lesson 4 personal umbrella/excess liability...

Personal Lines - Miscellaneous Course Print 01.04.2013 1

Lesson 4 Personal Umbrella/Excess Liability Policy

Lesson 4 Personal Umbrella Intro p1 (PM)

Your clients may have a loss that is so large that the limit of liability provided by either their Personal Auto Policy or their Homeowners Policy is not enough to cover the amount for which they are legally responsible. Other times, your clients may have sufficient limits of liability, but the loss itself is excluded by their Personal Auto Policy or Homeowners Policy. In this lesson we will study the policies that may provide your clients coverage for these types of losses. This lesson is structured around the following seven topics:

• Reasons Umbrella/Excess Liability Coverage Should Be Recommended • Umbrella/Excess Liability Characteristics and Concepts • Definitions • Insuring Agreement • Exclusions • Conditions • Comparing Personal Umbrella/Excess Policies

Lesson 4 Personal Umbrella Intro p2 (PM)

Lesson 4 – Learning Objectives:

After completing this lesson, you will be able to:

1. Explain the reasons Personal Umbrella/Excess Liability coverage should be recommended to clients. 2. Explain how a Personal Umbrella, an Excess Liability and a Hybrid Umbrella/Excess policy differ from

one another. 3. Explain how an ISO Personal Umbrella Liability Policy provides protection in conjunction with the

client's other Personal Lines Policies. 4. Explain how coverage under the ISO Personal Umbrella Liability Policy is affected if the required

underlying insurance is not in force at the time of a loss. 5. Explain the operation of the Self Insured Retention (or Deductible) and apply it to specific losses. 6. Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand

their meanings for determining coverage. 7. Understand the defense coverage included in the Personal Umbrella Policy and explain when and

how it is provided. 8. Calculate the payment that would be made by an ISO Personal Umbrella Liability Policy for specific

claims. 9. Determine whether or not a given claim is covered by the ISO Personal Umbrella Liability Policy.


10. Recognize the provisions unique or especially important to Umbrella/Excess Liability Policies and understand the similarities and differences between policy forms.

Forms to print for this lesson:

• Personal Umbrella Liability Policy DL 98 01


Lesson 4 Topic A - Personal Umbrella/Excess Liability Concepts

Lesson 4 Topic A - Personal Umbrella/Excess Concepts p1 (PM)

Learning Objective: Explain the reasons Personal Umbrella/Excess Liability coverage should be recommended to clients.

We live in a very litigious society. The number of lawsuits is rising as are the damages that are awarded by judges and juries. In the 1970s, this coverage was viewed as being needed only by affluent clients. Only the professionals and business owners were seen as people who needed this protection. Over the years that has changed – today, every client needs the protection provided by an umbrella/excess liability policy.

Clients have assets and incomes to protect. You may have heard a client say they don’t need this coverage since they “don’t have anything”. They may not realize that this coverage protects current AND future assets and income.


Learning Objective: Explain the reasons Personal Umbrella/Excess Liability coverage should be recommended to clients.

Characteristics continued

In addition to providing clients with the protection they need, there are additional reasons an insurance agency or company should offer this coverage:

1. Improve account retention - Studies have continued to show that the more policies a client has with your agency or company, the more likely you are to retain the client.

2. Increase revenue - The commission earned from the policy, combined with the improved account retention.

3. Reduce errors & omissions exposure - A client with Personal Umbrella/Excess Liability coverage is less likely to have an uncovered loss; therefore, an insurance professional is less likely to be sued for E & O.

However, the #1 reason to recommend this coverage to your clients is to provide them with protection in the event of a loss.



Learning Objective: Explain how a Personal Umbrella, an Excess Liability and a Hybrid Umbrella/Excess policy differ from one another.

Umbrella Characteristics and Concepts

In this topic we look at how a Personal Umbrella policy differs from an Excess Liability policy and how they each differ from a Hybrid Personal Umbrella/Excess Liability policy. We will cover:

• Characteristics of a Personal Umbrella Policy, Personal Excess Policy and a Hybrid Personal Umbrella/Excess Policy

Concepts in a Personal Umbrella/Excess Policy, including:

• Underlying Policies Requirement • Underlying Limits Requirement • Self Insured Retention



Characteristics

While we will be using the ISO Personal Umbrella Liability Policy as the point of reference throughout this section of the course, Personal Umbrella/Excess policies are non-standard policies. This means that most insurance companies have developed their own Personal Umbrella/Excess policy. Therefore, the Insuring Agreement, Exclusions and Conditions have the potential to be different from the ISO Personal Umbrella Liability Policy you will be studying.




Characteristics continued

Even though policies are different, there are characteristics found in most Umbrella/Excess policies: Characteristics of Typical Umbrella/Excess Policies:

• Personal Umbrella/Excess Policies are catastrophe policies. They are designed and priced with the intent to provide coverage for large losses.

• Personal Umbrella/Excess Policies are designed to be excess policies for most loss situations. These policies pay on an excess basis over another policy or policies.

• Personal Umbrella/Excess Policies may provide broader coverage than the liability coverage provided by a Homeowners Policy or Personal Auto Policy.

• Personal Umbrella/Excess Policies are liability policies. They do not cover loss to an insured's property.

• Personal Umbrella/Excess Policies require some underlying insurance. This typically includes Auto Liability and Personal Liability (such as Homeowners). Watercraft and Recreational Vehicle liability may also be required if the client has watercraft or recreational vehicles that are not covered by the policy providing the client’s Personal Liability.

• Personal Umbrella/Excess Policies are written for a minimum of $1,000,000 Limit of Liability. Higher limits, in $1,000,000 increments, are typically available up to $5,000,000 or more.



Concepts

As mentioned on the previous page, Personal Umbrella/Excess policies are non-standard policies. They differ not only in the name of the policy, but also in the coverage provided. To help in your study of this important coverage an umbrella/excess policy will be categorized as one of the following:

• Umbrella • Excess Liability (Following Form) • "Hybrid" • Let’s look at how these policies differ from one another.




Concepts continued

Personal Umbrella Policies

Higher Limits:

This policy serves as an Excess Liability policy for those losses that are covered by the client's Homeowners Policy, Personal Auto Policy, Watercraft Policy or Recreational Vehicle Policy.

Example:

Jordon and Malorie's dog bit a small child. They have been sued for $800,000. Their Homeowners Policy Section II Limit is $500,000. The dog bite is covered by the Homeowners Policy so the policy will provide $500,000 coverage. The additional $300,000 is covered by the Personal Umbrella Policy. (The ISO Personal Umbrella Liability Policy does not contain a dog bite exclusion. )

Tip:

The Personal Auto Policy, Homeowners Policy, Watercraft Policy, Recreational Vehicle Policy, etc. are referred to as Underlying Policies. They are the primary policies that "lie under" the coverage provided by the Umbrella or Excess Liability (Following Form) policy. Underlying Policies will be covered in more detail later in this section.

Broader Coverage:

A Personal Umbrella Policy can also serve as primary coverage for losses that are not covered by the client's Homeowners Policy, Personal Auto Policy, Watercraft Policy or Recreational Vehicle Policy.

Example:

Jordon and Malorie's Personal Auto Policy does not cover accidents that occur outside of the United States of America or its territories or possessions; Puerto Rico; or Canada.

They are on vacation in Europe when Jordon has an at-fault accident in a rental car. This loss is not covered by their Personal Auto Policy since it occurred outside of the Policy Territory.

This loss could be covered by a Personal Umbrella Policy if its territory is worldwide. This loss would typically be subject to the payment of a Self Insured Retention. Self Insured Retentions will be covered later.

Tip: Most claims paid by a Personal Umbrella Liability Policy are for large losses. The higher limits protection is used more frequently than the broader coverage protection.


Excess Liability Policies

Higher Limits:

Unlike the Personal Umbrella Policy, an Excess Liability (Following Form) Policy is designed to serve only one purpose: Higher Limits.

This policy serves as an Excess Liability policy for those losses that are covered by the client's Homeowners Policy, Personal Auto Policy, Watercraft Policy or Recreational Vehicle Policy.

The Personal Excess Policy is not designed to provide broader coverage.

In the previous example, the broader coverage of the Personal Umbrella Policy provide Jordon and Malorie coverage for their auto accident in Europe.

If their policy had been an Excess Liability (Following Form) rather than a Personal Umbrella Policy, they would NOT have had coverage for this loss as its only purpose is to provide higher limits for losses covered by their underlying insurance.



"Hybrid"

In this course, we use the “Hybrid” category to describe a policy that is neither a true Umbrella Policy as was described previously nor is it a true Excess Liability (Following Form ) Policy that automatically provides excess coverage over the client’s other Personal Lines Policies. While there is not a policy that is called a “Hybrid Policy”, they do exist and are often referred to as a Personal Umbrella or an Excess Liability Policy.

