Lesson 4 Personal Umbrella/Excess Liability Policy

Transcription

1 Lesson 4 Personal Umbrella Intro p1 (PM) Lesson 4 Personal Umbrella/Excess Liability Policy 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. Personal Lines - Miscellaneous Course Print

2 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 Personal Lines - Miscellaneous Course Print

3 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. Lesson 4 Topic A - Personal Umbrella/Excess Concepts p2 (PM) 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. Personal Lines - Miscellaneous Course Print

4 Lesson 4 Topic A - Personal Umbrella/Excess Concepts p3 (PM) 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 Lesson 4 Topic A - Personal Umbrella/Excess Concepts p4 (PM) Learning Objective: Explain how a Personal Umbrella, an Excess Liability and a Hybrid Umbrella/Excess policy differ from one another. 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. Personal Lines - Miscellaneous Course Print

5 Lesson 4 Topic A - Personal Umbrella/Excess Concepts p5 (PM) Learning Objective: Explain how a Personal Umbrella, an Excess Liability and a Hybrid Umbrella/Excess policy differ from one another. 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. Lesson 4 Topic A - Personal Umbrella/Excess Concepts p6 (PM) Learning Objective: Explain how a Personal Umbrella, an Excess Liability and a Hybrid Umbrella/Excess policy differ from one another. 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. Personal Lines - Miscellaneous Course Print

6 Lesson 4 Topic A - Personal Umbrella/Excess Concepts p7 (PM) Learning Objective: Explain how a Personal Umbrella, an Excess Liability and a Hybrid Umbrella/Excess policy 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. Personal Lines - Miscellaneous Course Print

7 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. Lesson 4 Topic A - Personal Umbrella/Excess Concepts p8 (PM) Learning Objective: Explain how a Personal Umbrella, an Excess Liability and a Hybrid Umbrella/Excess policy differ from one another. "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. Personal Lines - Miscellaneous Course Print

8 We will now illustrate the differences among these three types of Personal Umbrella/Excess Policies. Lesson 4 Topic A - Personal Umbrella/Excess Concepts p9 (PM) Learning Objective: Explain how a Personal Umbrella, an Excess Liability and a Hybrid Umbrella/Excess policy differ from one another. 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. Personal Lines - Miscellaneous Course Print

9 Lesson 4 Topic A - Personal Umbrella/Excess Concepts p10 (PM) Learning Objective: Explain how a Personal Umbrella, an Excess Liability and a Hybrid Umbrella/Excess policy differ from one another. 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. Lesson 4 Topic A - Personal Umbrella/Excess Concepts p11 (PM) Learning Objective: Explain how a Personal Umbrella, an Excess Liability and a Hybrid Umbrella/Excess policy differ from one another. 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). Personal Lines - Miscellaneous Course Print

10 Lesson 4 Topic A - Personal Umbrella/Excess Concepts p12 (PM) Learning Objective: Explain how a Personal Umbrella, an Excess Liability and a Hybrid Umbrella/Excess policy differ from one another. "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. Lesson 4 Topic A - Personal Umbrella/Excess Concepts p13 (PM) Learning Objective: Explain how a Personal Umbrella, an Excess Liability and a Hybrid Umbrella/Excess policy differ from one another. "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 Personal Lines - Miscellaneous Course Print

11 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. Lesson 4 Topic A - Personal Umbrella/Excess Concepts p15 (PM) 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. Personal Lines - Miscellaneous Course Print

12 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. Lesson 4 Topic B - Characteristics of Umbrella Policies p2 (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 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. Personal Lines - Miscellaneous Course Print

13 Lesson 4 Topic B - Characteristics of Umbrella Policies p3 (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 continued 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. Lesson 4 Topic B - Characteristics of Umbrella Policies p4 (PM) 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 Personal Lines - Miscellaneous Course Print

14 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 Lesson 4 Topic B - Characteristics of Umbrella Policies p5 (PM) 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 Lesson 4 Topic B - Characteristics of Umbrella Policies p6 (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 continued Example of Minimum Underlying Coverages: Automobile Liability $250,000/500,000/100,000 or $300,000 Combined Single Limit Personal Liability $300,000 Personal Lines - Miscellaneous Course Print

15 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. Lesson 4 Topic B - Characteristics of Umbrella Policies p7 (PM) 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. Personal Lines - Miscellaneous Course Print

16 Lesson 4 Topic B - Characteristics of Umbrella Policies p8 (PM) 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. 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 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. This is how it works: Bodily Injury Claim $ 400,000 Less the amount of the required underlying -($300,000) Homeowners Liability limit. Jerry and Susan are financially responsible for the $300,000 because they failed to maintain the required "underlying insurance". The amount above the required Homeowners Liability limit will be paid by the Personal Umbrella Liability Policy. $ 100,000 Lesson 4 Topic B - Characteristics of Umbrella Policies p9 (PM) 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. Personal Lines - Miscellaneous Course Print

17 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. 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 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 $ 300,000 Personal Umbrella Liability Policy Lesson 4 Topic B - Characteristics of Umbrella Policies p10 (PM) 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 Personal Lines - Miscellaneous Course Print

18 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. Lesson 4 Topic B - Characteristics of Umbrella Policies p11 (PM) 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. Personal Lines - Miscellaneous Course Print

19 Lesson 4 Topic B - Characteristics of Umbrella Policies p12 (PM) 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. Lesson 4 Topic B - Characteristics of Umbrella Policies p13 (PM) 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 Lines - Miscellaneous Course Print

20 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 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. This is how it works: 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. Personal Lines - Miscellaneous Course Print

21 Lesson 4 Topic C Umbrella: Definitions p1 (PM) Lesson 4 Topic C Definitions 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 Lesson 4 Topic C Umbrella: Definitions p2 (PM) Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage. 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. Personal Lines - Miscellaneous Course Print

22 Lesson 4 Topic C Umbrella: Definitions p3 (PM) Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage. 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". Personal Lines - Miscellaneous Course Print

23 Lesson 4 Topic C Umbrella: Definitions p4 (PM) Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage. 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. Lesson 4 Topic C Umbrella: Definitions p5 (PM) Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage. 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 Personal Lines - Miscellaneous Course Print

24 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. Lesson 4 Topic C Umbrella: Definitions p6 (PM) Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage. 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. Lesson 4 Topic C Umbrella: Definitions p7 (PM) Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage. 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, Personal Lines - Miscellaneous Course Print

25 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. Lesson 4 Topic C Umbrella: Definitions p8 (PM) Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage. 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. Lesson 4 Topic C Umbrella: Definitions p9 (PM) Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage. 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 Personal Lines - Miscellaneous Course Print

26 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 Lesson 4 Topic C Umbrella: Definitions p10 (PM) Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage. 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. Personal Lines - Miscellaneous Course Print

27 Please refer to Lesson 4 Topic C Umbrella: Definitions p11 (PM) to complete the Knowledge Check at this time. Lesson 4 Topic C Umbrella: Definitions p12 (PM) Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage. 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. Lesson 4 Topic C Umbrella: Definitions p13 (PM) Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage. 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 Personal Lines - Miscellaneous Course Print

28 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. Lesson 4 Topic C Umbrella: Definitions p14 (PM) Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage. 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. Lesson 4 Topic C Umbrella: Definitions p15 (PM) Learning Objective: Recognize the defined terms found in a Personal Umbrella/Excess Liability Policy and understand their meanings for determining coverage. Insured continued We will look at each of the five parts to this definition. 1. You Personal Lines - Miscellaneous Course Print