PERSONAL UMBRELLA LIABILITY PROGRAM ARCHIVE

(July 2019)

This article is a repository of articles and analyses that relate to earlier editions of the above captioned program or coverage form.

Related Article: ISO Personal Umbrella Liability Policy Coverage Analysis – a discussion of the 2015 edition program

Archive Index
Analysis	Personal Umbrella Liability Policy Coverage Analysis - 2006 Edition
Analysis	Personal Umbrella Liability Policy Coverage Analysis - 1998 Edition
Special Analysis	PUP Definitions In Relation With Underlying Coverage
Special Analysis	Personal Umbrella Loss Examples

ISO PERSONAL UMBRELLA LIABILITY POLICY COVERAGE ANALYSIS – 10/06

The following is an analysis of the ISO (Insurance Services Office) Umbrella Coverage Form. A detailed discussion of each section is provided along with, where possible, examples and relevant court cases.

Note: This analysis is a discussion of ISO’s 10 06 edition. Changes from the prior edition are in bold face text.

INTRODUCTION

The full name of ISO’s form is the Personal Umbrella Liability Policy (PUP), DL 98 01 10 06 edition. The PUP handles individual, catastrophic exposures. Umbrella policies originated as a commercial specialty product. Later, umbrellas were used to handle the “deep pocket” liability exposures of wealthy individuals and those in high profile professions such as entertainers, doctors, lawyers, politicians and professional athletes. Ironically, the niche of customers that spurred the coverage’s expansion into a personal lines product became unacceptable. Certain professions were avoided through underwriting practice and later excluded by most excess liability contracts. Umbrellas continued their evolution as a routine product in response to the growth in the number of lawsuits and the trend of higher jury awards. Finally, insurers recognized that, potentially, everyone faced the possibility of causing losses that would either exceed or not be covered by the liability limits of primary (or underlying) auto or homeowner policies. Even a minor event can create a huge liability.

Example: Carl Ruffshot just loves golf. One day he is practicing putting in his backyard when, frustrated by his poor results, he rears back and smashes the next ball. The ball sails toward a nearby street where a construction crew is doing some excavation work. Carl’s ball crashes through the cab window of a new crane, striking the crane operator. The operator loses control, the crane tips over into a hole and the crane arm falls, destroying several vehicles and injuring a dozen drivers and passengers. It turns out to be Carl’s most expensive golf lesson (though he was able to recover his ball).

Note: In the above example, Carl may have even a bigger problem. Because of the circumstances in hitting the ball, the insurer may even question its obligation to respond to a loss, especially if a decision is made to treat the loss as involving an intentional act.

PURPOSE

The ISO PUP shares the goals of nearly all personal excess coverage since it is designed to do the following:

· Act as a source of additional coverage which increases a person’s protection above the limits of liability provided by an individual or family personal auto, homeowners and personal liability policies and endorsements

· Provide broader coverage to protect against liability to exposures that are not covered by underlying policies such as personal injury or certain non-owned exposures.

ANALYSIS OF POLICY

The PUP consists of an agreement, definitions, liability coverages, exclusions, additional coverages and conditions. Let’s take a closer look at each form part.

AGREEMENT

The insuring agreement for the Personal Umbrella Policy is similar to most other insuring agreements. The insurance company agrees to provide certain coverage (specified in the policy) in return for the premium paid by the insured. Since differences in wording could result in unanticipated coverage gaps, it is important to compare the umbrella insuring agreement with those found in the underlying policies.

I. DEFINITIONS

A number of words of particular importance are defined in the ISO Personal Umbrella Liability Policy and are referenced throughout. The defined terms include the following:

A. The PUP uses the terms "you" and "your" when discussing the "named insured" appearing on the Declarations page and the named insured's spouse. The spouse must be living in the same household as the named insured to be considered “you”.

B. The terms "our," "us," and "we" are used as a reference to the company writing the umbrella coverage.

C. The PUP defines any private passenger auto, pickup truck or van that an insured controls under a long-term (at least six months), written lease as an owned vehicle.

D. “Aircraft”, “Watercraft”, “Recreational Vehicle” and “Hovercraft” Liabilities - 2006 Addition

1. These forms of liability refer to either BI or PD that result from owning, using or maintaining any of these types’ crafts. It also includes acts involving an insured negligently providing these crafts to others as well as to incidents where an insured oversees their use, including vicarious liability for minors.

2. Aircraft refers to devices designed for flight and air transport; it does not refer to small-scale models. Hovercraft refers to a self-propulsion vehicle that travels on a cushion of air. RV is defined later in this section. Watercraft refers to craft designed and used for water travel/transport and propelled by wind, engine or electric motor.

E. “Autos” refer to the following:

· Motorcycles, private passenger motor vehicles, mopeds and motor homes

· Vehicles built to be towed by private passenger autos and motor homes (2006 addition)

· Trailers, farm wagons and farm implements, but only while being towed by a private passenger motor vehicle.

F. "Bodily injury" refers to sickness, disease, or bodily harm; and includes any resultant death. The term also means any related loss of service or needed care.

Example: Pete Johnson caused a serious auto accident with injuries and damage to several other parties and their vehicles. Three separate suits (from the same incident) are filed against him. The last suit includes a request of compensation for loss of needed care. That suit was filed by a person whose spouse died after being struck by Pete's SUV. The deceased person was the primary caregiver for her husband who is a quadriplegic. The umbrella would consider the plaintiff's claim for loss of his wife's services as "bodily injury" under Pete's PUP.

G. "Business" –this definition was expanded as a 2006 Change. It is any trade, profession or occupation; the level of such activities does not matter. Further, any regular activity meant to earn compensation also qualifies as “business.” However, there are a number of important exceptions:

· Activities that only reimburse volunteers for expenses that are directly related to the activity

· An insured who provides home day care to his or her relatives

· Mutual exchanges of home day care services

The policy’s “business” definition also makes an exception for activities that are not described above and that involve modest amounts of income. Specifically, an activity is not considered to be a business if it generates no more than $2,000 in compensation during the 12-month period before the policy’s inception date.

Example: Josie McBakerie agreed to run the Bake Sale fundraisers for her son’s elementary school band. She recruited several other school parents to assist her. One day, Josie was following another parent down some school steps. They were both carrying trays of baked goods to the school cafeteria. Josie lost her footing and she dropped the tray. It struck the other parent, causing her to fall down the steps. Josie is sued by that parent, who ends up permanently paralyzed.

Josie’s PUP insurer denies the claim when it discovers that, as part of her duties, Josie was paid $1,500 as well as was given a paid reservation for the band trip for which they were raising funds. The value of the trip was well over $2,000.

H. In the PUP, “family member” refers to a household resident who is either of the following:

· A relative of the named insured, including a ward or foster child

· A person younger than 21 who is in the care of an “insured” who is at least 21 years old.

I. “Fuel system” refers to:

· One or more containers (of any type) which have a capacity of 100 or more gallons of liquid fuel which either did or does exist on an insured location and is/are used for heating/cooling, heating water, cooking food or powering motorized vehicles, watercraft or land conveyances

· Pumping equipment (including - motors, nozzles, gauges, pipes, hoses or apparatus) attached to the defined fuel containers

· Filler pipes and flues connected to the defined fuel containers

· Boilers, furnaces or water heaters, including any fittings and pipes, which are supplied to the defined fuel containers

· Any structure that is specifically designed and built to hold the liquid fuel that escapes from any defined fuel container.

J. “Insured” refers to the person named on the Declarations, a “family member,” and any person using an “auto,” “recreational motor vehicle,” or watercraft that is either owned by the named insured or is a temporary substitute for a named insured’s vehicle or craft. Entities, to the extent of their legal liability created by an insured’s use of a covered auto, are also insureds. The term extends to those who are legally responsible for any animal owned by an insured. However, two classes of entities are specifically disqualified as “insureds”:

· The owner/lessor of either an “auto” or a “recreational motor vehicle” which is loaned or rented to an insured

· Any entity which has custody of an insured’s animal as a result of a “business” or without an insured’s permission.

Example: Kimmi Kindheart is named insured under a HO and a PUP policy and she owns "O'Riley," an Irish Wolfhound. While on a family vacation, Kimmi boards O'Riley with "Gulag Kennels." While being taken for a walk by a Gulag groomer, O'Riley attacks another dog and that dog's owner. The injured person sues Gulag and Kimmi. Kimmi's umbrella insurer handles the claim on behalf of Kimmi but tells Gulag that it has to find its own coverage as Gulag is not an "insured" under its policy.