Higher Limits As long as the loss is not excluded, a policy falling into this category may serve as an Excess Liability policy for those losses that are covered by the client’s Homeowners Policy, Personal Auto Policy, Watercraft Policy or Recreational Vehicle Policy.

Broader Coverage As long as the loss is not excluded, this policy may serve as primary coverage for losses that are not covered by the client’s Homeowners Policy, Personal Auto Policy, Watercraft Policy or Recreational Vehicle Policy.


We will now illustrate the differences among these three types of Personal Umbrella/Excess Policies.



Umbrella Policy

When the personal umbrella policy was first introduced in the 1970s, it provided higher limits and very broad coverage. Today, higher limits are still provided; however, the broader coverage has become more restrictive. We will cover this in more detail later in this course when we analyze the coverage and exclusions. We will now look at the Umbrella Policy, beginning with the excess coverage it provides. The graph to the right illustrates the excess coverage provided by an Umbrella Policy. For example, the Boat Policy is responsible for the first $100,000 of a liability loss. As long as the Umbrella Policy does not exclude the loss, it will provide an additional $1,000,000 for a total of $1,100,000 available for a covered boat liability loss.




Umbrella Policy continued

As was mentioned previously, the Umbrella Policy also provides broader coverage. This is illustrated below by the addition of the last column. A loss that: (1) is not required to be covered by an Auto, Homeowners, Boat or RV Policy and (2) is not excluded by the Personal Umbrella Policy is covered up to the $1,000,000 limit used in this illustration.

Note: Most Personal Umbrella Policies have a Self Insured Retention that applies when Broader Coverage is provided. The Self Insured Retention is similar to a deductible and is the amount of the loss the Insured must pay. Self Insured Retentions (Deductibles) will be covered later in this section.



Excess Liability Policy (Following Form)

An Excess Liability Policy (Following Form) is an excess policy that is no broader than its underlying policies. If a loss is not covered by the Auto, Homeowners, Watercraft or Recreational Vehicle policy, the loss will NOT be covered by the Excess Liability Policy (Following Form).




"Hybrid" Umbrella/Excess Policy

As we mentioned earlier, Hybrid refers to a policy that is neither a true Umbrella Policy nor an Excess Liability (Following Form) Policy. Each policy that falls into the Hybrid category is potentially different from another with regard to the coverage it provides.

Because of the variances in Hybrid Policies there is no absolute as to the coverage provided or not provided. Each policy has to be analyzed to determine the coverage it provides or excludes. For this same reason, we cannot illustrate the Hybrid coverage with a chart the way we were able to illustrate the Umbrella and Excess Liability (Following Form) policies.

A Hybrid Policy may:

• Provide broader coverage for some exposures but be more narrow than the underlying policies in other coverages.

• Be more narrow in the excess coverage provided than the coverage provided by underlying policies.

• Be an Umbrella Policy with a Following Form endorsement or endorsements. A Following Form endorsement limits the coverage provided by the Umbrella Policy by stating coverage follows the coverage provided by the underlying policy. Typical Following Form endorsements include Auto and Watercraft.

Let's look at three examples.



"Hybrid" Policy continued

Examples: Chuck’s Umbrella Policy was issued with a Watercraft Following Form endorsement. With the Following Form endorsement, the only coverage provided by the Umbrella Policy for a watercraft loss is for a loss that is also covered by Chuck’s underlying Watercraft policy. If the loss is excluded by the underlying policy, it is


also excluded by this Umbrella Policy. Jordon and Malorie’s Umbrella Policy was issued with an Auto Following Form endorsement. The Coverage Territory of the Umbrella Policy is worldwide. However, with the Auto Following Form endorsement their Umbrella Policy will only cover auto losses that are covered by their Personal Auto Policy. Jordon and Malorie are on vacation in Europe when Jordon has an at-fault accident in a rental car. Their Personal Auto Policy does not cover accidents that occur outside of the United States of America or its territories or possessions; Puerto Rico; or Canada. The Umbrella Policy will not cover this loss either since it is not covered by their Personal Auto Policy.

Please refer to Lesson 4 Topic A - Personal Umbrella/Excess Concepts p14 (PM) to complete the Knowledge Check at this time.


Commentary

It is important to know the differences in coverage provided by the umbrella or excess liability policies that are available and/or sold in your agency or company. As we have just discussed, because a form name includes the word “umbrella” does not mean it provides both the broader coverage that may be needed by a client and higher limits as typically expected of an umbrella. If the policy includes a Following Form endorsement, the broader coverage is not as broad as the protection needed by your client. Now is a good time to make a note that when you complete this course, you will want to obtain sample policies (including any mandatory endorsements used by the insurance company and the declarations page) so that you can compare the policies to determine the primary differences in coverage. From the remainder of this section, we will discuss the coverage provided by the ISO Personal Umbrella Liability Policy.


Lesson 4 Topic B - Underlying Policies

Lesson 4 Topic B - Characteristics of Umbrella Policies p1 (PM)

Learning Objective: Explain how an ISO Personal Umbrella Liability Policy provides protection in conjunction with the client's other Personal Lines Policies.

Underlying policies are typically required by the insurance company before it will issue an Umbrella Policy. Underlying requirements address both the type of underlying insurance required and the minimum limits that are acceptable. Type of Liability Coverage Required + Minimum Limits Required = Underlying Insurance “Underlying insurance” is a defined term. "Underlying insurance" means any policy providing the insured with primary liability insurance covering one or more of the types of liability listed in the Declarations and at limits no less than the retained policy limits shown for those types of liability listed in the Declarations.



Underlying Policies continued

Auto liability and personal liability are two underlying coverages typically required. So, the client must have Personal Auto Liability and Personal Liability coverage before the insurance company will issue an Umbrella Policy. If the client also has a watercraft or a recreational vehicle exposure, the insurance company may also require underlying coverage for these exposures before it will issue an Umbrella Policy. Underlying Requirements also include the minimum liability coverage those policies can provide. If the underlying coverage does not provide at least the minimum limits required, the limits will need to be increased before the client is eligible for Personal Umbrella Liability coverage.

Tip: The client can always choose to have higher limits on the Underlying Policies than are required by the insurance company providing the Umbrella or Excess coverage.





You might be wondering why there is an underlying requirement. You may recall from an earlier discussion that one of the two purposes of a Personal Umbrella Liability Policy is to provide excess coverage – higher limits – in the event of a large loss. The rate structure of the Personal Umbrella Liability Policy has taken into consideration that it is not intended to pay first dollar coverage. When the Personal Umbrella Liability Policy is providing higher limits, the underlying policy pays its limit of liability before the umbrella pays any part of a claim. Because it is primary, an underlying policy also conducts and pays for the investigation and defense of claims that are covered by the underlying policy.


Explain how coverage under the ISO Personal Umbrella Liability Policy is affected if the required underlying insurance is not in force at the time of a loss.

Underlying Policies

Jerry and Susan own two cars and their home. They do not own watercraft or recreational vehicles. The insurance company will not issue their Personal Umbrella Liability Policy unless Jerry and Susan have a Personal Auto Policy and a Homeowners Policy or a Personal Liability Policy that is the equivalent of Section II of a Homeowners Policy.

Jerry and Susan have the following policies:

• Personal Auto Policy with limits of $250,000/500,000/100,000 • Homeowners Policy with Section II limits of $300,000 • Personal Umbrella Policy with a limit of $1,000,000

Jerry is involved in an auto accident for which he is responsible for injury to a person in the other car. The person's bodily injury is valued at $500,000. Jerry and Susan's policies will respond as follows:

• The Personal Auto Policy will pay the $250,000 limit in this case — which is its limit for bodily injury to one person.

• The Personal Umbrella Policy will pay the remaining $250,000 of the other person's bodily injury


claim because it provides higher limits on an excess basis for a loss that is covered by the Personal Umbrella Liability Policy.

This is how it works:

Other person's BI claim $500,000 Personal Auto Policy pays -($250,000) Balance of claim remaining $250,000 Personal Umbrella Policy pays -($250,000) Jerry and Susan pay $ 0


Underlying Policies

The underlying requirements, both the type of policies and the minimum limits of liability, differ from insurance company to insurance company. When recommending a Personal Umbrella Liability Policy, you need to make sure any required changes to the underlying policies are taken into consideration. For example, Glenda tells a client that a $1,000,000 Personal Umbrella Liability Policy will cost approximately $250 annually. However, Glenda forgets to mention that the client will need to increase the limits on his Personal Auto Policy and Homeowners Policy. Now, the premium is far more than the $250 originally presented to the client. This can really increase the overall cost of this protection when there are youthful operators on the Personal Auto Policy.

