Personal Excess Liability: Is Your Risk Management Plan Missing This Keystone?
Updated: Feb 22
Litigation is one of the most common causes of personal bankruptcy. The threat posed by a multimillion-dollar legal action is real, and it’s among the biggest risk to financial health. Personal excess liability is not limited to the rich and famous. It is the keystone of any comprehensive personal risk management plan.
Despite a steep drop in automobile claims due to COVID-19 stay at home restrictions, the National Safety Council in the U.S. reports a 37% increase in auto accident fatalities.1 Experts attribute the skyrocketing increase in automobile deaths to a rapid rise of speeding as a result of fewer drivers on the road. While many insurance companies have provided pandemic related auto insurance premium credits to clients, the rise in fatal losses is a stark reminder of the potential financial liability when operating or occupying a vehicle.
Since primary liability coverage provides limited protection for your assets, it’s best to secure higher amounts of liability protection with personal excess liability. It’s also more affordable: Generally, a million-dollar personal excess liability policy costs an additional $150 to $300 per year, according to the Insurance Information Institute.2
Personal excess liability insurance provides financial protection against major claims and lawsuits, above the limits of primary policies such as homeowners or auto insurance. Offering broad coverage and higher limits, the excess liability policy sits over existing primary policies and pays out when the required primary limits are exhausted.
Deeper Pockets, Frequent Targets
Successful individuals often find themselves on the receiving end of high-stakes lawsuits because they are perceived by injured parties and juries as having so-called deep pockets.
These lawsuits can be triggered by any number of incidents, including auto accidents, residential slip and falls, a domestic employee’s actions, dog bites, and even children’s behavior in school, at home or on social media. For high-net-worth individuals, properly managing these various risks requires a comprehensive asset protection plan that not only accounts for all assets within their estate, but also for their lifestyle.
An 18-year-old son of a USI client had driven a short distance to a grocery store with his girlfriend. On the way to the store, the car went off the road and struck a tree. He told the police that another driver had cut him off, forcing him off the road. There were no witnesses nor evidence of another vehicle. His girlfriend had no recollection of the accident and suffered serious injury. As a result of the accident, she suffered several fractured bones and serious internal injuries, and spent a month in the hospital and several more months in a wheelchair. She continued physical therapy for an additional six months, but unfortunately, was told she would never gain full control of her right foot.
Prior to the accident, USI Insurance Services had conducted a personal risk assessment for the client and designed a personal risk management plan that included $500,000 in automobile liability and an additional $5,000,000 in personal excess liability coverage on top of the primary auto coverage. The automobile claim included medical bills in excess of $300,000 with ongoing physical therapy. The injured party also had lost wages totaling more than $50,000. Damages relating to this accident exceeded $2,000,000, which was covered by the client’s comprehensive policy.
Automobiles represent a significant risk for any driver. The lack of experience of young drivers increases the exposure of operating an automobile considerably. Adequate liability protection is critical to good risk management programs.
How Much Coverage Is Enough?
Determining exactly how much liability coverage one needs depends on many different factors, and often requires input from experienced personal risk advisors.
For instance, an individual’s liability exposures can be assessed based on their physical assets such as homes, swimming pools, automobiles, boats, art, wine, jewelry, earnings, investments and inheritance, as well as their lifestyle, activities and future earnings. Activities that frequently correlate with lawsuits include golfing, skiing, boating, operating recreational vehicles (e.g., jet skis, race cars), entertaining, participation on nonprofit boards, and personal use of social media. To help our clients choose appropriate limits and coverage terms, USI leverages proprietary analytical tools and extensive market access.
In 2017, a 15-year-old threw two firecrackers into a canyon near the Columbia River Gorge in Oregon.3,4 This action caused a wildfire that consumed 49,000 acres of popular scenic hiking grounds. The expense of the fire totaled $36.6 million, including property damage, loss of use, and cost of firefighters. Legal action ensued. With the teenager’s admission that he tossed the fireworks into the canyon, the courts ruled in favor of the plaintiff, requiring that the 15-year-old make restitution for the damages.
The Oregon wildfire case represents an extraordinary judicial ruling. But there are other situations that can result in court-ordered awards that, although smaller, would also be financially debilitating.
Using our proprietary OMNI tool, USI personal risk professionals identify the liabilities that parents face from the actions of their minor children. A risk management plan should address loss control techniques for minor children and use of social media, mobile phones, activities with friends, and any action children take that has the potential to cause injury or property damage to a third party.