K. "Occurrence" is considered to involve either "bodily injury" or "property damage" that takes place during the policy period. Any such damage that is caused by exposure to a repeated or continual set of circumstances may qualify as a single occurrence.

L. “Personal Injury” means injury resulting from any of the following:

· Falsely arresting, imprisoning or detaining someone

· Malicious prosecution

· Wrongful evictions or entry, invasions of privacy

· Slandering, disparaging or libeling another entity

· Violating another person’s privacy rights.

Such acts are often complicated issues since they are subject to interpretation and may also be affected by other policy language.

Example: The insured was sued for defamation of character. It was alleged that he slandered the claimant by stating that the claimant embezzled funds and was also immoral. The claim was covered under the insured's personal umbrella liability policy, subject to the retained limit. Personal injury coverage was not included in the underlying comprehensive personal liability insurance.

M. "Property damage" refers strictly to tangible property that has been physically injured, lost or destroyed, including the loss of the use of tangible property. Therefore, claims involving intangible or intellectual property would not qualify for coverage under “property damage.”

N. “Recreational motor vehicle” includes all-terrain vehicles, dune buggies, golf carts, snowmobiles or any other motorized land vehicle that is meant for off-the-road recreation.

O. “Retained Limit” means the total of the limits which exist for any “underlying insurance” or other insurance that is available to an insured, including coverage which would have been available if the insurer providing the underlying insurance had not become bankrupt or insolvent. Retained limit also means the deductible that is shown on the declarations page. The specified deductible applies when a loss that qualifies for coverage under the PUP and is not covered by any other source of coverage, occurs.

P. “Underlying insurance” refers to any source of primary liability insurance that protects an insured against the types of liabilities listed on the Declarations and for no less than the limits that appear on the Declarations page.

II. COVERAGES

A. The insuring agreement obligates the insurer to pay for bodily injury and property damages or other offenses that exceed the “retained limit” (the coverage, as defined, that is provided by the required, primary layer of insurance).

The insurer must also respond to an insured’s legal liability stemming from personal injury offenses (that qualify for coverage). Prejudgment interest awards are also eligible for payment under damages.

B. The ISO Personal Umbrella Liability Policy also provides coverage under its insuring agreement for the expense to defend an insured. The insurer will pay the cost to defend an insured against lawsuits, even when a suit or allegation has no merit, with the following limitations:

· The source of the suit must be the result of damages or offenses that are eligible for coverage under the PUP

· The insurer doesn’t have to defend in either of the following:

- When coverage is provided by underlying insurance

- When the claim is not covered by underlying insurance, but the claim amount (or damages sought) is less than the umbrella policy’s deductible.

The insurer also may join in the defense of a claim that has the potential to exceed the underlying carrier’s limits, but without contributing to the primary carrier’s defense costs.

The umbrella provider must pay any legal expense incurred by an insured because a different country’s laws or regulations prevent it from defending an insured. The insurer may also choose to investigate or settle any claim it decides is appropriate. The company’s obligation to provide any defense ends when it pays out its limit.

C. The umbrella policy also provides the following additional coverages:

· The company pays for any taxes levied on the insured for the cost of defending a claim and for its costs in defending a suit

· Payment of premiums for claims-related bonds. It pays premium for only bond amounts that are within the policy’s limit

· Pays expenses incurred by an insured when assisting the insurance company. Also pays up to $250 per day for earnings lost when assisting the insurance company.

· Finally, the umbrella insurer is obligated to pay its share of interest on any judgment, but not including the portion of interest on the sums that exceed the policy’s limit.

The above coverage amounts are in addition to the limit of liability.

Let’s examine the first part of the PUP insuring agreement more closely. The agreement obligates the PUP carrier to pay BI and PD damages under the following conditions:

· The damages have to be greater than the applicable "retained limit"

· The insured has to be held legally responsible to pay the damages

· The damages must qualify for coverage under the PUP

It appears that the policy’s intent is to act as excess coverage over the “retained limit.” As mentioned earlier, this term refers to the total of the limits that exist for any source of primary coverage available to an insured.

Note: The policy still applies on an excess basis over any stated underlying limits when the applicable primary insurers are insolvent and can't meet their obligation.

It appears that the policy’s intent is to provide coverage on an excess basis in two situations. The first situation is to extend the coverage of the primary insurance policies (auto, homeowners, recreational vehicles and similar policies) that are listed on the PUP Declarations page.

The second situation is one in which a valid source of coverage exists for an exposure and that primary source of coverage is not listed on the Declarations.

Example: Jane Sportsknut is covered by an ISO PAP, HO3 and PUP policy. Jane has always loved volleyball and she jumped at the chance to act as a coach for her daughter’s sixth grade volleyball team. Jane files a claim to protect her against a lawsuit involving her actions during a serious brawl that occurred during a city-wide volleyball tournament. The PUP insurer delays involvement in the lawsuit because a special events policy was purchased for the tournament and coaches are covered by that policy on a primary basis.

Limit of Liability

The limit of liability which is shown on the policy Declarations is the maximum amount that will be paid for a single “occurrence” or offense. This maximum obligation is not affected by any of the following:

· The number of "insureds"

· The number of claims made

· The number of persons injured

· The number of vehicles in an accident

Furthermore, ALL eligible damages that are the result of any one accident or of continuous or repeated exposure to substantially the same general harmful conditions are considered to be one "occurrence."

III. EXCLUSIONS

The items which are not covered by the ISO Personal Umbrella Policy should come as no surprise to insurance professionals who are familiar with ISO policies.

A. The PUP does not grant coverage in the following situations:

1. “Bodily Injury” or “property damage” due to an intentional act is not covered. The umbrella exclusion’s wording attempts to clarify itself by mentioning that the exclusion extends to harmful consequences that differ from what the individual may have thought would happen.

Example: Ben Flaky is traveling along an interstate highway on his way to work and, after a horrible weekend and nightmarish morning; he’s in a terrible mood. Ben has to slam on his brakes to avoid hitting a car that abruptly merges onto the highway in front of his car. Ben, looking for some “payback,” rushes up to the driver’s rear bumper and continuously honks his horn. The other driver, who is oblivious to having cut Ben off, is startled by the sudden noise and loses control of her car. The startled driver swerves across two lanes and causes a serious pile-up, including Ben’s car. When Ben’s umbrella insurer gets information on the claim from the underlying auto insurer, they advise Ben that the umbrella won’t provide coverage, even though Ben merely intended to “shake up” the driver who cut him off.

The exclusion of intentional harm does not apply for bodily injury that is the result of a person who is defending against being harmed by another party. The exclusion is also inapplicable when bodily injury is caused by a person who is protecting others who are threatened by another party.

Example: Paul is insured by a PUP that acts as excess coverage over his boat owners policy. Paul lets his teenage son take the boat out with his friends. His son, who fails to pay attention to his steering, loses control of the boat and rams into an expensive yacht. The damage to the hull of the latter is so severe that it sinks. The yacht owner is so enraged that, when rescuers get him to the dock, he attacks Paul's son with a boat hook. Paul seriously injures the yacht owner as he protects his son from the attack. In this instance, the PUP would handle a claim for compensation for injuries since Paul was protecting another party from harm.

2. There is no coverage for “personal injury” when it involves any of the following:

· When the insured is aware that an action (or actions of others under their direction) invades/violates another privacy and that it is likely to cause personal injury – 2006 Addition

Note: Privacy issues continue to a sensitive area. As communication opportunities expand, particularly due to Internet/Social Media use, incidents involving this source of loss are likely to rise.

· When the insured knows that the information that’s being spread is not true

· When the information creating the claim was spread before the inception date of the umbrella policy

· When it involves a criminal act either by or at the direction of the insured

· When the act that created the claim is against a person in the employ of an insured and is related in some way to that employment

3.a. Any BI, PD and Personal Injury losses stemming from any business activity performed by any insured.

3.b. An exclusion applies to any business activity that occurs at any premises that an insured owns or rents, including vacant property.

Excluded business activity also includes acts and omissions involving services that are related to that activity. The exclusion is even applicable to implied or promised services and duties that are related to business activity.

Example: Jim agrees to lease an unused, large barn on his property to a local business. As part of the agreement, Jim also agrees to enlarge the building’s doors to allow easier access. A neighbor’s child, while playing with Jim’s daughter, is permanently injured when a door frame falls on her. The old door frame had been removed and laid against the building’s outside wall. Since the child was injured due to a job being performed to facilitate a business activity, the loss is ineligible for coverage.