Cost to Increase Underlying Limits + Personal Umbrella Liability Policy Premium = True Cost of Personal Umbrella Liability Protection




Example of Minimum Underlying Coverages:

Automobile Liability $250,000/500,000/100,000 or $300,000 Combined Single Limit

Personal Liability $300,000


Recreational Vehicle $100,000/300,000/50,000 or $100,000 CSL

Watercraft Liability $300,000

As Underlying Requirements have the potential to differ among insurance companies, it is important to know the requirements of the insurance companies with which you do business.

ISO’s Personal Umbrella Liability Policy Declarations lists the insured’s actual underlying coverage.

Declarations of other insurance companies may list the required underlying coverages and limits rather than actual underlying coverage.

Refer to Lesson 4 Topic B - Characteristics of Umbrella Policies p6 (PM) to view the Declarations.


Learning Objective: Explain how coverage under the ISO Personal Umbrella Liability Policy is affected if the required underlying insurance is not in force at the time of a loss.

Failure to Maintain Required Underlying Policies

Jerry and Susan are required to keep their Personal Auto, Homeowners, or Personal Liability Policies in force throughout the policy period of their Personal Umbrella Liability Policy. In addition, the limits of liability for each of these policies must continue to be at least the minimum limits required by the insurance company providing the umbrella coverage. There is a section of the policy that clearly states how the policy responds should the required “underlying insurance” not be in force at the time of a loss.

IV. Maintenance Of Underlying Insurance You must maintain the "underlying insurance" at the full limits stated in the Declarations with no change to more restrictive conditions during the term of this policy. If any "underlying insurance" is cancelled or not renewed and not replaced, you must notify us at once. If you fail to maintain "underlying insurance", we will not be liable under this policy for more than we would have been liable if that "underlying insurance" was in effect.



Learning Objective: Explain how covered under the ISO Personal Umbrella Liability Policy is affected if the required underlying insurance is not in force at the time of the loss.

Underlying Policies Not In Force

If Jerry and Susan do not keep their underlying policies in force or if they reduce their limits of liability to less than the required underlying limits and a loss occurs, there is going to be a problem with the coverage and/or the amount of coverage available to them from their Personal Umbrella Liability Policy.



The Personal Auto Policy and the Homeowners Policy limits are the minimum required "underlying insurance."

Jerry and Susan's Homeowners Policy expired on June 1. On June 25 a friend visiting them for the weekend is injured when their deck collapsed. The friend has a bodily injury claim in the amount of 5400,000.

Since their Homeowners Policy was not in effect at the time of the friend's injury, Jerry and Susan have no coverage under their Homeowners Policy. The Umbrella Liability Policy will now respond as if the required "underlying insurance" was in force.


Bodily Injury Claim $ 400,000 Less the amount of the required underlying Homeowners Liability limit. Jerry and Susan are financially responsible for the $300,000 because they failed to maintain the required "underlying insurance".

-($300,000)

The amount above the required Homeowners Liability limit will be paid by the Personal Umbrella Liability Policy.

$ 100,000


Learning Objective: Explain how covered under the ISO Personal Umbrella Liability Policy is affected if the required underlying insurance is not in force at the time of the loss.


Required Minimum Underlying Limits continued

A Personal Umbrella Policy will act as if the underlying policy has at least the required limit of liability. If an insured allows the limit of liability of an underlying policy to fall below the required minimum amount and a claim occurs, that insured will be financially responsible for the gap - that is, the difference between the liability limit the insured carried and the liability limit the insured should have had to meet the "underlying insurance" requirement.



The Personal Auto Policy and the Homeowners Policy limits shown here are the minimum required "underlying insurance".

Jerry and Susan renew their Personal Auto Policy; however, they reduced the limits to $100,000/$300,000. Susan has an at-fault accident. The resulting bodily injury claim from the other driver is $550,000. The Personal Umbrella Liability Policy will respond as if the $250,000/$500,000 required "underlying insurance" was in force.

Bodily Injury Claim $ 550,000 Less Amount of Required "Underlying Insurance" -($ 250,000) Jerry and Susan are financially responsible for the difference between the required "Underlying Insurance" and the limit they carried.

Required Underlying $ 250,000 Amount of insurance carried and paid by Jerry and Susan's Personal Auto Policy -($ 100,000) Amount due from Jerry and Susan $ 150,000 The amount above the required "underlying insurance" limit will be paid by the Personal Umbrella Liability Policy

$ 300,000


Factors that Contribute to a “Gap”

1. The agency does not write all of the underlying policies.

When the underlying insurance is written with another agency or company, the underlying policies could be cancelled and/or the liability limits reduced to lower than the minimum limits required by the umbrella/excess policy. Should this occur, you will more than likely not know about it until after a loss occurs. If you don't control the underlying insurance, how do you know if the required "underlying insurance" is in force and/or if the minimum required limits are provided?

2. The agency writes all of the underlying coverage, but the umbrella or excess policy is written with


a carrier other than the underlying carrier.

When the underlying policies are written by the same insurance company as the umbrella/excess policy, any attempt to reduce the limits or remove coverage that is required by the umbrella/excess policy would more than likely be noticed by the insurance company. At that time either the reduction in coverage would not be processed and/or the insurance company would notify you of the problem - most likely before a loss occurs.

3. Information in the agency's automated system does not clearly indicate there is umbrella/excess coverage in force.

When an umbrella/excess policy is an endorsement to an auto or a homeowners policy rather than a stand alone policy, the agency management system should clearly indicate there is umbrella/excess coverage. Otherwise, it increases the likelihood of an error by failing to recognize the existence of the umbrella/excess coverage and making changes that could cause the existing coverage to no longer meet the umbrella/excess policy's required underlying coverage.

4. The agency does not review underlying policies and limits at renewal to make sure the "underlying insurance" requirements have been met.

All existing coverage for the client should be reviewed to see if additional underlying policies are required by the umbrella/excess policy and to verify the underlying policies have at least the minimum limits required by the umbrella/excess carrier.


Commentary

The solutions for these examples of situations when the client failed to the maintain the required “underlying insurance” were based on the ISO Personal Umbrella Liability Policy. As we discussed at the beginning of this section, Personal Umbrella/Excess policies are nonstandard, which means that other policies may respond differently that the solutions presented. For example, a Umbrella/Excess policy may state that if the required “underlying insurance” is not in force at the time of a loss or if the limits are lower than the required limits, the Umbrella/Excess policy will not pay anything at all. This is most likely to apply to a watercraft or recreational vehicle loss. So, once again, please be reminded of the importance of knowing the coverage provided by the policies you have available in your agency or company. Be sure to know how the policies respond if the required underlying coverage is not in force.



Learning Objective: Explain the operation of the Self Insured Retention (or Deductible) and apply it to specific losses.

Self Insured Retention (or Deductible)

The Self Insured Retention (SIR) is unique to a Personal Umbrella Liability Policy (or a Hybrid policy that provides broader coverage than the underlying insurance). It is a specific dollar amount shown in the Declarations Page of a Personal Umbrella/Excess Policy and applies only when the policy provides coverage that is broader than the coverage provided by “underlying insurance”. The SIR is the amount of a covered loss that the insured is responsible for paying when the Personal Umbrella Liability Policy (or the Hybrid policy) drops down to provide primary coverage. This occurs only when (1) a loss occurs that is not required to be covered by underlying insurance and (2) the loss is covered by the Personal Umbrella Liability Policy (or “Hybrid” policy). SIR limits of $250 to $1000 are most common. Its purpose is to keep the Personal Umbrella Liability Policy (or Hybrid policy) from ever paying the first dollar of any claim. The SIR is never applied when:

1. A loss is covered by an underlying policy or 2. A loss should have been covered by a required underlying policy but the underlying policy was not

in in effect at the time of the loss.


Learning Objective: Explain the operation of the Self Insured Retention (or Deductible) and apply it to specific losses.

Self-Insured Retention

The ISO Personal Umbrella Liability Policy does not use the term SIR. It instead uses the term Deductible. While the term is different, its application is not. In this policy, the deductible is applied the same way the SIR is applied.

Deductible

A deductible is the amount of loss under an insurance policy that an insured must pay or absorb before the insurance company pays its portion of the loss.



• Personal Auto Policy with limits of $250,000/500,000/100,000 • Homeowners Policy with Section II limits of $300,000 • Personal Umbrella Liability Policy with a limit of $1,000,000 • $1,000 Self Insured Retention

Jerry has a serious disagreement with a teacher at the local school and calls the teacher incompetent in front of other parents at a meeting. The teacher sues Jerry for slander and wins a judgment of $300,000. There is no Personal Injury Endorsement on Jerry and Susan's Homeowners Policy, so there is no coverage for this claim under the Homeowners. The Personal Umbrella Liability Policy covers personal injury, bodily injury, and property damage.


