What Lawyers Should Know About Personal Umbrella Insurance
by James R. Harding
(County Bar Update, February 2003, Vol. 23, No. 2)

What Lawyers Should Know About Personal Umbrella Insurance

By James R. Harding, CPCU, CLU, CPA, Aon Insurance Services

In today’s litigious climate, personal umbrella liability insurance is quickly becoming a must-have for any professional. However, you may be surprised to learn there are thousands of attorneys who are well aware of the risks faced each day but do not carry any, or enough, coverage of this type.

The Need for Personal Umbrella

The majority of claims filed under umbrella policies are auto-related, and since virtually all of us drive, the need for an umbrella policy is fairly obvious. However, there may be many other risks and situations that can apply. Take a moment to review the “Risk Checklist” at the end of this article, and determine which, if any, of these situations may exist for you.

If you checked at least one, an umbrella policy should be seriously considered. If you checked more than one, thereby entailing more exposure to risk, this coverage should be viewed as “mandatory.”

The need for this coverage becomes apparent when you stop to consider your everyday activities and the risks you face. But you also need to be aware of what a personal umbrella policy offers, covers, and excludes. The knowledge of the coverage features, which can be hidden in the policy text or may arise as an exception to an exclusion in the policy, can be invaluable in making sure you are adequately covering your own exposures.

Know Some of the Fine Points and Definitions

Personal Injury. Personal injury exposure such as false arrest, libel, slander, and malicious prosecution is different from bodily injury and property damage, and are defined separately in liability policies. Certain homeowners coverage may only provide coverage for personal injury with the purchase of a separate endorsement for an additional premium charge. Personal injury coverage may not be automatic in the homeowners and the umbrella policy. To avoid having a gap in coverage or even worse -- no coverage -- you should ensure that personal injury protection is fully provided in both the homeowners and umbrella coverage. Be very careful on this point as some umbrella policies may be “follow form”, which means that if the occurrence is not covered in the homeowners coverage, then there is no coverage provided by the umbrella.

Defense Coverage. In addition to the limit of provided coverage, the insurance company will provide at its own expense the counsel of its choice to defend an insured. The umbrella insurer may also join with a primary insurer providing underlying insurance in the investigation, defense, or settlement of any claim or suit. This provision enables the umbrella insurer to get involved early in any claim where there is a chance that the claim may escalate above the primary limits. This can provide additional legal support for an insured on a claim that may not reach into the umbrella limit. In addition to the limit of liability, the insurer will pay bond premiums, court costs, interest occurring between the judgment and payment date, reasonable expenses, and some amount for the loss of earnings on behalf of the insured.

Directors & Officers Liability. Personal umbrellas have an exclusion for Directors & Officers (D&O) liability. The policy is personal, and D&O exposures for financial type claims, including breach of fiduciary responsibility, are not covered. When you read the D&O exclusion in an umbrella policy, there is usually an exception to the exclusion where coverage is provided when an insured sits on a board or is an officer of a not-for-profit organization and does not receive any compensation. Coverage is available; however, it is limited to bodily injury, property damage, and personal injury as defined in the policy. The types of claims usually emerging from the D&O risk are financial type claims that would not be covered. The personal umbrella is not the complete solution for this risk. If you are going to be on a board or are an officer of a not-for-profit as a volunteer, it is important to make sure the entity has real Directors & Officers liability coverage and that you are personally covered.

Contract of Adhesion. When a question arises between an insured and the company whether coverage applies, remember that a personal umbrella contract is a “Contract of Adhesion”. This means it is usually considered a one-sided contract, favoring the party who drafted the document. Since it is prepared by the insurance company and accepted by the insured without any negotiation of the terms, any ambiguity will be construed in favor of the insured, and any exclusion from coverage must be clearly and conspicuously stated for it to have effect. However, it is better by far not to even get to this point, especially if a claim situation has arisen. It is always prudent to continually evaluate who, where, and what is covered as your risk profile changes. The definition of “who is insured”, especially with family members, can be significant with youthful automobile operators living at home or away at school.

Uninsured Motorists Coverage. Uninsured Motorists Coverage (UMC) is provided with primary auto insurance. This coverage is first-party protection providing coverage to the insured in the event of bodily injury from an automobile accident with someone who has no, or inadequate, liability insurance. Although the primary intent of the personal umbrella is to provide you with third-party liability protection, in certain states an offer must be made to an insured providing the option of purchasing a UMC limit at least equal to the umbrella limit. This option may be of value depending upon where a person drives and also taking into consideration any other coverage such as auto, medical, and disability that apply.

Estate Settlements. During the insured’s lifetime, the policy cannot be assigned or transferred by the insured without the consent of the insurance company. However, at the death of an insured, a surviving spouse or other family members can request that the coverage be continued under their name. If the insurer does not permit the assignment, it will usually issue a new policy. This is an important focus to ensure that coverage continues. Upon death of an insured, the policy covers the deceased’s legal representative, such as an executor or administrator. The liability coverage that would have applied to the insured is extended to cover the legal representative acting on behalf of the insured. However, any actions of the legal representative unrelated to the insured’s personal affairs are not covered.

Personal Umbrella Liability Insurance

In closing, keep in mind these points:
1.  There is no maximum mandatory limit for most liability losses;
2.  Personal income and assets may be attached to satisfy judgments;
3. Legal defense costs can be substantial.
These are just three of the many important reasons personal umbrella coverage should be considered essential.

Umbrella policies are usually purchased from either the primary auto or homeowner insurance provider. This coverage, unlike other lines of personal insurance, is not actively sold or required by law. Additionally, most companies will only write the policy if the insured has one of the primary coverages. “Stand-Alone” umbrellas, which are issued by an insurer who has none of the primary coverages of the insured, are more difficult to obtain but should be considered for unique risks (or when the needs for higher limits make sense). With the start of a new year, today might be a good time to reevaluate your existing coverage, making certain that you have the right coverage to protect you, your income, and your assets.


Can You Pass the Risk Checklist?

Do you...
-- Own a home or a condo?
-- Have a teenage or young adult driver in your house?
-- Have a babysitter or cleaning people working in your home?
-- Frequently drive with other adults or children in your car?
-- Own a pet?
-- Have use of a boat?
-- Own a swimming pool?

If you are a professional with assets and future earning potential, do you...
-- And your spouse work outside the home? (subject to a personal injury suit from a fellow employee)
-- Conduct business in your home? (subject to premise liability)
-- Own rental housing property?


This article is intended to inform the reader of potential liability exposures for attorneys. This article reflects general principles only and does not render legal advice. Readers should consult legal, financial, insurance, and other advisors if they have specific concerns. Neither the Los Angeles County Bar Association nor Aon and its affiliates assumes any responsibility for how the information in this article is applied in practice or for the accuracy and completeness of the information. Reproduction without written permission is prohibited. This article is made available to the County Bar Update by Aon Direct Insurance Administrators, administrators of the Aon Attorneys’ Advantage Program, part of the LACBA Sponsored Aon Insurance Solutions Program available to LACBA members. The Aon Insurance Solutions Program provides a variety of business and personal insurance product solutions to LACBA members. Aon now provides a “stand-alone” personal umbrella with up to $5 million of protection exclusively for LACBA members. This coverage is also available as an excess policy over any existing personal umbrella you may already have. Protection from personal injury claims is included with the option of purchasing uninsured motorists coverage. Visit www.aonsolutions.com/pu or call 1-800-634-0177.

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