However, as exceptions, coverage IS extended to the following:

a. (1). When the situation involves:

· Occasionally renting out the insured premises for use as a residence

Example: The Jones family goes for a two-week vacation and during that period rents their home to a family who is vacationing in their town.

· Rental of part of the insured premises as a residence, even if on a long-term basis, but the situation is excluded if rental occurs to more than two roomers or boarders

· Partial rental of the insured premises for use as a school, private office, private garage or studio

a.(2). When the personal liability is covered by the underlying insurance for renting a structure other than the insured’s residence – but this applies to structures designed for no more than four families.

a.(3). Where the underlying insurance provides coverage for a secondary or seasonal residential condo, co-op or apartment.

b. An insured’s public or civic functions that involve no payment more than reimbursement of expenses

c. Losses created by a minor’s business activity when the activity is only occasional or part-time business pursuits. A minor is a person younger than 18 or, if a full-time student, a person younger than 21.

d. When a named insured, a family member or a named insured’s or family member’s partner, employee or agent uses a covered auto in connection with selling, repairing, servicing, storing or parking vehicles made for use on public roads

e. The use of an auto, by any insured, for business purposes, other than an activity exempted under item d. above.

2006 Change: The PUP combined the rental and business exclusions and removed the reference to the exclusion of home day care services provided by persons under 18 (or under 21 if full-time students).

Note: Please see the separate discussion on business activity that follows this section on exclusions.

4. 2006 Addition - The PUP does not respond to vehicle BI or PD losses when such losses occur during the transport of persons or goods for compensation (public livery). This was part of the business exclusion in prior editions.

Note: There is an exception for losses involving carpools that applies only as long as no income is derived from it.

5. The PUP excludes a loss that is related to professional services that an insured either provides or fails to provide.

Example: Janie's home is insured by a PUP. Janie is a lawyer who works with one of her town's largest law firms. In her spare time, Janie offers legal assistance to persons in need and she has a spare bedroom that she uses as a law library and office. One day Janie is notified of a lawsuit filed by a young lady who was severely injured when, while leaving Janie's home, she tripped on a loose stair rug and fell down the staircase. Janie's PUP insurer denies handling the loss when the adjuster discovers that the plaintiff had just finished a meeting with Janie to get some legal advice.

6. There is no coverage under the PUP for aircraft-related “bodily injury” or “property damage.” This exclusion also applies to allegations of negligent entrustment or vicarious liability. Of course, there's always room for dispute about what is meant by aircraft and what eventualities may still qualify for coverage. Refer to the definition of Aircraft Liability in order to understand the coverage excluded.

7. No coverage exists under the PUP for losses involving BI or PD related to the use of hovercraft. Refer to the definition of Hovercraft Liability in order to understand the coverage excluded. – 2006 addition

8. There is no coverage under the PUP for watercraft-related “bodily injury” or “property damage.” This exclusion also applies to allegations of negligent entrustment or vicarious liability. Refer to the definition of Watercraft Liability in order to understand the coverage excluded. Coverage does exist if there is underlying watercraft coverage but only to the extent of that coverage.

9. There is no coverage under the PUP for recreational motor vehicle-related “bodily injury” or “property damage.” This exclusion also applies to allegations of negligent entrustment or vicarious liability Refer to the definition of Recreational Motor Vehicle Liability in order to understand the coverage excluded. Coverage does exist to the extent of any underlying coverage as well as to such loss involving nonowned RVs.

Note: Exclusions 6, 7, and 8 were rewritten in conjunction with the addition of the Aircraft Liability, Hovercraft Liability, and Recreational Motor Vehicle Liability and Watercraft Liability definition. This change eliminated repetitive wording. While it appears, there was no intended change in coverage, the wording change could result in the policy responding differently to various situations.

10. Losses with any connection to war and warlike acts, including the discharge of a nuclear device, are not covered.

11. No coverage applies to any party’s use of autos, watercrafts or recreational vehicles when that use is not accompanied by the belief that the use is authorized. However, this exclusion is inapplicable to persons who fall under the definition of a family member when using vehicles or crafts owned by the named insured.

12. Except for watercraft used in log cruises and sailboats any use of a vehicle or watercraft in an organized race or competition is excluded.

13. Coverage for bodily or personal injury suffered by a named insured or family member is excluded by the PUP. This exclusion also applies to any sort of claim or suit made by third parties attempting to recoup for payments they were obligated to make for damage or injury they cause to the named insured or his or her family members.

14. The PUP denies coverage for losses related to communicable diseases, sexual molestation, corporal punishment, abuse and unauthorized or illegal activity involving controlled substances. Although, as is the case with most losses, a separate issue may exist regarding the applicable insurer having an obligation to provide a legal defense for ambiguous situations.

15. Coverage for any damages connected to an insured’s actions as a corporate or organization officer or director is excluded UNLESS the only compensation is reimbursement of expenses for such duties performed for a non-profit organization.

16. No coverage is available under the PUP for damage to an insured’s property. Why? The PUP is a liability policy, designed to handle losses suffered by third parties that are caused by an insured.

Note: This exclusion also applies to claims involving recouping the cost to repair or maintain property in order to avoid injury or damage to others. This exclusion is not affected by the party that actually incurs such expense.

17. Unless the damage is caused by fire, smoke or explosion, no coverage is extended for damage to property that is in the custody of the insured.

Example: The Smith family’s five-car garage is destroyed when heavy snow accumulation causes the garage roof to collapse. Included in the damage is a brand-new Hummer. It belongs to a family friend and was being stored there as it was a surprise Christmas gift from the friend’s spouse. The car is not eligible for coverage under the Smith family’s PUP

18. The PUP does not cover “bodily injury” losses when the person suffering the loss should be reimbursed under a workers comp, non-occupational disability or occupational disease law.

19. Coverage is excluded under the PUP for an insured whose “bodily injury” or “property damage” losses should be protected under a nuclear energy liability policy. The fact that such a policy has exhausted limits does not affect the applicability of this exclusion.

20. Liability under the PUP is denied for “bodily injury” or “property damage” losses due to fuel escaping a “fuel system.”

21. No coverage is provided for bodily or personal injury damages connected to the absorption, inhalation or ingestion of lead.

22. No coverage is provided for “personal injury” or “property damage” related to an incident involving the any lead contamination or any offense related to it.

B. The PUP does not grant liability coverage for loss assessments to an insured as a member of ANY form of organization of property owners.

C. Finally, the umbrella does not extend excess or first dollar coverage for losses involving either no-fault or uninsured/underinsured motorist liability unless the policy is explicitly amended by an appropriate endorsement.

Business and Volunteer Activities

The PUP's exclusion under item A. 3. above may be of particular interest. Under that item, the policy explicitly bars coverage for losses involving an insured's business activity. No coverage is provided for BI, PI or PD when the damage or injury results from an insured's business, including acts and/or omissions.

There are several important exceptions to the broad business activity exclusion. The PUP will respond to such losses when they involve volunteer (civic or public) activities. An action is still considered voluntary if it includes reimbursement of expenses since that would not be considered income. The exclusion does not apply to traditional businesses that involve minors.

Note: The minor's business activity has to be part-time in nature and the emphasis is that the activity is usually one that is pursued by minors. The PUP defines minors to include children younger than 18 or, if a full-time student, younger than 21.

Another area or activity that is exempt from the business exclusion involves care giving. Home day care (of either children or adults) is not considered to be a business activity under certain circumstances. If the person being cared for is related to the insured or if the care is done as part of a mutual exchange, the exclusion is inapplicable. However, receiving compensation for home day care creates an excluded activity.

Finally, the PUP exempts a covered auto that is used in an insured's business IF the auto is used by an insured or an eligible member of the insured's family. The exemption even applies to a partner, employee or representative of the insured. However, the activity has to be related to a business involving parking, fixing, storing, selling or servicing a private passenger auto.

While carpools would not be considered a business activity, any other types of transportation of persons or property would disqualify a vehicle (and related loss) from the PUP's protection.

2006 Change –Regarding vehicle or craft liability, the latest version of the PUP defines those terms so the exclusion section merely refers to them and depends upon the definitions to lay out what instances comprise such liability.

IV. MAINTENANCE OF UNDERLYING INSURANCE

This portion of the policy obligates the named insured to maintain the “underlying” (primary) insurance. This is critical since the rating and the underwriting of an umbrella assumes that the initial level of coverage, with its various limits, is in place. Under this provision, the named insured is obligated not to make a change that results in less protection than what appears on the forms listed on the umbrella’s declarations. The named insured is also responsible to notify the insurer if any portion of the “underlying insurance” is lost and is not replaced. If “underlying insurance” coverage is lost, the total limit of liability available under the PUP remains the same and the umbrella insurer’s liability to respond to coverage is unaffected.