Teacher's Personal Injury Claim $ 300,000 Amount Covered by Jerry and Susan's Homeowners Policy -0- Jerry and Susan's Pay Their Self Insured Retention -($ 1,000) Amount Paid By Personal Umbrella Liability Policy $ 299,000

Please refer to Lesson 4 Topic B - Characteristics of Umbrella Policies p14-17 (PM) to complete the Knowledge Checks at this time.


Lesson 4 Topic C – Definitions

Lesson 4 Topic C Umbrella: Definitions p1 (PM)

Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage.

Please refer to the ISO Personal Umbrella Liability Policy that we asked you to print at the beginning of this lesson as a sample for this course. Remember that there is no standard Personal Umbrella/Excess Policy, and if you work with more than one company, you will see many different versions of umbrella/excess policies that will differ in format from what we discuss here. In addition to the Agreement, there are six parts to the ISO Personal Umbrella Liability Policy:

1. Definitions 2. Coverages 3. Exclusions 4. Maintenance Of Underlying Insurance 5. Duties After Loss 6. General Provisions



The Personal Umbrella Liability Policy begins with the Agreement, which contains one short statement - as long as the premium is paid and the policy requirements are met, the insurance company agrees to provide the coverage. Following the Agreement you will find the Definitions. Definitions play an important role when determining coverage. The definition of a term or phrase impacts whether or not coverage is provided or excluded. The definitions introduced here are used throughout the entire Personal Umbrella Liability Policy. They are found on the first two pages of the policy, so that the meaning of each is presented before the discussion of coverage. The defined words and phrases are in quotation marks whenever they appear in the policy. As you study this topic, please keep in mind that we are discussing only the definitions and not the coverage provided by the Personal Umbrella Liability Policy.

Refer to Lesson 4 Topic C Umbrella: Definitions p2 (PM) to view a copy of the policy pages 1-3.




You and Your

"You and Your" This definition is most important to understand as any person who fits this definition receives the broadest coverage the policy provides. A "you" or "yours" is often referred to as the named insured. To qualify as a "you", a person must EITHER: Be named in the Declarations. OR: If the spouse is not named in the Declarations, the unnamed spouse is also a “you” as long as he or she is a resident of the same household as the person named in the Declarations.

Example 1: Matthew and Allison Berg are married. Their Personal Umbrella Liability Policy shows Matthew M. and Allison J. Berg named in the Declarations. Both Matthew and Allison are a "you" by definition. Example 2: Only Matthew M. Berg is shown in the Declarations. Allison is still a "you" as long as she is a resident of Matthew's household.

Note: Every time either "you" or "your" appears in the policy, it refers to this specific definition. This is the most important definition because so much coverage is determined by whether or not an individual qualifies as a "you".




Resident

Resident of the Same Household The phrase resident of the same household means that the person's legal residence is the household of the named insured, even though he or she may be temporarily living somewhere else. Example: The spouse that is not named in the Declarations could be living in another state or country on a temporary work assignment and still be a resident of the named spouse's household.



More Definitions

We, Us and Our The words "we", "us", and "our" all refer to the insurance company providing the coverage. The insurance company’s name appears in the Declarations. Leased Vehicle A leased private passenger auto, pickup or van will be considered owned by a person if: The lease is in writing, and The term of the lease is at least 6 months. This allows us provide coverage for leased vehicles as though they were owned by the named insured.

Aircraft Liability, Hovercraft Liability, Recreational Motor Vehicle Liability, and Watercraft Liability


In addition, certain words and phrases are defined in the policy. These are defined for liability coverage exclusions. They include

a. Ownership

b. Maintenance, occupancy, operation, use, loading or unloading

c. Entrustment

d. Failure to supervise or negligent supervision

e. Vicarious liability

These are defined so when they appear in III. Exclusions you will know what is excluded. This definition also includes definitions for Aircraft, Hovercraft and Watercraft. "Recreational Motor Vehicle" is a separately defined term that we will look at shortly.



Auto

"Auto" is a definition that is unique to a Personal Umbrella Liability Policy. You will not find “auto” defined in the ISO Personal Auto Policy. “Auto” is defined as a private passenger motor vehicle, motorcycle, moped, motor home, or a vehicle designed to be pulled a by private passenger motor vehicle or motor home. Also, the definition includes a farm wagon or farm implement while towed by a private passenger motor vehicle or motor home.

Tip: Not All Personal Umbrella/Excess Policies Define Auto.



Bodily Injury

It is common for Personal Umbrella/Excess Policies to use the same definition for "bodily injury" as found in the Personal Auto Policy. “Bodily injury” is harm, sickness, disease and anything that results from that harm,


sickness, disease, including resulting death.

Tip: You may find some Personal Umbrella/Excess Policies include "bodily injury" in its definition of "personal injury". Other policies may use the defined term “personal liability”, which includes "bodily injury", "property damage", and "personal injury”.



Business

“Business” in this policy is defined the same as the ISO Homeowners Policy.

G. "Business" means:

1. A trade, profession or occupation engaged in on a full-time, part-time or occasional basis; or 2. Any other activity engaged in for money or other compensation, except the following:

a. One or more activities, not described in b. through d. below, for which no "insured” receives more than $2000 in total compensation for the 12 months before the beginning of the policy period;

b. Volunteer activities for which no money is received other than payment for expenses incurred to perform the activity;

c. Providing home day care services for which no compensation is received, other than the mutual exchange of such services; or

d. The rendering of home day care services to a relative of an "insured".

Using the same definition as found in the Homeowners Policy makes it easier for the Personal Umbrella Liability Policy to provide excess coverage only for the “business” activities that are covered by the underlying policies.



Family Member

A “family member” receives the second best coverage under a Personal Umbrella Liability Policy. If a person cannot be a “you”, a “family member” is the next best. While “family member” is also defined in the Personal Auto Policy, it is defined differently in the Personal


Umbrella Liability Policy. This “family member” definition is a combination of the “family member” definition in the Personal Auto Policy and the definition of insured in the Homeowners Policy that applies to resident relatives. To meet the definition of “family member”, a person must be one of the following:

• A relative, a ward or a foster child of the named insured who resides in the named insured’s household.

• A person under the age of 21 who is in the named insured’s care or the care of an insured who is over the age of 21



Family Member continued

Let's look at each of the criteria for "family member" a little closer: Be related to a "you" by blood, marriage or adoption. This also includes a ward or foster child.

• There is no requirement that a “family member” be a member of the immediate family, of driving age or have a valid driver’s license. There is also no age requirement – it includes a 2-year old or a 92-year old.

A person under the age of 21 and in the care of a named insured or in the care of an insured 21 or older.

• Included in this definition would be (1) a high school exchange student or (2) the child of friends who moved because of a job, so their child moves in with the named insured to complete the school year.

Be a resident of the same household as the "you“.

• The majority of the time, determining whether or not an individual is a resident of the named insured’s household is easy. However, there are other times when it is not. These situations can involve children in the military, college students in another state, shared custody, etc. You must be careful not to provide a legal opinion. Courts take many factors into consideration when asked to decide whether or not an individual is a resident of a household, the discussion of which will not be included in this course.


Please refer to Lesson 4 Topic C Umbrella: Definitions p11 (PM) to complete the Knowledge Check at this time.



Fuel System

The ISO Personal Umbrella Liability Policy contains a long definition of fuel system, which identifies what is considered a fuel system. This term is defined so that when it in used in an exclusion, it is clear what will be considered a Fuel System. While you may not find this term defined in other policies, you will typically find a pollution exclusion that could include loss from a Fuel System.



Definitions continued

Recreational Motor Vehicle While "Recreational Motor Vehicle" is not the next definition in the policy, we will look at it next as it is a term used in the upcoming definition of insured. And, to understand the definition of insured, we need to understand the definition of “Recreational Motor Vehicle”. This definition includes any motorized land vehicle designed for recreational use off public roads.

• All-terrain vehicle • Dune buggy • Golf cart • Snowmobile • Motorized scooter • Segway • Children's motorized riding toys • Go cart


Tip:

Some umbrella/excess policies include riding lawn mowers, tractors, etc. within their definition of recreational vehicle. This is important to know as it may require “underlying insurance” on these vehicles that may not be provided by an unendorsed Homeowners Policy as we discussed previously in this course.



Insured

All of the liability protection described in the Insuring Agreement and Additional Coverages is only provided for a select few – only those who fall within the definition of insured. The five-part definition of insured is actually a combination of the Personal Auto Policy and the Homeowners Policy definitions of insured. A person or an organization that falls within any one of the definition’s five parts is an insured. This is an important definition, since these are the only people or organizations for whom liability coverage is provided.

Several previously defined terms are used within the definition of insured. Be sure the meaning of each of these defined terms is understood, otherwise it may be difficult to fully understand who is an insured. In other words, these are must know definitions when determining who is an insured.

