coverage an umbrella provides—at least $1 million—prior binding of coverage is usually not permitted.

 What is an "Auto"?

The umbrella, as does the personal auto policy (PAP), states that a private passenger type auto, pickup, or van will be considered to be owned by a person if leased under a written agreement with that person for a continuous period of at least six months. According to this, a leased motor home or motorcycle would not qualify. Possibly the wording originated prior to the popularity of leasing; a quick search of the Internet reveals it is now possible to lease a motor home for at least six months. If this were the case, the insured would no doubt be required to provide insurance on the vehicle. However, the definition of an "auto" in the umbrella is much broader than in the PAP, and includes not only a private passenger motor vehicle, but also a motorcycle, moped, motor home, or a trailer, farm wagon or farm implement while towed by a private passenger motor vehicle. This is in keeping with the umbrella's use as excess liability for a variety of motorized vehicles. Many companies permit endorsement of a motorcycle, motor home, or moped onto the auto policy; others write separate motorcycle policies. Of course, if the umbrella insurer does not wish to cover a moped, for example, the vehicle may be excluded by endorsement.

 Liability Coverage

The umbrella form provides liability for the ownership, maintenance, or use of a covered "recreational motor vehicle," which means an all-terrain vehicle, dune buggy, golf cart, snowmobile, or other motorized land conveyance designed for recreational use off public roads. Golf carts and dune buggies are frequently endorsed onto the auto policy; the umbrella thus provides excess liability over the underlying limits of insurance.

The form covers the named insured, a family member (a resident relative, a ward or foster child of the named insured, or a person under age 21 in the care of either the named insured, or an insured over the age of 21), or any other person using an "auto" or "recreational motor vehicle" (all-terrain vehicle, dune buggy, golf cart, snowmobile, or any other motorized land vehicle which is designed for recreational use off public roads) which is owned by the named insured and covered under the policy. These types of vehicles are often endorsed onto the auto policy, and so they are included here. Any person using a temporary substitute for an "auto" or "recreational motor vehicle" also qualifies as an insured. Of course, in these instances, the person being given "insured" status must have a reasonable belief that he or she is entitled to use the particular vehicle. (The exclusion does not apply to a family member using an owned, covered auto or recreational vehicle. Therefore, if the insured's daughter "appropriates" the car keys from her mother's handbag and drives off in the family auto, the daughter is covered.)

Coverage also extends to any other person or organization but only with respect to the legal responsibility for acts of omissions of the named insured or any "family member" using an "auto", "recreational motor vehicle", covered under the policy. This coverage, though, does not extend to the owner or lessor of an "auto" or "recreational motor vehicle" loaned to or hired by an insured or on an insured's behalf. These coverage provisions are similar to those found in the personal auto policy (PAP). Both the PAP and the umbrella will respond if, for example, an insured is driving her vehicle on her employer's business. But if the insured borrows a fellow employee's vehicle to run an errand for the employer, the employer has liability coverage if sued because of the insured's driving, but not the fellow employee.

Because the policy applies to an "occurrence" anywhere in the world, the umbrella form provides liability coverage for the named insured and "family members" while driving in, say, Europe. However, an insured contemplating this usage should be aware that the policy covers bodily injury and property damage only. There is no no-fault or medical payments coverage. It would also be prudent to contact the insurer; some now exclude coverage for driving overseas unless there is underlying coverage (which can often be purchased through an overseas vehicle rental agency).

It is important to note that, although the umbrella does not provide any no-fault coverage, it does provide uninsured motorists coverage or underinsured motorist coverage so long as the policy is endorsed to do so. In some states, an umbrella insurer is required by statute to offer uninsured and/or underinsured motorist coverage.

 Exclusions

Many of the exclusions found in the umbrella echo those in the PAP. The umbrella excludes coverage for property damage to property rented to, occupied or used by, or in the care, custody or control of the insured, but only to the extent that the insured is obligated by contract to provide insurance for such property. Note that the exclusion does not state that insurance should be in place, but only that the insured is obligated by contract to provide such insurance. Therefore, if an insured rents an auto, and the rental agreement states that the insured must provide insurance for physical damage to the rental vehicle, the umbrella will not apply regardless of whether or not the insured has obtained such insurance. (Remember that the physical damage section, coverage D, of the personal auto policy applies to a non-owned auto.) However, if the insured is not obligated by contract to provide insurance on property in his or her care, custody, or control, the umbrella provides coverage.

The umbrella excludes coverage for bodily injury or property damage arising out of or in connection with a business engaged in by the insured, except for use of a covered auto used in the auto business (selling, repairing, servicing, storing, or parking vehicles designed primarily for use on public highways) or other than an auto business, so long as the business does not entail using the vehicle as a public or livery conveyance. Excluded is coverage for use of autos or recreational motor vehicles if operated in or practicing for any organized race, speed contest or other similar competition. This exclusion is more stringent than that in the PAP, which excludes coverage if the vehicle is inside a facility designed for racing.

 Additional Liability Coverage

The umbrella form provides coverage not addressed in the personal auto policy. Although the umbrella excludes bodily injury or property damage arising out of an act that is expected or intended by an insured to cause the injury or damage, bodily injury or property damage resulting from the use of reasonable force by an insured to prevent or eliminate danger in the operation of an auto is excepted from this exclusion.

For a complete discussion of the form, and a listing of endorsements that can be used to modify coverage, see Personal Umbrella Policy.

Includes copyrighted material of Insurance Services Office, Inc., with its permission.

June 2007