Example: George Pennypincher, a 74-year-old driver, owns a six-month term PAP policy written by Company A and a one-year term PUP policy written by Company B. The PUP Declarations page shows that the PAP insurance limit is a $500,000 combined single limit. When the PAP comes up for renewal (and it is the auto policy’s anniversary date), Company A advises George that the auto policy can only be renewed for $300,000 CSL since he has reached age 75. Since George has been with the company for years and does not believe he could get a better deal elsewhere, he agrees with the renewal change

In this instance, the safest course of action is for George to notify the umbrella insurer of this change in protection. However, there are some ambiguities that could arise in George’s case. Does the provision handle a possible distinction between a change made by the named insured and a change required by a primary insurer? While the named insured is required to notify the company if coverage is lost, there’s no mention of notification if coverage becomes more restrictive. Is a decrease in a policy limit a restriction of coverage? This provision may need to be clarified in a future edition of the form.

V. DUTIES AFTER LOSS

In case of an accident or "occurrence," the "insured" is required to:

A. Give written notice to the insurance company or the agent as soon as it is practical. The loss notification should include:

1. The insured’s name and specific policy information such as policy number and effective dates

2. Details regarding the time, place and circumstances of the accident or "occurrence"

3. Claimant and witness names, addresses, contact information, etc.

The requirement is that notification be made immediately and it must be in writing. It’s critical that an insurer be quickly notified of possible losses in order to begin its evaluation. Insureds should try to tell their agent or insurer of an incident. Prompt notification is especially important with an umbrella policy since any loss has the potential of being catastrophic.

B. Besides notifying the insurer of a claim in writing, the insured must send the insurance company every notice, demand, summons, or other process relating to the accident or "occurrence." This is the best way to make sure that the insurer is provided an adequate opportunity to evaluate and handle a possible claim.

When the insurance company requests cooperation, the "insured" must help:

· With making a settlement

· Pursue other parties who have an obligation to either share or reimburse the insurance company for a loss payment that it makes on behalf of an insured

· With lawsuit details, attending hearings and trials

· Gather and give evidence and help to secure witnesses

An insured that does not fully cooperate with an insurer could endanger his or her coverage. Technically, an insurer may deny coverage based on non-cooperation.

However, courts are increasingly reluctant to support a loss of coverage for a "technicality." Jurisdictions are trending toward requiring the insurance company to demonstrate that the insured’s action prejudiced (harmed) the insurer’s rights.

Further, cooperation questions are usually tied directly to how the primary insurance claims/legal defense effort is handled. Umbrella insurers who raise an issue concerning cooperation are more likely to target the action of the primary insurer; rather than the insured.

C. If the “insured” volunteers to make a payment under any other circumstance, it is at the insured’s expense. Making voluntary payments is dangerous since it could compromise the rights of the insurance company. Such voluntary payments could be interpreted as admitting responsibility for causing injury or damage.

2006 Change: This provision was changed to place more emphasis on the expectation that the insured fully cooperate with the insurer. Further, the provision also explicitly states that an insured risks loss of coverage if he or she does not comply with its requirements when non-compliance harms the insured’s rights.

VI. GENERAL PROVISIONS

The PUP provisions are, in most cases, very similar (and sometimes identical) to those found in other ISO policies. The provisions are:

A. Appeals

The umbrella insurer reserves the right to appeal a judgment that exceeds the “retained limit,” but at its own expense. Such expenses would be in addition to the policy’s limit of insurance.

B. Bankruptcy of An Insured

Neither bankruptcy nor insolvency of an insured will absolve the umbrella insurer of its duty to provide coverage, nor will it cause the excess policy to act as primary insurance.

C. Bankruptcy of An Underlying Insurer

Regardless of such an occurrence, the excess policy will still respond as though primary coverage was in effect.

D. Fraud

An insured’s fraudulent statements or acts could bar coverage for a loss.

E. Liberalization Clause

This provision deals with a company's decision to change policy coverage. When a carrier makes a change that results in an increase of coverage and if the change is done for free, that change will automatically apply to all policies within the applicable state. The automatic extension of coverage only applies to if the change was introduced 60 days prior to the PUP’s effective date or during the PUP’s policy period.

In other words, if the company makes a change that meets all of the following criteria:

· The change creates additional coverage

· No additional money has to be paid to secure the coverage

· The change is made up to 60 days prior to the policy effective date or after its effective date

· The change applies on a statewide basis for a policy form that has the same edition date as your policy,

then the change will automatically apply to your policy on the SAME DATE the change becomes effective.

2006 Change: Liberalization does not automatically apply when a program revision occurs; regardless of how it’s introduced if it includes modifications that include both broader and more restrictive coverage. In such cases, the excess policy’s obligation is to respond according to the basis of the original policy.

F. Other Insurance

When a loss occurs that is eligible for coverage under the PUP and other sources of insurance are available, then coverage under this policy becomes excess over the other. However, this provision does not apply when the other insurance is written specifically to cover liability losses on an excess basis over the limits of liability that apply in this policy.

G. Our Right to Recover Payment

Once the insurer has made a payment for an “occurrence”, it claims the "insured’s" rights of recovery. In other words, the insurer may pursue any person or entity that may bear partial or total responsibility for the loss. The insured is obligated to make sure that he or she preserves the insurer’s right to be reimbursed from a party responsible for the loss.

Example: John Freescreen is a computer network specialist who has very flexible hours. As a favor to his friends and next-door neighbors, the Latchkees, John allows their daughter Leslie to stay at his house when she comes home from school. Mr. or Mrs. Latchkee picks Leslie up when they come home from work, so Leslie is usually at John’s home for an hour.

John allows Leslie to use one of his computers to play games. He even got her parents’ permission to allow her to go to a game Web site and download new games. John is sued by a couple of game software companies for illegally distributing working prototypes of games to various addresses on the Internet. It’s discovered that, unknown to John, Leslie had “hacked” her way past the software companies’ security and illegally downloaded and distributed dozens of games.

John’s umbrella insurer, Never Forget or Forgive Mutual, settles the claim and then sues the Latchkees to recover their payment.

H. Policy Period and Territory

Coverage under this insurance contract applies only to losses that take place during the policy period that is shown in the policy Declarations. Offenses or “occurrences” may be covered anyplace on earth.

I. Severability of Insurance

This insurance applies separately to each "insured." This provision does not increase the limit of liability for any one offense or "occurrence."

Example: The Foolhardee family is covered by a PUP with a one-million-dollar limit. During the current policy period, they suffered the following losses:

· Jim Foolhardee - sued for illegally confining two kids who were loitering in front of his house

· Joan Foolhardee - sued by three drivers and their families whom she struck with her van while traveling in the wrong highway lane

· Joy Foolhardee - stored some materials for a chemistry project in her school locker. During the night, fumes from the chemicals caught fire and burned down her high school

· Becky Foolhardee - took her dog, Slaughter, to nursery school for show and tell. Slaughter ate the school’s mascot (a hamster), and bit three of Becky’s classmates and her teacher.

Should all of the losses “pierce through” the underlying coverage, the PUP is obligated to provide coverage, up to its full insurance limit, for each occurrence.

J. Suit Against Us

Under this provision, an insurer makes several things clear concerning the decision to sue:

· A suit can’t be filed without first complying with the policy provisions

· No other parties can join the insurance company in any action against an "insured"

· The insurer may not be sued until the obligation of the "insured" has been determined by final judgment or agreement.

K. Termination

This PUP provision addresses both cancellation and non-renewal of an umbrella policy. However, a detailed discussion of this topic is fairly academic, since it is highly probable that the standard provision may be replaced by the subscribing carrier. This provision is necessary due to various state requirements, as well as individual company preferences. It is critical to keep in mind that state and company rules are what must be followed when terminating a customer's coverage. Understanding the PUP provision does, at least, explain the mechanics, rather than the actual rules, that control legal non-renewals or cancellations. An exception may exist concerning the portion of the rule which describes an insured’s request to cancel the policy. Still, individual companies may adopt their own rules requiring return of original policy, a lost policy receipt, or other stipulations that make it careless to make any assumptions.

1. Cancellation by You

The insured has it simple. All she or he has to do is either return the policy to the company or send prior written notice of the date the policy is to be canceled. The insured may request cancellation at any time during the policy period.