• “You” • “Family Member” • “Auto” • “Recreational Motor Vehicle”

Note: There are exclusions that may take coverage away from a person or organization that is an insured by definition. We will see that when we get to the exclusions section.



Insured continued

We will look at each of the five parts to this definition.

1. “You”


2. “Family Member” 3. Any person using an "auto", "recreational motor vehicle" or watercraft, which is owned by

"you" and covered by this policy. Any person using a temporary substitute for any of those is also an insured under this Personal Umbrella Liability Policy.

4. Any person or organization who is made liable by "you" or any "family member" using an "auto" or "recreational motor vehicle“ covered by this policy. However, the owner or lessor of the “auto” or “recreational vehicle” is not an insured.

5. Any person or organization legally responsible for animals owned by "you" or any "family member". However, the person or organization is not an insured if in the course of business or has the animals without the consent of the owner.



Insured continued

Example 1: Kenny is visiting his mother who lives in another state. Kenny has an at-fault accident while driving his mother's car. He and his mother are both sued. Kenny is an insured on his Personal Umbrella Liability Policy as he is a "you". His mother is not an insured as the definition specifically excludes her as the owner of the "auto".

Example 2: Jim and Julie boarded their golden retriever, Buddy, at the Ponderosa Kennels while they went on an Alaska cruise. While at the kennel, Buddy got overly excited and bit a woman who was there to pick up her dog. The injured woman makes a claim against both Jim and Julie, as well as the Ponderosa Kennels. Jim and Julie are both an insured on their Personal Umbrella Liability Policy as they are both a "you". Ponderosa Kennels is not an insured as the definition specifically excludes an organization that has custody of an animal in the course of any "business".

Example 3: Amy is visiting her parents in Seattle. While driving their car, she has an at-fault accident. The injured person makes a claim against both Amy and her parents. Her parents are both an insured on their Personal Umbrella Liability Policy as they are both a "you". Amy is an insured as any person using an "auto" owned by a "you" that is covered by the Personal Umbrella Liability Policy.

Tip: Some umbrella/excess policies do not give insured status to a permissive user of the named insured's vehicles.





Occurrence The ISO Personal Umbrella Policy defines "occurrence" as an accident, including continuous or repeated exposure to the same conditions resulting in "bodily injury" or "property damage".

Personal Injury Any of the following is "personal injury":

• False arrest • Malicious prosecution • Wrongful entry • Slander • Detention or imprisonment • Wrongful eviction • Invasion of privacy • Libel

Other policies may also have a separate definition of "personal injury" or it may be included in the definition of “Personal Liability”, which includes "bodily injury," "property damage," and "personal injury”.

Tip: Personal injury is an important coverage for clients to have. When analyzing the policies you have available in your agency or company, be sure to determine whether or not the umbrella/excess policy provides coverage for personal injury.




Property Damage This is the same wording as found in both the Personal Auto Policy and the Homeowners Policy. “Property damage” is injury to or destruction of someone else's property. It includes loss of use of tangible property.


For example, Tom is cutting down a large tree on his property when it falls on a neighbor’s house. The neighbor’s house is damaged and the electrical service is disconnected by the tree. The neighbor must move into a motel until the house is repaired. The cost of the motel and of meals is loss of use and included as “property damage” to the neighbor’s house.




Retained Limit In the ISO Personal Umbrella Liability Policy the term "retained limit" is used to describe any amount that is paid before the Personal Umbrella Liability Policy is obligated to pay. We will see shortly that it clearly states in the Insuring Agreement that the insurance company will pay damages in excess of the “retained limit.” It is not the intent of this type of policy to pay the first dollar of any claim. The first dollar (or dollars) will be paid by either an underlying policy or a Self Insured Retention, both of which we discussed earlier in this section. “Retained limit" means: Any “underlying insurance” or any other policy available to an "insured" to pay for the loss OR The Self Insured Retention(SIR) listed in the Declarations Page. As we saw earlier, the ISO Personal Umbrella Liability Policy uses the term Deductible rather than Self Insured Retention. The deductible is treated like an SIR in this policy and only applies to losses that are not covered by "underlying insurance” or any other insurance and not excluded by this policy.





Underlying Insurance Underlying Insurance describes the underlying policies as discussed earlier in this section. The “underlying insurance” requirements vary from one Personal Umbrella/Excess Policy to another, however, the basic concept remains the same. This refers to the primary liability insurance covering the insured for the types of liability listed in the Declarations for at least the minimum limits required umbrella/excess company.


Lesson 4 Topic D - Insuring Agreement

Lesson 4 Topic D Umbrella: Insuring Agreement p1 (PM)

In this topic, we study II. Coverages, the next section in the ISO Personal Umbrella Liability Policy. During this study, we will examine the following:

1. Insuring Agreement 2. Defense Coverage 3. Additional Coverages 4. Limit of Liability


Insuring Agreement

The insurance company will pay damages for "personal injury", "bodily injury" and "property damage" in excess of the "retained limit" for which an insured is legally responsible because of an “occurrence". Damages also include prejudgment interest awarded against an insured. We previously defined several of the terms used in the Insuring Agreement. While this insuring agreement is very broad, the policy will later use exclusions and definitions to remove coverage for exposures that insurance companies don't want to cover. By providing coverage for everything that is not excluded, the policy provides the broadest possible liability coverage.

• “Insured” • “Bodily Injury” • “Property Damage” • “Personal Injury” • “Retained Limit” • “Occurrence”


Learning Objective: Understand the defense coverage included in the Personal Umbrella Liability Policy and explain when and how it is provided.

Because of the nature of the Personal Umbrella Liability Policy, the defense coverage differs from that of


the Personal Auto Policy or the Homeowners Policy. (Defense begins in the left column of page 3 of the ISO Personal Umbrella Liability Policy.) In both Part A – Liability in the Personal Auto Policy and Section II Liability in the Homeowners Policy, defense costs are discussed in the Insuring Agreement. In the Personal Umbrella Liability Policy, Defense Coverage is not found in the Insuring Agreement. Instead, it has its own section where it is explained when defense coverage will be provided and who is responsible for paying the defense costs.

When will defense coverage be provided? Who pays for the defense?



Defense Coverage continued

If a claim or suit is brought against an insured that is covered by the policy, the insurance company will provide a defense at its own expense. This is no different than the Personal Auto Policy or the Homeowners Policy. What is different, however, is when the insurance company will provide a defense.




When Will a Defense Be Provided? The insurance company is not obligated to provide a defense in either of the following two circumstances:

1. The claim is covered by “underlying insurance” available to the insured. If the claim is covered by an underlying policy, the insurance company for the underlying policy should provide the defense. For example, JoAnn had an serious at-fault auto accident. The loss was reported to both the insurance company for her Personal Auto Policy and the insurance company for her Personal Umbrella Liability Policy. In this situation, the insurance company that wrote her Personal Auto


Policy is responsible for providing her defense.

2. There is not “underlying insurance” in effect and the damages are less than the Deductible (Other policies may use Self Insured Retention)




While the insurance company is not obligated to provide a defense when a claim is either covered by an underlying policy or is under the Deductible, it retains the right to join in the defense. You might be wondering why an insurance company would want to incur defense expenses when it is under no obligation to do so. If it joins in the defense, it may help the underlying carrier or insured reduce the loss amount and possibly settle the claim within the underlying policy’s limit of coverage. Let’s look again at the previous example:

JoAnn had an serious at-fault auto accident. The loss was reported to both the insurance company for her Personal Auto Policy and the insurance company for her Personal Umbrella Liability Policy. In this situation, the insurance company that wrote her Personal Auto Policy is responsible for providing her defense. Her Personal Umbrella Liability Policy insurance company is not obligated to provide a defense; however, it could choose to join the underlying carrier in its defense and provide assistance in settling the claim within the underlying policy’s limit of coverage.

The company will also pay any expense incurred in the defense if the expense is incurred with the company's written consent. This refers to expenses incurred by others, such as an insured. This may occur when an accident happens in another country and an insured must gather information on his or her own. In the last paragraph of Defense Coverage, the company reserves the right to investigate and settle claims as the company sees fit. The insurance company’s duty to defend ends when the limit of liability has been exhausted either by judgment or settlement.

Please refer to Lesson 4 Topic D Umbrella: Insuring Agreement p7 (PM) to complete the Knowledge Check at this time.




Defense Costs provided by the ISO Personal Umbrella Liability Policy are outside the limits. In other words, the money spent defending an “insured” is not subtracted from the policy’s limit of liability. For example, if Tricia’s umbrella carrier spent $100,000 defending her for a claim made against her, that $100,000 is not a part of her $1,000,000 limit of liability. If the judgment against Tricia is $1,000,000 her insurance company would actually incur a $1,100,000 loss. A personal umbrella/excess policy could cover defense costs inside the limits. In the example used above, there would only be $900,000 left in the limit of liability to pay the $1,000,000 judgment since the $100,000 defense cost is included in the limit of liability.

