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Insurance problems and cures

When you’re sued…

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If you are sued, and the insurance company defends you, but the claim is later proven false, do you owe the defense costs back to the insurance company?  (Almost certainly not, but check with GBW Insurance.)

Does your “umbrella” liability policy match the coverage of the policies under it?  (Very often, no.)

What happens if your “umbrella” liability policy does not match or exceed the underlying policies?  (Nothing good.)

Does the coverage under these excess liability or umbrella liability policies change over time?  Yes.

Have questions?  Call us at 1-800-548-2329, or check our web site

For more information here, our thanks to the Professional Insurance Agents ( for the following:

Umbrella policies have the distinction of being unique, just like snowflakes. Although the Insurance Services Office Inc. and the American Association of Insurance Services Inc. have recently introduced standard personal and commercial umbrella policies, most insurers are still using their individually filed policies. Close examination of each insurer’s policy will reveal many variations in coverage provisions. Consequently, the single most important fact to recognize about umbrella policies is that each one must be studied for content and employed on its individual merits.

What’s in a name?
The word umbrella suggests that protection moves around wherever the insured goes. Presumably, the one holding the umbrella would be in complete control of its effectiveness in shielding against harm. While such use of the word umbrella creates a familiar image for marketing purposes, it lacks something when applied to the real world of protection.

The cartoon
I have my own vision of umbrella policies from an agent’s perspective that tracks more accurately with reality. I got it from Saturday morning TV cartoons. A person (insured) is standing on the ledge of a high-rise building window screaming, “Help!” to all below on the street as tongues of fire lap at his ears. Meanwhile, firemen (insurance agents) below are scurrying around with an outstretched sheet (insurance policy) in an attempt to catch the falling victim (insured) before he hits the ground. The comedic effect in the cartoon is derived from the firemen’s uncertainty about where to position themselves in order to catch the victim in the sheet.

The reality
If an agent has not closely examined the umbrella policy he sells, he has no idea how large the sheet is with which he intends to catch the insured (in cartoon terms). For the insurance agent, the reality is no laughing matter. Further, with the complexity of modern life and ever-expanding legal culpability, it has become very difficult to predict exactly where the need for coverage might fall.

The average insured lacks the knowledge required to know the effectiveness of an umbrella under varied situations. Thus, agents are being called upon to not only provide an umbrella but to accompany the insured wherever he goes to make sure that it is in place to provide the necessary protection.

There is a limit to the protection an agent can provide. Usually, it will be defined by the repertoire of policies available for the agent to sell. But an agent’s services have not truly been adequately performed


until all readily ascertainable exposures have been matched with coverage; or, at the very least, identified not to be covered.

Excess vs. umbrella
I like to refer to an umbrella policy as the “Oh my gosh!” coverage. Oh my gosh, the claim is so big that it exceeds the limits of the primary policy; or as can easily happen with commercial risks, the primary limits have been used up and are no longer available. This aspect of umbrella coverage is really what we call excess coverage. It is the additional stacking of limits using identical coverages to those provided by a policy designated as primary.

An umbrella policy includes excess coverage but goes another step further by covering some drop-down exposures. Now it’s, Oh my gosh, the claim is so unusual that it’s not covered by the primary policies and this drop-down coverage picks it up.

The trend of most insurers, though, has been to move umbrella coverage in the direction of excess coverage. In fact, many insurers are offering only the equivalent of excess coverage under the semblance of umbrella coverage, especially when it comes to personal umbrella policies. What were once thought to be incidental coverages have now become substantial exposures to insurers because of the modern social and legal environment. The transmission of the AIDS virus, for example, threatens tremendous financial consequences. Rather than building these new exposures into the rate, most insurers are choosing to exclude them.

The jargon
You may have noticed that many specialized policies have their own particular language. Umbrellas are no exception. Let us take a look at some of the common terms encountered when writing umbrella policies.

Follow form. An excess policy is said to follow form when it provides the same terms of coverage as that provided in the primary policy.

Underlying policy. This is the primary coverage required to be in force for certain designated exposures, according to the terms of the maintenance of underlying insurance provision. Limits are specified for each type of underlying policy. Coverage must be maintained in those amounts because an umbrella claim will be treated as though they are available to the insured, whether actually available or not.

Self-insured retention (SIR). By resembling a deductible, a SIR represents the amount of loss that is retained by the insured before coverage under the umbrella is triggered. It specifically applies to coverages not requiring an underlying policy; that is, the drop-down coverage.

A SIR can differ from the usual deductible in that it does not offset the limit. The umbrella limit is stacked upon the amount of the SIR, just as it is stacked upon the underlying policy limit. Another difference from the deductible is the fact that the insurer has no obligation to respond to a claim until the insured has incurred expenses for the amount of the SIR. However, even these characteristics can vary among policies.

Retained limit. This is an amount defined as the greater of the underlying limits required and the total limits available under the primary policies; or the SIR, if applicable.

Ultimate net loss. The insuring agreement promises to pay the ultimate net loss in excess of the retained limit. This is the amount payable under the terms of the policy after deductions for all recoveries and salvage. If defense costs are paid outside (in addition to) the limits, then the definition of ultimate net loss in the policy will exclude them. But if the defense costs are paid inside (an offset of) the limits, then the definition will include them.

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