2. Cancellation by Us

It's a little more complicated for the insurer to cancel coverage. The company has to mail written notice to the named insured at the address shown on the policy Declarations page. The insurer must give 10 days’ advance notice of cancellation if the cancellation is for not paying the premium or if it is done within the first 60 days of coverage (new business).

After new business has been in effect for 60 days or for a renewal policy, cancellation may take place only if the insurer gives 30 days advance notice of cancellation.

3. Non-renewal

This option for ending coverage is only a company privilege. However, if an insured sent advanced, written notice not to renew coverage at the policy's expiration date, it technically would be an insured's request to non-renew. Regardless, if a company doesn't want to continue coverage, it has to give an insured at least 30 days advance notice of non-renewal.

4. Other Termination Provisions

Under this provision, an insured is told that cancellations are performed on a pro-rata basis. Further, any refund will be issued within a reasonable time after the policy's termination date (IF it isn't returned along with the cancellation).

L. Transfer of Your Interest in This Policy

A policyholder can assign his rights and duties under the PUP to another person, BUT ONLY with the written permission of the insurer. There is one exception to this rule and that involves the death of the policyholder. In that event, coverage is automatically transferred either to a surviving spouse (IF he/she lives at the same address) or the deceased's legal representative. Either party achieves the status of named insured. However, the legal representative is protected only to the extent of his/her duties to maintain or operate the covered vehicles. The insurer will only recognize such a transfer until the policy's expiration date. The working assumption is that appropriate coverage reflecting the change in circumstances will be obtained.

Note: Policy rights are often reassigned in the course of litigation and the validity of such assignments often becomes a separate dispute.

M. Waiver or Change of Policy Provision

The policy’s provisions may only be changed by a company-issued endorsement and any premium adjustment is made effective the date of any change.

ISO PERSONAL UMBRELLA LIABILITY POLICY COVERAGE ANALYSIS – 06/98

Introduction

The full name of ISO’s program is the Personal Umbrella Liability Policy, DL 98 01 06 98 edition. This coverage form, along with a group of companion umbrella endorsements, was introduced to complement ISO's other personal lines products. They refer to it as the PUP.

While the PUP was filed nationwide (with a few exceptions), the filing was done only for ISO and not on behalf of its service subscribers. ISO’s filing strategy was practical. It recognized the fact that many of its customers either had their own umbrella form or did not have an interest in offering an umbrella. The method used to file the PUP permits ISO’s customers to actively decide whether they wish to adopt the program. It also avoids inconveniencing subscribers who decide to continue with their own forms as well as the companies that continue NOT to make umbrella part of their product offerings.

While the concept of umbrella coverage has always been to handle individual, catastrophic exposures, such policies originated as a commercial specialty product. Later, umbrellas were used to handle the “deep pocket” liability exposures of wealthy individuals and those in high profile professions such as entertainers, doctors, lawyers, politicians and professional athletes. Ironically, the niche of customers that spurred the coverage’s expansion into a personal lines product became unacceptable. Certain professions were avoided through underwriting practice and later excluded by most excess liability contracts. Umbrellas continued their evolution as a routine product in response to the growth in the number of lawsuits and the trend of higher jury awards. Finally, insurers recognized how many more persons faced the possibility of causing damages that would either exceed or not be covered by the liability limits of primary (or underlying) auto or homeowner policies. Even a minor event can create a huge liability.

PURPOSE

The ISO PUP shares the goals of nearly all personal excess coverage since it is designed to do the following:

· act as a source of additional coverage which increases a person’s protection above the limits of liability provided by an individual or family personal auto, homeowners and personal liability policies and endorsements, and

· provide broader coverage to protect against liability to exposures that are not covered by underlying policies such as personal injury or certain non-owned exposures.

ANALYSIS OF POLICY

The Personal Umbrella Liability Policy Form DL 98 01 consists of an agreement, definitions, liability coverages, exclusions, additional coverages and conditions. Let’s take a closer look at each form part.

AGREEMENT

I. DEFINITIONS

A number of words of particular importance are defined in the ISO Personal Umbrella Liability Policy and are referenced throughout. The defined terms include the following:

The PUP uses the terms "you" and "your" when discussing the "named insured" appearing on the Declarations page and the named insured's spouse (if the spouse lives in the same household).

The terms "our," "us," and "we" are used as a reference to the company writing the umbrella coverage.

The PUP defines any private passenger auto, pickup truck or van that an insured controls under a long-term (usually at least six months), written lease as an owned vehicle.

“Autos” refer to:

· motorcycles, private passenger motor vehicles, mopeds and motor homes; or

· trailers, farm wagons and farm implements, but only while being towed by a private passenger motor vehicle. Note: Technically, a trailer that is being towed by a motor home may not be considered an “auto.”

"Bodily injury" refers to sickness, disease, or bodily harm; and includes any resultant death. The term also means any related loss of service or needed care.

"Business" means any trade, profession or occupation. In other words, any regular activity that is pursued for income.

In the PUP, “family member” refers to a household resident who is:

· a relative, including a ward or foster child

· a person younger than 21 who is in the care of an “insured” who is at least 21 years old.

The ISO Personal Auto Policy (since its 06 98 edition) defines “family member” as a person related to you by blood, marriage or adoption who is a resident of your household. This includes a foster child or ward.

Note: The definition of family member is broader under the PUP than it is under a PAP.

“Fuel system” refers to:

· one or more containers (of any type) which have a capacity of 100 or more gallons of liquid fuel which either did or does exist on an insured location and is/are used for heating/cooling, heating water, cooking food or powering motorized vehicles, watercraft or land conveyances

· motors, nozzles, gauges, pipes, hoses or apparatus attached to the defined fuel containers

· filler pipes and flues connected to the defined fuel containers

· boilers, furnaces or water heaters, including any fittings and pipes, which are supplied to the defined fuel containers

· any structure that is specifically designed and built to hold the liquid fuel that escapes from any defined fuel container.

“Insured” refers to the person named on the Declarations, a “family member,” and any person using an “auto,” “recreational motor vehicle,” or watercraft that is either owned by the named insured or is a temporary substitute for an insured’s vehicle or craft. Entities, to the extent of their legal liability created by an insured’s use of a covered auto, are also insureds. The term extends to animals owned by an insured. However, two classes of entities are specifically disqualified as “insureds”:

· the owner/lessor of either an “auto” or a “recreational motor vehicle” which is loaned or rented to an insured

· any entity which has custody of an insured’s animal as a result of a “business” or without an insured’s permission.

"Occurrence" is considered to involve either "bodily injury" or "property damage" that takes place during the policy period. Any such damage that is caused by exposure to a repeated or continual set of circumstances may qualify as a single occurrence.

Of course, anything within a contract can be disputed, including what is meant by "occurrence." An insurer may find that it may still be obligated under an excess policy long after a policy term ends. Although it involves a commercial umbrella, you will find it instructive to refer to PF&M Section 270_C098, "Umbrella Policy Held Applicable to Insured's Negligence for Property Damage Occurring Years Later" in Court Cases.

“Personal Injury” means injury resulting from any of the following:

· falsely arresting, imprisoning or detaining someone

· malicious prosecution

· wrongful evictions or entry, invasions of privacy

· slandering, disparaging or libeling another entity

· violating another person’s privacy rights.

"Property damage" refers strictly to tangible property that has been physically injured, lost or destroyed, including the loss of the use of tangible property. Therefore, claims involving intangible or intellectual property would not qualify for coverage under “property damage.”

“Recreational motor vehicle” includes all-terrain vehicles, dune buggies, golf carts, snowmobiles or any other motorized land vehicle that is meant for off-the-road recreation.

“Retained Limit” means the total of the limits which exist for any “underlying insurance” or other insurance that is available to an insured [emphasis added], including coverage which would have been available if the insurer providing the underlying insurance had not become bankrupt or insolvent. Retained limit also means the deductible that is shown on the declarations page. The specified deductible applies when a loss that qualifies for coverage under the PUP and is not covered by any other source of coverage, occurs.

“Underlying insurance” refers to any source of primary liability insurance that protects an insured against the types of liabilities listed on the Declarations and for no less than the limits that appear on the Declarations page.

Definitions in Relation with Underlying Coverage

An earlier section of this analysis mentioned that umbrella policies are designed to work with underlying/primary coverage. This is different than “stand-alone” coverage from several aspects, particularly in the area of defined terms. The PUP includes some of the same definitions that are found in the ‘98 edition of the ISO Personal Auto Policy and the 2000 edition of the ISO Homeowners 3 Special form. However, some terms have different definitions and there are also some terms that are unique to the PUP.

