Are there Differences in Umbrella Insurance Policies?

Personal umbrella liability policies provide high limits of coverage to protect the insured from third-party liability claims. This policy covers bodily injuries, property damage and personal injury. It also covers offenses like libel and slander, false imprisonment, invasion of privacy and other.

Personal umbrella policies provide liability coverage. They stack on top of primary coverage for homeowners, personal autos, watercrafts, motor homes, and other scheduled underlying liabilities policies. The umbrella policy can also be used to fill in gaps in coverage beyond a specified amount (often referred to as a retained limit in the underlying insurance policy).

An insured can be hit with a huge liability claim in many ways. No one can predict the amount a jury will award an injured person. We will be discussing many cases where large personal liability claims would likely be covered by a personal umbrella policy. This discussion will identify those who should be especially covered (those with greater than normal personal liability loss exposures). It will also allow you to compare nine personal umbrella forms.

Loss Scenarios

These are some examples of large liability claims that can cause financial hardship for an insured. They may also be covered by a personal umbrella policy.

  • The named insured is returning from a nightclub with his best friend when he drives his car home. He is under the influence of alcohol, and flips his vehicle, killing his friend.
  • The teenage resident insured takes his family speedboat out to meet a high-priced yacht and collides.
  • The named insured is a director of her condominium association. A playground is installed by the board with a defective swing. The child of a condo association member is also hurt.
  • The insured has a nanny who is severely injured at the insured’s house.
  • Tenant sues for unlawful entry and wrongful eviction against the named insured.
  • The named insured’s guest falls down the stairs at his two-story home due to a defective railing. He is left paralysed.
  • Uninsured motorists cause the death of the named insured and his spouse. In some states, insurance companies may have to offer uninsured motorists coverage (UM) under their personal auto policy or personal umbrella policy.
  • In her role as editor for a homeowner’s association newsletter, the named insured libels another homeowner and is sued.
  • The insured and her neighbor watch each other’s children. The insured then loses track of the toddler in the neighbor’s backyard, which causes the insured to drown.
  • The named insured is a director on a board for a non-profit organization. She receives no compensation. In connection to a business decision she made at one of her quarterly meetings, she is being sued.
  • The named insured rents an automobile in Germany. This causes serious accidents.
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Who should procure a personal umbrella policy?

Personal umbrella policies are becoming more popular. This coverage was once only available to wealthy families and individuals. This policy can be purchased by middle-income families to protect themselves from the increasingly litigious society and proliferation of nuclear verdicts. The personal umbrella policy has become more of an insurance necessity than a luxury as the number of people who sue for damages increases and the amount of awards made by juries grows.

If you have certain characteristics, or engage in certain activities, financial planners and insurance agents may recommend personal umbrella policies.

  • They have assets that are greater than their underlying liabilities.
  • They are financially responsible to the actions of an inexperienced young driver.
  • They do extensive volunteer work for non-profit organizations.
  • They live in a highly-respected neighborhood.
  • They are highly visible in their career, or they have high income –both of these factors are important.
  • They often host guests at their property.
  • They charge hunters for hunting on large tracts of rural land.
  • The residence of the couple includes a swimming pool, and/or trampoline.
  • They have a waterfront property, a farm or ranch.
  • They have watercraft, all-terrain vehicle, or aircraft.
  • They may own several rental properties.
  • They enjoy extensive international travel.
  • They have several domestic employees who are full-time.
  • They may have one or more exotic or domestic animals.
  • They have firearms.
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A personal umbrella policy is also an option for those with lower incomes, particularly since it’s relatively affordable. A person living in an apartment may cause a fire to start and burn down the building. A $1 million personal umbrella policy could be very useful in such cases.

Personal Umbrella Comparisons

Personal umbrella policies are not standardized in the same way as homeowners or personal auto policies. Many insurance companies have created their own forms. This article contains nine personal umbrella/excess forms. A complete comparison can be found in IRMI’s Personal Risk Management and Insurance, which was completed in April 2021. You can subscribe to this service.

These forms are the nine most commonly used: seven forms for insurers and two forms for insurance bureaus.

  • Allstate Indemnity Company’s Personal Umbrella Policy AS 463, 01-2021
  • American Association of Insurance Services (AAIS), Personal Umbrella Liability Insurance Coverage, PU 01-01, 2011,
  • The Masterpiece Excess Liability Insurance Coverage of Chubb Group, 54000035, 07-202020
  • Farmers Insurance Exchange’s Special Personal Umbrella Policy, 56-54990, 3rd Ed, 9-2017
  • Insurance Services Office, Inc. (ISO) Personal Umbrella Liability Policy, D 98 01, 02-15
  • Markel Insurance Company Personal Umbrella Liability policy, MUP 0001 -KS, 05/2019
  • Nationwide Mutual Insurance Company’s Personal Excess Liability Policy U1400, 08-2025
  • Safeco Insurance Company’s Your Personal Umbrella Policy, P-967/RIEP, 06-2020
  • State Farm Personal Liability Umbrella policy, FP-7950.2 09-2015 2008
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This analysis was done using the best-selling personal lines insurance policies in America. These top companies include independent and direct insurers. The insurer forms are not the same as other personal lines forms. This is because the ISO form was not introduced until 1998. To offer their umbrella policies to customers, most umbrella insurers will require them to have at least one underlying policy.

