Remember Martha? You may recall from the summer issue of the Sarasota Litigator Journal how our fictional protagonist was injured in an accident with an uninsured motorist. Although her insurance policy included $10,000 of uninsured/underinsured motorist (UM/UIM) coverage, Martha found that the costs from property damages and the injuries she sustained in the accident far surpassed the benefits she had purchased, so she considered bringing lawsuits against both her insurance company and that of the at-fault driver.
Auto accidents frequently result in lawsuits. In the hands of dedicated and competent attorneys, a suit can result in millions of dollars worth of recovered damages — just look to our Past Results page for examples.
Now, let’s turn the tables on Martha. What if she had caused the accident? Florida’s Financial Responsibility Law states that any person at fault in a crash resulting in bodily injury and property damage to others must have the required minimum of liability coverage. At Wittmer | Linehan, we see many cases in which damages from an accident far exceed liability insurance limits and the at-fault party’s ability to pay out-of-pocket. What’s Martha to do in order to protect her assets?
When combined with primary liability insurance, excess insurance and umbrella coverage address two of the biggest concerns people have when buying an insurance policy: how much coverage they need to protect themselves against unforeseeable losses versus the cost of sufficient protection. When the limits of primary liability insurance are exhausted, excess insurance and umbrella coverage provide a failsafe.
Excess and umbrella coverage are commonly confused as the same insurance, but there is a key difference between the two. It has to do with how the policies interact with your primary liability insurance, which is the first “layer” of protection against what could be a financially devastating claim.
If an underlying liability policy is exhausted, excess insurance increases the amount of insurance available to cover a loss. When triggered, excess coverage comes into play as either a “stand-alone” policy, which carries its own conditions, definitions and exclusions; or as a “follow-form” policy, which takes on the conditions of the underlying policy.
Like excess insurance, umbrella coverage covers losses that exceed the limits of one’s primary liability policy. However, where excess insurance can only meet conditions stipulated in the primary policy, umbrella coverage can “drop down,” or cover risks not listed in the primary policy. Since it is able to act as your primary policy where needed, umbrella insurance automatically broadens the scope of your coverage, hence its name.
Umbrella insurance’s flexible coverage can be applied to risks apart from auto-related liabilities as well. For example, if you own both auto and homeowners insurance, an umbrella policy will extend the liability limits of both those policies in the amount of extra coverage you purchased. Umbrella policies are generally sold in increments of $1 million. That may sound high, but remember that these days, it’s not uncommon to need that level of protection if suit is brought against you.
While your primary insurer should notify you if a loss potentially affects your limits, it’s not your primary insurer’s responsibility to alert your umbrella or excess insurers. Therefore, giving notice of both a loss and exhausted primary liability rests squarely on the shoulders of the insured, and the insured must do so in the policy’s stipulated time limits.
As mentioned earlier, one of the biggest questions people wrestle with about insurance is, “How much is enough?” The amount of coverage that’s sufficient to protect you, your family, property and assets is a personal decision. Take into consideration the value of what you want to protect with excess or umbrella coverage, and what its future value may be. You should also think about people in your household who would benefit from the extra protection of excess or umbrella insurance.
At Wittmer | Linehan, it’s our goal to help you understand how important it is for Florida drivers to obtain their own financial protection through insurance. If you have questions or concerns about getting properly insured, don’t hesitate to give our office a call for a free consultation.