Identical definitions - the PUP, PAP and HO3 define the following terms exactly the same way:

· “We” and “Us”

· “Bodily Injury”

· “Property Damage”

Further, both the PUP and the HO3 contain the same definition for “occurrence.”

Different definitions

“You and “your”

While the PUP and the HO3 share the same definition for “you” and “your,” the PAP has a broader definition. The PAP considers a spouse who has moved into a new residence (due to separation or divorce) to be an insured for up to 90 days after the move. Therefore, a separated spouse might be covered for a very large loss under the primary auto policy, but not be protected by a PUP.

Covered autos

Both the PUP and the PAP consider private passenger autos, pickup trucks and/or vans that are in the custody of an insured under a written lease for at least six months to be “owned” vehicles. Therefore, all such vehicles would be eligible for coverage. But there is an area of concern. The ISO Personal Auto Policy provides protection for “your covered autos.” Included in that definition are “any vehicle shown in the Declarations” and “newly acquired autos.” The “newly acquired auto” definition includes private passenger autos, pickup trucks and vans (as long as the pickup truck or van is used for personal reasons only and weighs 10,000 pounds or less). On the other hand, the Personal Umbrella uses the term “auto,” which is defined as:

“A private passenger motor vehicle, motorcycle, moped or motor home or, while towed by a private passenger motor vehicle, a trailer, farm wagon or farm implement.” The umbrella’s use of the term “auto” is broad because it also includes mopeds, motor homes and motorcycles. Of course, this is necessary because of the need for the form to provide coverage in excess of the underlying liability limits for lines of business other than auto. However, focusing just upon the intent of offering excess auto liability coverage, the umbrella’s definition of “auto” does not include a reference to pickup trucks or vans, but rather to the undefined term private passenger motor vehicle. The use of this term could cause confusion. Since it’s an undefined and uncommon term, its meaning could be interpreted in a variety of ways:

· It creates uncertainty because the term is not consistently used in parts of the policy where it might be interpreted as a substitute. For instance, is a moped, motorcycle or motor home a private passenger motor vehicle?

· Any misunderstanding or uncertainty regarding the term becomes inherent in any portion of the policy that includes a reference to the defined term “auto.” Therefore, some problems may arise in the coverage and exclusion sections of the PUP.

· Even if the term is intended to be used another way to include pickup trucks and vans, there’s no reference to gross vehicle weight, so vehicles which are much heavier than intended may be included in the coverage.

· The policy makes a specific reference to private passenger autos, pickup trucks and vans in its definition of vehicles considered to be “owned vehicles” when possessed under a long-term, written lease.

· An argument may be made that a vehicle’s use as well as type can qualify it for coverage under the PUP. For instance, can the term eliminate any of the following?

- a privately owned, full-sized bus if it is used to transport a large group of friends to a sporting event and no fees are charged for the transportation;

- a lawn tractor used to clear snow from a driveway or adjacent streets;

- a privately owned van with a gross vehicle weight of 13,000 pounds; or,

- a motorized vehicle that operates on the water or in the air?

Family members/insured

Another difference in definition between the PUP, PAP and HO3 has to do with family members. (As an aside, the following should be considered in the light of how likely, in a claims situation, will company personnel care or bother to ask whether a younger insured is an insured’s birth child or an adoptee?) In the PUP, “family member” refers to a household resident who is:

· a relative, including a ward or foster child

· a person younger than 21 who is in the care of an “insured” who is at least 21 years old.

The ISO Personal Auto Policy (06 98 edition) defines “family member” as a person related to you by blood, marriage or adoption who is a resident of your household. This includes a foster child or ward.

The HO3 does not refer to family member, but “insured” and the term as it is defined includes:

you and residents of your household who are:

a. Your relatives; or

b. Other persons under the age of 21 and in the care of any person named above.

Because of the difference in definitions, a distinction may exist among the three programs regarding the status of an adopted child. While adoptees may be commonly thought of as a relative, the status of relative is conferred legally, similar to the (usually temporary) ward or foster child situation. Therefore, a 22-year-old college student who was adopted and is living with his or her adoptive parents may be considered a “family member” under a Personal Auto Policy, but not under a Personal Umbrella Policy. The situation is less clear under the HO3 as its reference to relatives may be interpreted to include adopted children.

Of course, such persons can still gain coverage status under other policy definitions, such as the adoptee mentioned earlier who is operating his parents’ covered auto. In this instance, coverage may exist under the umbrella for a driver operating a covered car with an insured’s permission. However, what if an auto-related liability arose under different circumstances? This difference could cause unwanted application of both coverages and exclusions.

Example: Chris Ramblun is 22. He was adopted by George and Lori Ramblun as an infant. Chris attends an out-of-state college and is listed as a part-time operator on his adoptive parents’ ISO PAP. Chris runs into a problem. He missed the last Greyhound bus that was to take him home for his parents’ 25th wedding anniversary. Desperate to get home to the family celebration (and without telling his parents), Chris uses his mom’s “emergency” credit card and rents a car. Chris feels great about the rental decision; he’s making terrific time, right up until the point where he cuts off a car too quickly while changing lanes on a very crowded interstate. He sideswipes one car and creates an 11-car pile-up. A number of cars are very heavily damaged and, worse, eight various drivers and passengers are hospitalized for serious injuries (one victim may even end up permanently paralyzed).

The good news is that his parents’ PAP will provide coverage. However, any damages above the PAP limits aren’t insured by the Rambluns’ ISO PUP policy as, per policy definitions, Chris is neither an insured nor a permissive operator of the non-owned car.

Personal Umbrella Policy Definitions

The Personal Umbrella Policy includes definitions for “Fuel system,” “Personal injury,” “Recreational motor vehicle,” “Retained limit,” and “Underlying Insurance.” These terms are not found in a typical primary policy, so they have a greater potential for creating an unexpected consequence between primary and excess coverage. One item that may bear closer scrutiny is the PUP reference to a fuel system.

Fuel system

This term refers to:

· one or more containers (of any type) which have a capacity of 100 or more gallons of liquid fuel which either did or do exist on an insured location and are used for heating/cooling, heating water, cooking food or powering motorized vehicles, watercraft or land conveyances

· motors, nozzles, gauges, pipes, hoses or apparatus attached to the defined fuel containers

· filler pipes and flues connected to the defined fuel containers

· boilers, furnaces or water heaters, including any fittings and pipes, which are supplied to the defined fuel containers

· any structure that is specifically designed and built to hold the liquid fuel that escapes from any defined fuel container.

Example: Nancy Skylorn has a large home on 30 acres which used to form the heart of one of the largest farms in Kornking County. Nancy retired from accounting a few years ago and now she indulges in her favorite hobby of flying her own plane. She even added a small landing strip on her property. Next to the large barn, which she converted into a hangar, is a free-standing, 200-gallon tank for plane fuel. Nancy has separate coverage for her plane. She is also covered by an ISO special form homeowner policy and an ISO Personal Umbrella. One day, Nancy is in a hurry to get to a sky show where she was asked to perform a stunt exhibition. Nancy quickly fuels her plane and leaves. She forgets to properly hang up the fuel hose. Several hours later, Nancy returns and stores her plane in its hangar. As she leaves, the wheels of her car snags the hose, it gets tangled and the force pulls the hose out of the tank. Fuel spews out, flooding the area surrounding the hangar. A county official inspects the accident and Nancy is told that she must have several tons of the contaminated earth dug up and removed. Since the fuel was used for fueling a plane, a use that is not used in the definition of a fuel system, the liability arising from this loss may be covered by the PUP.

II. COVERAGES

The ISO Personal Umbrella Liability Policy provides coverage under its insuring agreement for the expense to defend an insured. The insuring agreement obligates the insurer to pay for bodily injury and property damages or other offenses that exceed the “retained limit.” The insurer must also respond to an insured’s legal liability stemming from personal injury offenses. Prejudgment interest awards are also eligible for payment under damages.

Regarding defense coverage, the insurer will pay the cost to defend an insured against lawsuits, even when a suit or allegation has no merit, with the following limitations:

· the source of the suit must be the result of damages or offenses that are eligible for coverage under the PUP

· the insurer doesn’t have to defend in an instance:

- when coverage is provided by underlying insurance

- when the claim is not covered by underlying insurance, but the amount is less than the policy’s deductible.