Insurance Agreement

Personal umbrella policies usually include an indemnification and defense component. Of all the forms, the defense component is often more varied than that of an indemnification component. The State Farm form, for example, states that the defense obligation ceases upon the payment of a judgment or settlement. It also terminates when the insurer deposits or tenders the limits to the court. This can have a major financial impact on the insured.

Assume that the insured is negligent and causes the death of the guest. The State Farm policy allows the insurer to either tender the limits to an insured party or deposit them into the court. After that, the insured can withdraw from the defense and pay their own costs. A court may not approve of this practice. This restriction is not available on the other personal umbrella forms.

Some forms provide more expansive defense coverage. The ISO and Markel forms, for example, agree to cover any costs incurred by the insured in defense of an insured in any country where the umbrella insurance is prohibited by law from protecting the insured. This applies only if the primary insurer has consented in writing. Nationwide Insurance forms allow for reimbursement up to $10,000 for expenses incurred for an insured by a law firm of their choice to review and advise on the defense.

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Definitions

Personal umbrella policies usually have separate definitions sections. The number of defined terms may vary. The Allstate form contains 11 definitions while the Nationwide version has 32. Some forms don’t have a separate definitions section. Instead, the definitions section contains the term.

The Chubb Masterpiece form, for example, defines “underlying insurance” in the section on payment-for-a loss. It also defines “follow form” within the section on excess liability coverage. This approach has both advantages and disadvantages. It is much easier to locate the term in the same section that the coverage provision. It may be more difficult to find a term if it is in another section. The Chubb form has references to damage in the exclusions section. However, the definition of damages is in the excess liability coverage section.

This illustrates how definitions can differ by form.

Definition of “Business”. Nearly all personal umbrella policies exclude business-related activities. While some forms describe the term clearly, others provide more detail and allow for as many scenarios as possible. Farmers defines it as any “part-time, full-time trade or profession or occupation.” This definition would make any side job likely to be considered a business, thus restricting coverage. The AAIS form is more precise. The AAIS form is even more specific.

Definition of “Insured”. A personal line policy will commonly define an “insured” as a term that is often used to describe a person or entity. AAIS forms simplify the process by specifying that an insured is any person or entity covered by “underlying insurance.” This excludes insureds under certain motorized vehicle or watercraft-related circumstances.

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Some forms offer more detail. The Safeco form, for example, lists the non-insured parties, such as those who are employed in the sale, maintenance, storage, parking, mooring or parking of vehicles or watercraft. Different terminology is used in other forms. The Chubb form doesn’t define “insured.” It uses instead the term “covered individual,” which is similar to the ISO definition of “insured”, except that it does not refer to any other person or organization taking care or custody the insured’s pets. Allstate uses the term “insured individual.”

Farmers’ form covers “any trustee of your estate, living trust or other person acting in the scope of their duties as such”, provided that there is underlying insurance. Markel forms define a “covered individual” as a trustee if the policy is issued under the trust’s name and covers trustees.

Exclusions

The exclusions section of personal umbrella policies can be very varied. The “Personal Umbrella/Excess exclusions Comparison Chart” shows some of the most common exclusions in the three personal umbrella forms that were reviewed. Exclusionary language can be found in both the exclusions and definitions sections. Sometimes related exclusions will be combined into one. Other forms keep them separate. Many of these exclusions may also vary from one state to the next.

Conditions

The forms often include a variety of personal umbrella conditions. These provisions outline the details of coverage and the obligations that the insured and the insurer owe one another. Here is a quick overview of two common conditions that are found on the forms.

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Fraud or concealment. This condition is found on most personal umbrella forms. It states that all insureds are void if an insured intentionally conceals or misrepresents a material fact. “Facts material to risk” are “facts that could increase the risk or that, if revealed, might cause the insurer to decline to insure, or to request a higher premium” ( Black’s Law Dictionary 11th ed. Nationwide, for example, states that an insurer can deny coverage to any insured who has misrepresented, concealed, or omitted any material fact (narrow coverage). Other forms, such as Farmers, are less strict and will only deny coverage to “any insured who deliberately conceals or misrepresents any facts or circumstances relevant to the issuance, continuation, or renewal of this insurance.” (Broader coverage). In this way, coverage may be extended to innocent insureds. This provision may need to be amended by state statutes.

Insurers are not likely to deny losses due to the concealment clause or fraud clause unless there is strong evidence against the insured. This is interesting because, despite the high risk of even a personal umbrella form with minimum limits, not all forms contain this condition. This could partly be because insurance fraud is a topic covered by several state statutes that permit an insurer to cancel coverage without requiring policy language.

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Policy Period/Policy Territory. Many forms have a policy period provision. The State Farm policy states that the policy covers only a loss which occurs within the declared period ….”. Some policies include provisions regarding the policy territory. According to the ISO form, coverage is available for any “occurrence” or offense that occurs anywhere in the world. The Markel form, on the other hand, provides coverage worldwide, but it is limited to uninsured or underinsured motorists (UM/UIM), which covers only the area defined in the UM/UIM coverage plan of the primary auto insurance listed in the umbrella.

Conclusion

Personal umbrella coverage is a type of coverage that many clients don’t realize is available, especially since it isn’t required by law. This policy can help prevent financial ruin from an unintentional event or accident. Agents and brokers must also communicate with clients and prospects that personal umbrella policies are not a commodity. There are many variations in the forms. A comparison of personal umbrella forms is a good idea when you are providing clients with comprehensive coverage, especially for those with high suability factors.