Tip: When analyzing the umbrella/excess policies you have available in your agency or company, be sure to determine whether or not defense costs are inside or outside of the limit of liability.


Additional Coverages

There are four Additional Coverages in the Personal Umbrella Liability Policy. They are called Additional Coverages because any payment made under this provision is made in addition to the limit of liability shown in the Declarations. These Additional Coverages are expenses resulting from covered "occurrences":

1. Defense expenses incurred by the insurance company.

2. Premiums on bonds required in a lawsuit that the insurance company defends.

3. Lost wages and salary, up to $250 per day, for an insured who misses work because he or she comes to testify at hearings or trials at the company's request.

4. Post judgment interest. This is interest that accrues on a judgment between the time the judgment is entered in court and the claim is paid. Remember, prejudgment interest accrues from the time of the accident until the judgment is rendered and is covered in the limit of liability.



Limit of Liability

The last section in II. Coverages is the Limit of Liability. This explains the most the insurance company will pay for any one “occurrence” regardless of the number of:

• Insureds • Claims made • Persons injured • Vehicles involved

$1,000,000 Limit Per Occurrence Regardless of the Number of Claims Made Regardless of the Number of Persons Injured Regardless of the Number of Insureds Regardless of the Number of Vehicles involved


Example: Joe and Beth have a $1,000,000 Personal Umbrella Liability Policy. Beth caused an auto accident involving three other cars. Seven people in the other vehicles were injured, and all seven have made claims against both Beth and her husband Joe. What is the most their policy will pay for this loss? The answer is $1,000,000 Limit Per Occurrence.

• Regardless of the Number of Insureds

Date Claim Made Date Judgement Entered in Court

Date Monies Received

August 1, 2008 January 21, 2012 February 1, 2012

Pre-Judgement Interest

Post Judgement Interest

Included in Limit of Liability

Covered in Additional Coverages


• Regardless of the Number of Claims Made • Regardless of the Number of Persons Injured • Regardless of the Number of Vehicles involved

Please refer to Lesson 4 Topic D Umbrella: Insuring Agreement p12-13 (PM) to complete the Knowledge Checks at this time.


Lesson 4 Topic E – Exclusions

Lesson 4 Topic E Umbrella: Exclusions p1 (PM)

Learning Objective: Determine whether or not a given claim is covered by the ISO Personal Umbrella Liability Policy.

Exclusions take away coverage otherwise provided, even if the person was previously defined as an insured. When applying these exclusions, the intent is to either cover or exclude a loss resulting from an “occurrence.” Unless a loss is specifically excluded, it is covered. When there is more than one insured involved in a claim, the policy may provide coverage for one insured and exclude coverage for the other insured(s). Many of the exclusions found in the ISO Personal Umbrella Liability Policy are commonly found in other umbrella/excess policies as well. As mentioned previously, umbrella/excess policies are nonstandard policies so it is important for you to understand how the exclusions differ in the policies you have in your agency or company.


Learning Objective: Determine whether or not a given claim is covered by a Personal Umbrella Policy.

1. Expected or Intended

There is no coverage for an insured who causes intentional "bodily injury" or "property damage." This is different than excluding intentional acts. It is possible to cause unintentional damage by an intentional act.

The exception to this exclusion gives back coverage for the use of reasonable force to protect persons or property.

This type of exclusion is commonly found not only in umbrella/excess policies, but also in Part A – Liability in the Personal Auto Policy and in Section II Liability in the Homeowners Policy.

2. Personal Injury

You may want to refer to the definition of "Personal Injury". This exclusion is taking away coverage for "personal injury":

(1) caused by or directed by an insured who knew the act would violate the rights of another and inflict "personal injury";

(2) caused by libel or slander if done by or directed by an insured with the knowledge what was said or written was not true;


(3) caused by libel or slander which first took place before the beginning of the policy period; (4) arising out of a criminal act committed by or at the direction of an insured; or (5) caused as the result of an offense related to the employment of this person by an insured.

3. Business

"Bodily injury", "personal injury" and "property damage" arising out of a "business" either engaged in by an insured or conducted from a premises owned by or rented to an insured is excluded. This total "business" exclusion then gives back coverage for 5 specific situations. These exceptions to the exclusion give back coverage for:

(1) specific situations involving the occasional renting of the residence premises, other dwellings, condominiums, etc.;

(2) civic or public activities performed by a insured without compensation other than expense reimbursement;

(3) part-time "business" pursuits of a self-employed insured under the age of 18 or under the age of 21 if a full-time student;

(4) the use of a named insured owned auto by the named insured, "family member" and others specified while in the "auto" business; and

(5) the use of an "auto" for "business" purposes.

While a "business" exclusion appears in every umbrella/excess policy, there are many differences among policies as to the coverage given back through exceptions. If you have a client with a "business" exposure, it is important to understand the any differences in coverage for the "business" among the umbrella/excess policies you have in your agency or company.

4. Public or Livery Conveyance

This exclusion takes away coverage for either the ownership or the operation of a vehicle while the vehicle is used as a public or livery conveyance. Public conveyances are those that are used to carry persons or property for public hire.

Public or livery conveyances are commercial exposures and it is not the intent to cover anything other than personal exposures with this policy. The intent in this exclusion is to take away coverage for an insured using a vehicle as a taxi cab or limo. This exclusion does not apply to a share-the-expense car pool.

5. Professional Services

These types of claims do not arise from personal activities and are therefore excluded from most personal umbrella/excess policies.

For example:

Christine is a nurse. One of her patients sues her alleging Christine gave her the wrong medication, which caused "bodily injury". Christine would not have coverage under her Personal Umbrella Liability Policy for


this claim. (The Homeowners Policy contains the same exclusion.)



6. Aircraft

You may want to review the definition of "aircraft liability" to recall that this exclusion takes away coverage for loss arising out of the ownership, maintenance, occupancy, operation, use, loading or unloading, entrustment, failure to supervise or negligent supervision and vicarious liability related to an aircraft. This exclusion is very common to umbrella/excess policies. Coverage for aircraft is typically provided by insurance companies that specialize in aviation coverage.

7. Hovercraft

You may want to review the definition of "hovercraft liability" to remember that this exclusion takes away coverage for loss arising out of the ownership, maintenance, occupancy, operation, use, loading or unloading, entrustment, failure to supervise or negligent supervision and vicarious liability related to a hovercraft.

Some umbrella/excess policies may not have a separate hovercraft exclusion, but instead include hovercraft in its watercraft exclusion.

8. Watercraft

You may want to review the definition of "watercraft liability" to remember that this exclusion takes away coverage for loss arising out of the ownership, maintenance, occupancy, operation, use, loading or unloading, entrustment, failure to supervise or negligent supervision and vicarious liability related to a watercraft. There is an exception in this policy that gives back coverage if the watercraft is covered by "underlying insurance" at the time of the "occurrence".

Remember, the Watercraft Liability exclusion only applies if there is no "underlying insurance." If the insured's Homeowners Policy provides coverage for the watercraft involved in the occurrence or if the insured has a Watercraft Policy that provides coverage for the watercraft involved in the occurrence, this exclusion does not apply and the Personal Umbrella Liability Policy would provide coverage. Remember, the "underlying insurance" must provide at least the minimum limits required by the insurance company as stated in the Declarations.

For example, while your client is on vacation he rents a Jet Ski. Unfortunately, due to his carelessness he runs over a swimmer. He immediately turns in a claim under both his Homeowners Policy and his Personal Umbrella Liability Policy. Because the rented personal watercraft exceeded 50 hp, he has no coverage under


his Homeowners Policy. Since he did not have watercraft coverage provided by "underlying insurance" at the time of the loss, this loss is excluded by his Personal Umbrella Liability Policy.

Tip:

There are many different watercraft exclusions found in umbrella/excess policies. Be sure to know the differences in the policies you have in your agency or company. Pay special attention to any specific exclusion for Personal Watercraft.

9. Recreational Motor Vehicle Liability

You may want to review the definitions of "Recreational Motor Vehicle Liability and "Recreational motor vehicle." This exclusion contains two important exceptions to this exclusion. (1) If the "recreational motor vehicle" is owned by a "you" or a "family member" AND is covered by "underlying insurance" at the time of the "occurrence", the Personal Umbrella Liability Policy will provide coverage. (2) if the "recreational motor vehicle" is not owned by a "you" or a "family member", the Personal Umbrella Liability Policy will provide coverage.