The insurer also may join in the defense of a claim that has the potential to exceed the underlying carrier’s limits (but without contributing to the primary carrier’s defense costs).

The umbrella policy also provides the following additional coverages:

· the company pays for any taxes levied on the insured for the cost of defending a claim

· payment of premiums for claims-related bonds, up to the policy’s limit

· pays up to $250 daily for an insured’s expenses which are related to a covered claim

· finally, the umbrella insurer is obligated to pay its share of interest on any judgment, but not including the portion of interest on the sums that exceed the policy’s limit.

Let’s examine the first part of the PUP insuring agreement more closely. The agreement obligates the PUP carrier to pay BI and PD damages under the following conditions:

· the damages have to be greater than the applicable "retained limit"

· the insured has to be held legally responsible to pay the damages

· the damages must qualify for coverage under the PUP

Note: The policy still applies on an excess basis over any stated underlying limits when the applicable primary insurers are insolvent and can't meet their obligation.

It is possible that this portion of the insuring agreement could be ambiguous. It appears that the policy’s intent is to provide coverage on an excess basis to two situations. The first situation is to extend the coverage of the primary insurance policies (auto, homeowners, recreational vehicles and similar policies) that are listed on the PUP Declarations page. The second situation is when there is another source of valid, primary coverage for an exposure; but that source is not listed on the Declarations.

Limit Of Liability

The limit of liability which is shown on the policy Declarations is the maximum amount that will be paid for a single “occurrence.” This maximum obligation is not affected by any of the following:

· the number of "insureds"

· the number of claims made

· the number of persons injured.

III. EXCLUSIONS

The items which are not covered by the ISO Personal Umbrella Policy should come as no surprise to insurance professionals who are familiar with ISO policies. Let’s review them (briefly) using the same numbering as they appear under Section III. of the PUP, Exclusions:

Example: Ben Flaky is traveling along an interstate highway on his way to work and, after a horrible weekend and nightmarish morning, he’s in a terrible mood. Ben has to slam on his brakes to avoid hitting a car that abruptly merges onto the highway in front of his car. Ben, looking for some “payback,” rushes up to the driver’s rear bumper and continuously honks his horn. The other driver, who is oblivious to having cut Ben off, is startled by the sudden noise and loses control of her car. The startled driver swerves across two lanes and causes a serious pile-up, including Ben’s car. When Ben’s umbrella insurer gets information on the claim from the underlying auto insurer, they advise Ben that the umbrella won’t provide coverage, even though Ben merely intended to “shake up” the driver who cut him off.

The exclusion of intentional harm does not apply when the damage is the result of a person who is defending against being harmed by another party. The exclusion is also inapplicable when injury is caused by a person who is protecting others who are threatened by another party.

2. There is no coverage for “personal injury” when it involves any of the following:

· when the insured knows that the information that’s being spread is not true

· when the information creating the claim was spread before the inception date of the umbrella policy

· when it involves a criminal act either by or at the direction of the insured

· when the act that created the claim is related to the insured’s job.

3. Losses stemming from rental of the insured premises are also excluded. However, as exceptions, coverage IS extended to the following:

a. when the situation involves:

· occasionally renting out the insured premises for use as a residence (for instance, the Jones family goes for a two-week vacation and during that period rents their home to a family who is vacationing in their town)

· rental of part of the insured premises as a residence, even if on a long-term basis, but the situation is excluded if rental occurs to more than two roomers or boarders

· partial rental of the insured premises for use as a school, private office, private garage or studio

b. when the personal liability is covered by the underlying insurance for renting a structure other than the insured’s residence

c. where the underlying insurance provides coverage for a secondary or seasonal residential condo, co-op or apartment.

4. The PUP excludes all damages connected to an insured’s business, including professional services. The exclusion makes exceptions for:

a. an insured’s public or civic functions that involve no more than reimbursement of expenses

b. losses created by a minor’s business activity

c. the occasional or part-time business pursuit involving minors

d. home day care that represents a mutual exchange of similar services or when a covered person is caring for a relative

e. when an insured uses a covered auto in connection with selling, repairing, servicing, storing or parking vehicles made for use on public roads

f. the use of an auto for business purposes, unless it is used to transport persons or property for income.

5. The PUP excludes a loss that is related to professional services.

Example: Janie's home is insured by a PUP. Janie is a lawyer who works with one of her town's largest law firms. In her spare time, Janie offers legal assistance to persons in need and she has a spare bedroom that she uses as a law library and office. One day Janie is notified of a lawsuit filed by a young lady who was severely injured when, while leaving Janie's home, she tripped on a loose stair. Janie's PUP insurer denies handling the loss when the adjuster discovers that the plaintiff had just finished a meeting with Janie to get some legal advice.

6. There is no coverage under the PUP for aircraft-related “bodily injury” or “property damage.” This exclusion includes allegations of negligent entrustment or vicarious liability. Of course, there's always room for dispute about what is meant by aircraft and what eventualities may still qualify for coverage.

7. There is no coverage under the PUP for watercraft-related “bodily injury” or “property damage.” This exclusion includes allegations of negligent entrustment or vicarious liability, except coverage does exist to the extent of any underlying coverage.

8. There is no coverage under the PUP for recreational motor vehicle-related “bodily injury” or “property damage.” This exclusion includes allegations of negligent entrustment or vicarious liability, except coverage does exist to the extent of any underlying coverage.

9. Losses with any connection to war and warlike acts, including the discharge of a nuclear device, are not covered.

10. The PUP excludes losses involving a covered vehicle or watercraft that’s operated without an insured’s permission, but this does not apply to any “family member.”

Note: The example we used earlier in this article concerning a rental vehicle used by an adoptee could be an unintended extension of this exclusion.

11. Except for sailboats and log cruises, any use of a vehicle or watercraft in an organized race or competition is excluded.

12. Coverage for “bodily or personal injury” suffered by an insured is excluded by the PUP.

13. The PUP denies coverage for losses related to communicable diseases, sexual molestation, corporal punishment, abuse and unauthorized or illegal activity involving controlled substances.

14. Coverage for any damages connected to an insured’s actions as a corporate or organization officer or director is excluded UNLESS the only compensation is reimbursement of expenses.

15. No coverage is available under the PUP for damage to an insured’s property. Why? The PUP is a liability policy, designed to handle losses suffered by third parties that are caused by an insured.

16. Unless the damage is caused by fire, smoke or explosion, no coverage is extended for damage to property that is in the custody of the insured.

17. The PUP does not cover “bodily injury” losses when the person suffering the loss should be reimbursed under a workers comp, non-occupational disability or occupational disease law.

18. Coverage is excluded under the PUP for an insured whose “bodily injury” or “property damage” losses should be protected under a nuclear energy liability policy.

19. Liability under the PUP is denied for “bodily injury” or “property damage” losses due to fuel escaping a “fuel system.”

20. No coverage is provided for “bodily or personal injury” damages connected to the absorption, inhalation or ingestion of lead.

21. Finally, the PUP excludes “personal injury” or “property damage” losses caused by lead contamination.

There are two other areas were coverage under the PUP is denied. No coverage is provided for loss assessments to an insured as a member of ANY form of organization of property owners. Finally, the umbrella does not extend excess or first dollar coverage for losses involving either no-fault or uninsured/underinsured motorist liability unless the policy is explicitly amended by an appropriated endorsement.

The PUP's exclusion 4. may be of particular interest. Under that item, the policy explicitly bars coverage for losses involving an insured's business activity. No coverage is provided for BI, PI or PD when the damage or injury results from an insured's business, including acts and/or omissions.

While carpools would not be considered a business activity, any transportation of persons or property would disqualify a vehicle (and related loss) from the PUP's protection.

Concerning the exceptions to the business activity exclusion, the item regarding volunteer activities should be unnecessary since civic or public activities should not fall under the “business” definition (further, it may be redundant since the policy's exclusion A.14 addresses the exposure). The policy's item 4.b. appears to exclude business-related exposures by adults. Coverage is provided for business activities involving non-adults as long as the activity is common to minors and is done on a part-time basis. Since most minors are full-time students, nearly any “business” activity should qualify as a part-time venture. However, the policy language creates a question about what type of “business’ activities are common to minors. It would be interesting to examine the circumstances of a claim that might be denied because the activity is considered uncommon. Youths have different areas of interest and greater access to technology, so they may have gone far beyond the days of baby-sitting, lemonade stands and mowing lawns. . The following may be examples of legitimate “business” activities of minors that may qualify for coverage:

· A 20-year-old college student who lives in the insured household and charges for tutoring high school students in math and language

· A 17-year-old who delivers pizzas

· A 16-year-old with a newspaper route

· A 15-year-old who baby-sits after school, during weekday evenings and on weekends

· Minors under 18 or full-time students under 21 who:

- sell door-to-door as a summer job

- work as lifeguards at a beach or pool

- mow lawns or perform snow removal

- perform house-sitting or house-cleaning services

- give lessons in music, arts or crafts

- perform at parties as a “disc jockey” or in a band

- use a covered auto in a messenger or courier service

- operate an interior/exterior painting service

- design Web sites for individuals and businesses

- offer sports instructions or assist at (vacation or summer) sports camps/clinics.

