With few exceptions, the advisors I have spoken with believe that as long as their clients have an umbrella policy, they’re in pretty good shape relative to their property and casualty insurance. They’ll ask, “That’s right, isn’t it?” Well, it is true that having an umbrella policy in place is better than having no umbrella policy at all. But, simply having an umbrella policy should not be the end of the P&C conversation between an advisor and their clients. It is important to understand that there are significant differences between these insurance policies.
Umbrella policies vary not only from insurance company to insurance company, but different policies can exist at the same insurance carrier and at its subsidiaries. Insurance organizations such as the Insurance Service Office (ISO) and the American Association of Insurance Services (AAIS) develop umbrella policy forms, but individual insurance companies are free to use all, some or none of the policy language contained in them. The result is that there is no universal umbrella policy.
You may believe that if an insurer provides an umbrella policy for your client, they will always be protected by additional coverages. After all, it’s called umbrella protection. But you would be wrong. The word umbrella today is often a misnomer, and people often use it incorrectly without intending to. While true umbrella policies were fairly common years ago, this is no longer the case.
Today, there are three different types of umbrella policies: “true” umbrella policies, “following form” excess liability policies and “hybrid” umbrella policies.
True umbrella policies provide not only excess coverage over underlying primary policies, but can also provide additional protection that is not included in underlying insurance policies. For instance, relative to homeowner’s personal liability or automobile liability policies. True umbrella policies are generally stand-alone policies that contain their own definitions, coverage language, exclusions and limitations.
One example of true umbrella coverage is where “personal injury” is not included in the primary homeowners policy. Don’t confuse personal liability, which is universally contained in homeowners’ policies, with personal injury, which is seldom included in such policies. Personal injury is commonly defined as injury arising out of one or more of the following offenses:
• False arrest, detention or imprisonment;
• Malicious prosecution;
• Wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor;
• Oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products; or
• An oral or written publication of material that violates a person’s right of privacy.