Remember, the "Recreational Motor Vehicle Liability" exclusion only applies to owned "recreational motor vehicles" if there is no "underlying insurance." If the insured's Homeowners Policy provides coverage for the "recreational motor vehicle" involved in the "occurrence" or if the insured has a Recreational Vehicle Policy that provides coverage for the "recreational vehicle" involved in the "occurrence", this exclusion does not apply and the Personal Umbrella Liability Policy would provide coverage. Remember, the "underlying insurance" must provide at least the minimum limits required by the insurance company as stated in the Declarations.

For example, while your client is on vacation he rents a snowmobile or an ATV. Because it is not owned by the insured, this exclusion does not apply and coverage would be provided by the policy.

Tip: There are many different recreational vehicle exclusions found in umbrella/excess policies. Be sure to know the differences in the policies in your agency or company. Pay special attention to any specific exclusion for recreational vehicles.

10. War

This exclusion is common to most liability policies and may also include revolution, insurrection, etc.




11. Using an Auto, Watercraft or Recreational Motor Vehicle Without Reasonable Belief

The Personal Umbrella Liability Policy, like the underlying policies, is not intended to cover the thief. This exclusion does not apply to a "family member" using an "auto," "recreational motor vehicle," or watercraft "you" own.

12. Racing an Auto, Watercraft or Recreational Vehicle

There is no coverage for an "auto", "recreational motor vehicle" or watercraft engaged in any prearranged or organized race or speed contest.

This exclusion is more restrictive for an "auto" than the racing exclusion in the ISO Personal Auto Policy that only applies when the auto is in a racing facility, while this exclusion takes away coverage for pre-arranged street racing.

There is an exception in the exclusion for sailboats or watercraft involved in predicted log cruises.

13. Bodily Injury or Personal Injury To You or a Family Member

There is no coverage for "bodily injury" or "personal injury" to you or a "family member." This is often referred to as an intra-family exclusion.

For example, Darrell is driving his car when he has an at-fault accident. His wife and children are seriously injured. If they were to sue Darrell for their injuries, their Personal Umbrella Liability Policy would not provide coverage. [Note: Some states and jurisdictions allow this type of loss to be covered by a Personal Auto Policy.)

This same exclusion is found in the Homeowners Policy.

14. Communicable Disease, Molestation, Physical/Mental Abuse and Loss by Controlled Substance

This exclusion is found in most personal umbrella/excess policies.

These exposures are also excluded in the Homeowners Policy, only each is typically a separate exclusion rather than all in one.

15. Directors and Officers

"Bodily injury", "personal injury" and "property damage" is excluded if it results from an insured serving on a board. The exception to the exclusion gives back "bodily injury", personal injury" and "property damage" coverage if the board is for a non-profit organization and the insured receives no compensation other than reimbursement of expenses.

Note: The give back does not provide Directors and Officers coverage, only coverage for "bodily injury"/ "personal injury" and "property damage".




16. Property Damage to an Insured's Property

The Personal Umbrella Liability Policy is a third party liability policy and does not cover damage to an insured's property. Damage to an insured's property should be covered by a property policy such as an auto policy. This exclusion is typically found in every umbrella/excess policy.

17. Damage to Property in an Insured's Care, Custody or Control

There is no coverage for property in the care, custody or control of an insured to the extent the insured is obligated by contract. The exception to this exclusion gives back coverage for "property damage" caused by fire, smoke or explosion. This same exclusion is found in the Homeowners Policy.

This exclusion is important to understand, including how it may be different from a similar exclusion in another umbrella/excess policy.

For example, your Insured rents a $20,000 backhoe to use on his premises. The rental agreement he signed holds him responsible for any damage to the backhoe. The insured, unfamiliar with the operation of a backhoe, rolls it into a ditch, causing $10,000 damage. The only coverage available under the Homeowners Policy is $1,000 from the Section II Additional Coverages - Damage to Property of Others. There would not be coverage under this Personal Umbrella Liability Policy because the damage was not caused by fire, smoke or explosion.

There are umbrella/excess policies that may have provided coverage for this loss either because of not having a care, custody or control exclusion or by having a less limiting exclusion.

18. Injury to Anyone Entitled to Workers Compensation Provided by an "Insured"

This excludes "bodily injury" to anyone for whom an insured is required to provide or voluntarily provides Workers Compensation coverage. Workers Compensation is a commercial exposure and is excluded by all umbrella/excess policies.

19. Nuclear

This only excludes "bodily injury" or "property damage" for which an insured is also an insured under a nuclear energy liability policy.

20. Escape of Fuel from a Fuel System

This is an exclusion that takes away coverage for pollution claims arising from the escape of fuel from a "fuel system". The definition of "fuel system" was discussed earlier in this course. Pollution exclusions are


found in most umbrella/excess policies.



21. Bodily Injury or Personal Injury Caused by the Absorption or Ingestion or Inhalation of Lead

Claims for injury caused by exposure to lead are fairly common in some parts of the U.S., where the buildings are older and lead pipes are used in the plumbing systems.

22. Personal Injury or Property Damage Caused by Lead Contamination

This exclusion is here for the same reason as the preceding exclusion.

23. Assessments

Coverage does not apply to any assessment charges against you as a member of an association, corporation, or community of property owners.

Commentary

With the Assessment exclusion in the Personal Umbrella Liability Policy, it is important to identify clients with a Loss Assessment exposure and provide them with the needed coverage on their Homeowners Policy. While the Homeowners Policy may only provide $1,000 of automatic coverage, there is an endorsement that can be used to provide up to $50,000 loss assessment coverage.

The loss assessment exposure is for more than the condominium unit owner. There are many people who own homes located in an area governed by a homeowners association. If so, they have a loss assessment exposure that subjects them to more than the $1,000 automatic coverage typically provided by a Homeowners Policy.

24. Automobile No Fault or Personal Injury Protection

No fault coverages, such as Personal Injury Protection are not liability exposures and are not covered by the Personal Umbrella Liability Policy.

25. Uninsured/Underinsured Motorists Coverage

The ISO Personal Umbrella Liability Policy excludes both Uninsured Motorist and Underinsured Motorists Coverage unless the policy has been endorsed to provide this coverage.

Not all insurance companies make this important coverage available on an umbrella/excess policy. Others


make it available, but for a sub-limit which is lower than the policy's limit of coverage. Some states or jurisdictions may require insurance companies to offer this coverage on their umbrella/excess policies.

It is important for you to understand how the policies available in your agency or company differ with regard to this coverage. Uninsured and Underinsured Motorists Coverage is important to many clients who may want to have protection not only on their Personal Auto Policy, but also on their umbrella/excess policy.

Tip: If a client wants UM/UIM coverage on the umbrella/excess policy and it is not available, recommend increasing the underlying limits on the Personal Auto Policy. This would enable the client to purchase higher UM/UIM limits on the underlying policy.



Let's review the 25 exclusions found in the ISO Personal Umbrella Policy one more time.

1. Expected or Intended 2. Personal Injury 3. Business 4. Public or Livery Conveyance 5. Professional Services 6. Aircraft Liability 7. Hovercraft Liability 8. Watercraft Liability 9. Recreational Motor Vehicle Liability 10. War 11. Using an Auto, Watercraft or Recreational Motor Vehicle Without a Reasonable Belief of Permission 12. Racing an Auto, Watercraft or Recreational Vehicle 13. Bodily Injury or Personal Injury To You or a Family Member 14. Communicable Disease, Molestation, Physical/Mental Abuse And Loss by Controlled Substance 15. Directors and Officers 16. Property Damage to the Insured's Property 17. Damage to Property in the Insured's Care, Custody or Control 18. Injury to Anyone Entitled to Workers Compensation Provided by an Insured 19. Nuclear 20. Escape of Fuel from a Fuel System 21. Bodily Injury or Personal Injury Caused by the Absorption or Ingestion of Lead 22. Personal Injury or Property Damage Caused by Lead Contamination 23. Assessments


24. Automobile No Fault or Personal Injury Protection 25. Uninsured/Underinsured Motorists Coverage


IMPORTANT

Optional endorsements to the Personal Umbrella Liability Policy are not discussed in this course. There are endorsements that provide coverage for an otherwise excluded exposure. Other endorsements, however, may limit the policy further by excluding an exposure that is otherwise covered. It is always important to know which endorsements are available from the insurance companies with which you place umbrella/excess coverage and which endorsements they may automatically include.


Lesson 4 Topic F - Maintenance of Underlying Insurance, Duties After a Loss and General Provisions

Lesson 4 Topic F Umbrella: Provisions p1 (PM)

Learning Objective: Recognize the provisions unique or especially important to Umbrella/Excess Liability Policies and understand the similarities and differences between policy forms.

