A slip-and-fall during the backyard barbecue and pool party for your favorite charity. The tree limb that breaks and falls while a guest is on the rope swing at the edge of your lakefront home. A grinding collision during a cruise on the water with friends in your new boat.
The potential for mayhem – and liability – exists in everything we do. Were it not for homeowner’s insurance, the court judgments that arise out of these accidents would quickly decimate a family’s fortunes. Yet most policies fall woefully short in providing adequate coverage, especially for those fortunate enough to have accumulated a bit of wealth and who, as a result, are a prime target of litigation.
That was the warning Thursday from two leading insurance claims experts speaking to wealth managers, attorneys and accountants at a presentation organized and sponsored by CCIG.
Although they often fail to account for the worst-case scenario, the wealthy aren’t blind to the risks of a lawsuit, Michael Daugherty, a VP and the Dallas regional claims manager for Chubb, said. In fact, he said, many high net-worth families are more alarmed than ever about ending up in court at a time when income and wealth disparities have received so much attention.
According to a Chubb survey of households with $5 million or more in investable assets, 68 percent of respondents said they believed public perceptions of them have become “more negative” since the Great Recession. Only 4 percent said public perceptions have become more positive.
The heightened resentment of the wealthy comes at a time when the number of bodily injury and other claims continue to mount. Worse yet, jury awards today easily swell into the multimillions of dollars.
Like most Americans, a high number of wealthy families (47%) worry about being sued after an auto accident, Rolando Orama, a Chubb senior VP and its Western Territory claim manager, told the audience.
But they also worry about items that are more unique to them, including the potential for a lawsuit when a household employee is injured on their property (29%) or being held liable for incidents related to their volunteer work with nonprofits (22%).
Making matters worse are what are known as “joint and several” liability laws, employed in cases where two or more defendants are found liable for damages. In such cases, the entire judgment can fall on just one defendant, the one with the deepest pockets.
While retirement funds and your home may be protected from jury awards, investments, art collections, vacation homes, rental properties, future income and savings are all fair game.
The case for an umbrella
Most wealthy households have umbrella insurance to supplement the liability provisions in their auto and homeowner policies, but they often do not have enough. More than 40% of the respondents in the Chubb survey reported having less than $5 million in umbrella coverage. Twenty-one percent had no umbrella coverage whatsoever.
So, how much insurance should someone with affluence carry to offset their liability?
That answer will vary, of course, depending on an individual’s liquid net worth, their tangible assets, the worth of their reputation and their future earnings potential.
Umbrella coverage, in fact, is quite affordable, typically costing just a few hundred dollars per million dollars of coverage. And when personal injury liability awards and settlements can exceed $10 million or more, the cost of an umbrella policy becomes negligible compared to the potential exposure.
Consider, too, that an umbrella policy issued by a carrier that specializes in insuring wealthier families offers a few more advantages, including:
According to the Chubb survey, 38% of the respondents believe they are more likely to be sued during tough economic times. With the right policies in place, including adequate umbrella coverage, the fallout from a big judgment doesn’t have to mean a radical change in a family’s lifestyle.
Mike Rosser leads the Private Client practice at CCIG. Reach him at MikeR@thinkccig.com or 720-212-2068.