America's wealthiest families increasingly worry that their wealth makes them a prime target for a high-stakes liability lawsuit in the current unstable period of high unemployment and weak economic growth, according to an ACE Private Risk Services survey released Monday.
But despite their concern, those same wealthy families are poorly prepared for such lawsuits and fail to recognize that their lifestyle can lead to a lawsuit. They underestimate the cost of the potential damages, and they misunderstand the affordability of effective protection. As a result, the survey contends that wealthy families often lack the proper types and amounts of liability insurance.
The survey, "Targeting the Rich: Liability Lawsuits and the Threat to Families with Emerging and Established Wealth," polled individuals from households with more than $5 million of investable assets about their perceptions and behavior regarding the threat of personal liability lawsuits.
"Wealthy families feel increasingly targeted, especially given the national discourse over disparities in wealth, income, and taxation," said Bob Courtemanche, division president of ACE Private Risk Services, the high net worth personal insurance business of the ACE Group.
Based on the study, more than two-thirds of the respondents surveyed think public perceptions of the wealthy have grown more negative since 2008. "Almost 40 percent believe they are more likely to be sued in the aftermath of the economic crisis, compared to only 7 percent who say they are less likely to be sued," Courtemanche said. "And more than 80 percent agree their wealth alone makes them an attractive target for liability lawsuits."
Jim Hageman, senior vice president of claims for global personal and small commercial insurance for ACE, said many of those families underestimated the risk. "Half of the people we surveyed thought the worst-case lawsuit would be less than $5 million," he said. "But our experience is that awards for lawsuits involving serious injury can equal many times that amount."
Because wealthy families tend to underestimate their potential liability from a car accident or other incident, they often lack sufficient liability insurance, according to the study. More than 40 percent of survey respondents reported carrying less than $5 million in umbrella liability insurance, including 21 percent who have none.
According to Ace executives, umbrella liability insurance is a critical part of a personal insurance program because the liability coverage in automobile and homeowner policies rarely exceeds $500,000. An umbrella policy provides additional coverage on top of those policies. Insurance companies specializing in insuring high net worth families usually offer coverage ranging from $1 million up to $100 million, and the cost can be offset by increasing the deductible amounts in the underlying homeowner and auto policies.
Other survey highlights include:
More than half of respondents employ domestic staff such as a nanny, and many do not have employment practices liability insurance to protect themselves if a disgruntled employee decides to sue for discrimination, sexual harassment, wrongful termination, or other wrongful employment practice.
More than 60 percent of respondents serve or have served as a volunteer board member or trustee of a charitable organization. Among this group, 35 percent do not have their own directors & officers insurance to supplement the insurance provided by the organization, which can often be minimal.
Wealthy families correctly perceive auto accidents as the most serious liability threat, but they underestimate the risks posed by dog bites and libel, slander, or character defamation resulting from participation in social media platforms.
The study was commissioned by ACE Private Risk Services and conducted by the market research group of FTI Consulting, using its proprietary Affluent Dynamics online marketing research panel of wealthy individuals. The online survey was sent to 936 members of the panel and 168 completed responses were received, representing an 18 percent response rate. Survey participants were limited to those panel members who held a minimum of $5 million in investable assets (total assets excluding value of a primary residence).