Many of the provisions in the Personal Umbrella Liability Policy are typically found in most umbrella/excess policies. In this topic we discuss the provisions that are unique to, or especially important to the Personal Umbrella Liability Policy. These provisions are found starting in the right column on page 6 of the ISO Personal Umbrella Liability Policy and include:

• Maintenance of underlying insurance • Duties after loss • Appeals • Bankruptcy of an underlying insurer • Policy period and territory



Maintenance of Underlying Insurance, Duties After a Loss and General Provisions continued

Maintenance of Underlying Insurance

Notice how the language supports our discussion of the umbrella policy concept covered earlier in this lesson.

The two important parts of this provision are:

1. The "you" is required to maintain the underlying policies, and 2. If the "you" does not maintain the underlying policies, at the time of a loss, the Personal Umbrella

Liability Policy will act as if the underlying policies were in place.

Duties After Loss

As in all policies the insured is responsible for reporting losses and cooperating with the company. If the "insured" does not comply with this condition the company has no duty to provide coverage.


Appeals

This provision is unique to umbrella/excess policies. In the Personal Umbrella Liability Policy, the insurance company has the right to appeal a judgment that exceeds the underlying policy's limit of liability if the underlying insurance company chooses not to appeal, giving it control of a claim that exceeds the limit of the underlying policy.

For example, the courts awarded $1.3 million to the injured driver. The Personal Auto Policy had limits of $500,000 and the auto insurance company decides it is better just to pay the $500,000 than spend more time and money appealing the decision. This leaves $800,000 potentially payable under the Personal Umbrella Liability Policy. The addition of this provision gives the Personal Umbrella Liability Policy insurance company the right to step in and appeal the $1.3 judgment.

Bankruptcy of an Underlying Insurer

Bankruptcy - Keeps the Personal Umbrella Liability Policy from becoming primary insurance in the event of the bankruptcy of the insurance company providing the underlying coverage.

For example, after Karen had a serious at-fault accident, her Personal Auto insurance company declared bankruptcy and does not have the money to pay the $500,000 policy limits. Karen's Personal Umbrella Liability Policy will not drop down to provide primary coverage. It will continue to provide coverage as if the "underlying insurance" was valid and collectible.

Policy Period and Territory

Coverage is provided for losses that occur during the policy period that is shown in the Declarations.

The Territory of the ISO Personal Umbrella Liability Policy is worldwide. This is the same Territory as in the Homeowners Policy. It is broader than the Territory in the Personal Auto Policy.

Other umbrella/excess policies may not provide worldwide coverage. Others may provide worldwide coverage, but only if the required underlying limits apply to the loss. For example, if a client has an auto accident in Europe, the ISO Personal Auto Policy would not provide coverage. Depending on the language of the umbrella/excess policy, the insured may have coverage but only for the amount that exceeds the underlying requirement.



The ISO Personal Umbrella Liability Policy has been used as the basis of this course. However, as has been mentioned several times, the umbrella/excess policy is a non-standard policy. It is possible that some of the


definitions and exclusions in the ISO policy will differ from the policies you have in your agency or company.

Because of this, it is very important for you to know the coverage differences so that you can place coverage in the best interest of the client. What are the exposures of a particular client and which umbrella/excess policy best provides protection for those exposures?


The following are some of the more important areas to compare:

1. Is it an umbrella policy providing higher limits and broader coverage or an excess policy that provides higher limits only. Or is it a hybrid?

2. Does the underlying insurance have to be placed with the same insurance company providing the umbrella/excess coverage?

3. What are the underlying limits required? 4. What is the Self Insured Retention (or Deductible)? 5. Is Defense in addition to the Limit of Liability or included in the Limit of Liability? 6. What is the Territory? 7. Who is an insured - is there coverage for the person driving the insured's owned auto? 8. Is Loss Assessment covered? 9. Is Personal Injury covered? 10. Is UM/UIM covered or available? 11. What coverage is provided for non-owned recreational vehicles and watercraft? 12. Is there an exception for the business exclusion, giving back coverage for the part-time business

pursuits of an insured who is a minor?

We encourage you to obtain sample policies and begin the comparison!

Please refer to the end of Lesson 4 Topic F to complete Self Quiz 7 at this time.


Course Summary of Personal Lines Miscellaneous

Course Summary p1 (PM)

ISO policies were used as the basis for coverage in this course. Since there are coverage differences among insurance carriers with regard to the toy coverage, it is important for insurance professionals to be familiar with the policies they sell. Knowing the coverage provided, limited or excluded is necessary. An insurance professional is supposed to place coverage on the best terms available, which requires them to know the policies they sell. Toys, whether owned, rented or borrowed, create both property and liability exposures. The key to properly counseling your clients is the identification of the exposure. While there are several tools and methods that an insurance professional can use during the identification process, the most useful ones are asking the right questions and an activity analysis. It is only after you identify the existence of toys that you can offer recommendations for controlling and financing the exposures they create.


Course Summary of Personal Lines - Miscellaneous continued

Lesson 1

1. Understand the coverage provided by the unendorsed ISO Homeowners 3 - Special Form for damage to owned, rented or borrowed watercraft.

2. Define watercraft liability. 3. Recognize the provisions of the Watercraft Liability Exclusion under the ISO Homeowners 3

Special Form. 4. Understand the coverage provided by the unendorsed ISO Homeowners 3 – Special Form for

liability exposures due to owned, rented or borrowed watercraft. 5. Describe the coverage provided by the HO 24 75 Watercraft Endorsement. 6. Apply the coverage provided by the ISO Personal Auto Policy for a trailer used with watercraft.



Lesson 2

1. Understand the property coverage provided and not provided by the unendorsed ISO Homeowners 3 Special Form for damage to owned, rented or borrowed recreational vehicles.


2. Describe the coverage provided by the HO 05 38 Owned Motorized Golf Cart Physical Loss Coverage endorsement.

3. Understand the Homeowners Policy definition of “Motor Vehicle Liability”. 4. Explain the impact of the “Motor Vehicle Liability” Exclusion under the ISO Homeowners 3

Special Form with regard to recreational vehicles. 5. Understand the liability coverage provided by the unendorsed ISO Homeowners 3 Special Form

for specified types of owned, rented or borrowed recreational vehicles. 6. Describe the coverage available under the HO 24 64 Owned Snowmobile endorsement to the

Homeowners Policy. 7. Describe the coverage available under the HO 24 13 Incidental Low Power Recreational Motor

Vehicle Liability Coverage Endorsement to the Homeowners Policy. 8. Understand why a recreational vehicle loss is unlikely to be covered by the unendorsed ISO

Personal Auto Policy. 9. Describe the coverage available under the following endorsements to the Personal Auto Policy:

o PP 03 20 Snowmobile Endorsement o PP 03 23 Miscellaneous Type Vehicle Endorsement



Lesson 3

1. Determine if a described activity is a “business” as defined in the Homeowners Policy. 2. Determine if there is an exclusion or limitation in the Homeowners Policy for an Other Structure

used for “business”. 3. Determine if there is an appropriate endorsement to the Homeowners Policy to provide

coverage for an Other Structure that is excluded because of a "business" exposure. 4. Determine if there is an exclusion or limitation in the Homeowners Policy for personal property

used for “business”. 5. Determine if there is an appropriate endorsement to the Homeowners Policy to provide

coverage for personal property that is otherwise limited because of a specific "business" activity.

6. Determine if a “business” activity is excluded in Section II Liability Coverages of the Homeowners Policy.

7. Determine if there is an appropriate endorsement to the Homeowners Policy to provide liability coverage for a specific "business" activity.

8. Determine whether or not a given person or organization is an insured for Liability Coverage in the Personal Auto Policy.

9. Determine if a “business” is an insured for liability in the Personal Auto Policy. 10. Determine whether or not "business" use of an auto is covered by the Personal Auto Policy.




Lesson 4

1. Explain the reasons Personal Umbrella/Excess Liability coverage should be recommended to clients.

2. Explain how a Personal Umbrella, an Excess Liability and a Hybrid Umbrella/Excess policy differ from one another.

3. Explain how an ISO Personal Umbrella Liability Policy provides protection in conjunction with the client's other Personal Lines Policies.

4. Explain how coverage under the ISO Personal Umbrella Liability Policy is affected if the required underlying insurance is not in force at the time of a loss.

5. Explain the operation of the Self Insured Retention (or Deductible) and apply it to specific losses.

6. Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage.

7. Understand the defense coverage included in the Personal Umbrella Policy and explain when and how it is provided.

8. Calculate the payment that would be made by an ISO Personal Umbrella Liability Policy for specific claims.

9. Determine whether or not a given claim is covered by the ISO Personal Umbrella Liability Policy. 10. Recognize the provisions unique or especially important to Umbrella/Excess Liability Policies

and understand the similarities and differences between policy forms.

lesson 4 personal umbrella/excess liability...

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