Kim Kardashian is an attractive target—for a liability lawsuit, that is. Why? She’s wealthy. And according to a study published by ACE Private Risk Services (now Chubb), which is in the business of insuring high net worth individuals and informing them on how to CYA-proof their lives, wealthy people are more likely to be targeted when economic conditions are not at their peak for the rest of us. But before you poo-poo this post and think it does not concern you, consider what you have in the form of assets and whether others might consider you “wealthy.” It is all relative, after all. You probably have assets for which you have worked hard, but do you know whether your assets are covered if someone sues you?
Why would someone sue me? I’m a nice guy or gal!
Ok, so you don’t go on social media and commit slander or libel. And odds are you do not have a maid, butler, or a killer attack dog at your house, but you probably have guests over now and then, and you also probably drive a car. Yep, the two biggest reasons for covering your assets are for lawsuits involving slip and fall accidents on your private or business property or automobile accidents.
But I have homeowner’s insurance and car insurance, so I’m covered, you say.
Aha, here’s where the rubber meets the road. Your homeowner’s insurance and car insurance may not be enough to cover all of your assets. You may need an umbrella policy.
What’s an Umbrella insurance policy?
Umbrella insurance is extra liability insurance. It is designed to help protect you from major claims and lawsuits; as a result, it helps protect your assets and your future. It does this in two ways: 1) It provides additional liability coverage above the limits of your homeowners, auto, and boat insurance policies; and 2) It provides coverage for claims that may be excluded by other liability policies, including false arrest, libel, slander, and liability coverage on rental units you own.
Let’s look at an example of a two income family (let’s call them Mr. and Mrs. Jones) who makes $200,000/year, owns one house worth $500,000, one mountain cabin worth $200,000, two nice cars worth $100,00 total, and a nice-sized nest egg in the bank.
The Jones’s go online to buy their auto insurance and they are looking for the best price. They realize that it’s important to have more coverage than the state of Colorado requires ($25,000 per person; $50,000 per accident), but they are not thinking about rear-ending someone who ends up injured with one million dollars in damages. More likely, they are thinking they might get hit by someone so they get Underinsured and/or Uninsured Motorists coverage, but they don’t get an automobile liability policy that covers all of their assets. It would be prohibitively expensive for such a low probability risk, they think. So, they either don’t buy enough liability coverage or they overpay for very high liability limits when they could have purchased a cheaper umbrella policy. Let’s assume that the Jones’s purchased a $250,000 automobile liability policy.
So, what happens if Mr. Jones was at-fault for an automobile accident that made them liable for up to one million dollars? In other words, what would the attorney who is representing the person hit by Mr. Jones most likely do in this case?
The attorney for the injured person (the Plaintiff’s attorney) would send a “settlement demand” of one million dollars (or more) to the Jones’s automobile liability insurer, State Insurance. State Insurance would investigate the accident, the fault of the parties, and the injured person’s damages. Let’s assume that State Insurance concludes that Mr. Jones was at fault and that the injured person’s damages really are one million dollars. In that case, State Insurance would offer its liability limits of $250,000 to the Plaintiff conditioned upon the Jones’s being released from any further liability.
If the Plaintiff accepts the $250,000 offer, then the claim is settled and the Jones’s have no personal liability. However, the Plaintiff may investigate the Jones’s income and assets and decide not to accept the $250,000 offer but, instead, to file a lawsuit against the Jones in order to pursue full damages in a trial. If a jury renders a large verdict at trial (e.g., $1,000,000), then State Insurance would pay its $250,000 liability insurance coverage and the Jones’s would be personally on the hook for $750,000.
The Plaintiff would then initiate legal proceedings to attach and seize the Jones’s assets and income in order to satisfy the unpaid $750,000 judgment against the Jones’s. This situation could have been avoided if the Jones’s had purchased a Personal Liability Umbrella Policy (“PLUP”). Umbrella policies typically provide liability coverage of $500,000, $1,000,000 or more. So if the Jones’s had a $1,000,000 umbrella policy in force at the time of the accident, then this is what would have happened: State Insurance pays $250,000 and the PLUP pays $750,000, the $1,000,000 judgment is satisfied, and the Jones’s assets and income are free and clear of being attached and seized.
This example is oversimplified. In reality, there are many more factors at play that can result in various scenarios. You will definitely need experienced legal counsel to guide you through the minefields in order to preserve your assets—even if you’re not as rich and famous as Kim Kardashian!
On the flip side, if you are the one who has suffered catastrophic damages of $500,000, $1,000,000 or more, then you too will need experienced legal counsel to guide you through the minefields in order to recover all of your damages.
Attorney Mac Hester defended against catastrophic injury claims when he worked as an insurance defense attorney and he currently represents injured persons with catastrophic injury claims as a Plaintiff’s attorney. He is ready, willing, and able to guide you through the minefields of your catastrophic injury claim. Contact Mac Hester Law today for a free consultation.