Example: Bill and Marge Modum are insured by an ISO Personal Umbrella policy. Their son, PC (who is 16 years old), designs and maintains Web sites. The Modums are sued by:

· a group of parents who find out that PC is responsible for designing and posting the contents of a Web site that advertises an escort service consisting of cheerleaders from his high school

· a competitor of a “temporary employee” business for which PC designed a Web site. The site states that the competitor uses unqualified workers

· one of PC’s clients, six months after the site was published, who discovers that the site has the wrong mailing, Fax, e-mail and phone numbers. They claim a substantial loss in income since their Internet service provider’s records show that the site gets hundreds of visitors each week.

The situations arising out of PC’s part-time activity fall in a gray area that may have to be both defended and paid under the umbrella policy.

Regarding exceptions d. and e of Exclusion A.4 that exempt auto businesses, their meaning may be subject to greater interpretation in light of our previous discussion about how the policy defines “auto.”

IV. MAINTENANCE OF UNDERLYING INSURANCE

This portion of the policy obligates an insured to maintain the “underlying” insurance, not to change coverage to a more restrictive basis and to notify the insurer if any portion of the “underlying insurance” is lost and is not replaced. If “underlying insurance” coverage is lost, the total limit of liability available under the PUP remains the same.

Note: While an insured is required to notify the company if coverage is lost, there’s no mention of notification if coverage becomes more restrictive (in case the policy’s intent was to include a lower coverage limit as a restriction). Further, if an insured loses coverage and immediately notifies the company, what then? Is that considered to be a courtesy and the insured must try to find replacing coverage, or has the insured complied with this provision and may now rely on the umbrella coverage to “drop down” and provide the needed protection up to the PUP’s limit of insurance? This provision may need to be clarified in a future edition of the form.

V. DUTIES AFTER LOSS

In case of an accident or "occurrence," the "insured" is required to:

A. Give written notice to the insurance company or the agent as soon as it is practical. The loss notification should include:

1. The insured’s name and specific policy information such as policy number and effective dates

2. Details regarding the time, place and circumstances of the accident or "occurrence"

3. Claimant and witness names, addresses, contact information, etc.

B. Besides notifying the insurer of a claim in writing, the insured must send the insurance company every notice, demand, summons, or other process relating to the accident or "occurrence". This is the best way to make sure that the insurer is provided an adequate opportunity to evaluate and handle a possible claim.

When the insurance company requests cooperation, the "insured" must help:

· with making a settlement

· pursue other parties who have an obligation to either share or reimburse the insurance company for a loss payment that it makes on behalf of an insured

· with lawsuit details, attending hearings and trials

· gather and give evidence and help to secure witnesses.

An insured that does not fully cooperate with an insurer could endanger his or her coverage. Technically, an insurer may deny coverage based on non-cooperation. However, courts are increasingly reluctant to support a loss of coverage for a "technicality."

C. If the “insured” volunteers to make a payment under any other circumstance, it is at his or her own expense. Making voluntary payments is dangerous since it could compromise the rights of the insurance company. Such voluntary payments could be interpreted as admitting responsibility for causing injury or damage.

VI. GENERAL PROVISIONS

The PUP provisions are, in most cases, very similar (and sometimes identical) to those found in other ISO policies. The provisions are:

A. Appeals

The umbrella insurer reserves the right to appeal a judgment that exceeds the “retained limit”, but at its own expense. Such expenses would be in addition to the policy’s limit of insurance.

B. Bankruptcy of an Insured

These economic events will neither absolve the umbrella insurer of its duty to provide coverage, nor will it cause the excess policy to act as primary insurance.

C. Bankruptcy of an Underlying Insurer

Regardless of such an occurrence, the excess policy will still respond as though primary coverage was in effect.

D. Fraud

An insured’s fraudulent statements or acts could bar coverage for a loss.

E. Liberalization Clause

This provision deals with a company's decision to change policy coverage. When a carrier makes a change that results in an increase of coverage and if the change is done for free, that change will automatically apply to all policies within the applicable state. The automatic extension of coverage only applies to policies that have an effective date that is within 60 days of the implementation of the coverage change.

In other words, if the company makes a change under the following circumstances:

· the change creates additional coverage

· no additional money has to be paid to secure the coverage

· the change is made up to 60 days before the insured’s policy effective date and

· the change applies on a statewide basis for a policy form that has the same edition date as your policy,

then the change will automatically apply to your policy on the SAME DATE the change becomes effective.

F. Other Insurance

G. Our Right To Recover Payment

John’s umbrella insurer, Never Forget or Forgive Mutual, settles the claim and then sues the Latchkees to recover their payment.

H. Policy Period And Territory

I. Severability Of Insurance

This insurance applies separately to each "insured." This provision does not increase the limit of liability for any one "occurrence."

J. Suit Against Us

Under this provision, an insurer makes several things clear concerning the decision to sue:

· a suit can’t be filed without first complying with the policy provisions

· no other parties can join the insurance company in any action against an "insured"

· the insurer may not be sued until the obligation of the "insured" has been determined by final judgment or agreement.

K. Termination

1. Cancellation By You

2. Cancellation By Us

It's a little more complicated for the insurer to cancel coverage. The company has to mail written notice to the named insured at the address shown on the policy Declarations page. The insurer must give 10 days advance notice of cancellation if the cancellation is for not paying the premium or if it is done within the first 60 days of coverage (new business).

After new business has been in effect for 60 days or for a renewal policy, cancellation may take place only if the insurer gives 30 days advance notice of cancellation.

3. Non-renewal

4. Other Termination Provisions

Note: This part of the provision may be incomplete. Due either to an oversight or typo, the provision wording only lists sub-parts c. and d., but no a. or b. However, under this provision, an insured is told that cancellations are performed on a pro-rata basis. Further, any refund will be issued within a reasonable time after the policy's termination date (IF it isn't returned along with the cancellation).

L. Transfer Of Your Interest In This Policy

M. Waiver Or Change Of Policy Provision

The policy’s provisions may only be changed by a company-issued endorsement and any premium adjustment is made effective the date of any change.

PUP Definitions In Relation With Underlying Coverage

Identical definitions - the PUP, PAP and HO3 define the following terms exactly the same way:

· “We” and “Us”

· “Bodily Injury”

· “Property Damage”

Further, both the PUP and the HO3 contain the same definition for “occurrence.”

Different definitions

“You and “your”

Covered autos

· An argument may be made that a vehicle’s use as well as type can qualify it for coverage under the PUP. For instance, can the term eliminate any of the following?

- a privately owned, full-sized bus if it is used to transport a large group of friends to a sporting event and no fees are charged for the transportation;

- a lawn tractor used to clear snow from a driveway or adjacent streets;

- a privately owned van with a gross vehicle weight of 13,000 pounds; or,

- a motorized vehicle that operates on the water or in the air?

Family members/insured

· a relative, including a ward or foster child

· a person younger than 21 who is in the care of an “insured” who is at least 21 years old.

The HO3 does not refer to family member, but “insured” and the term as it is defined includes:

you and residents of your household who are:

a. Your relatives; or

b. Other persons under the age of 21 and in the care of any person named above.

Personal Umbrella Policy Definitions

Fuel system

This term refers to:

· motors, nozzles, gauges, pipes, hoses or apparatus attached to the defined fuel containers

· filler pipes and flues connected to the defined fuel containers

· boilers, furnaces or water heaters, including any fittings and pipes, which are supplied to the defined fuel containers

· any structure that is specifically designed and built to hold the liquid fuel that escapes from any defined fuel container.

PERSONAL UMBRELLA LOSS EXAMPLES

This article offers a variety of claims that had been processed, defended and paid under various personal umbrella liability insurance policies offered by different insurance companies. In the opinion of those concerned, underlying insurance was inapplicable. Keep in mind that that different policies vary in both coverages and exclusions.

BOATING

Situation 1 - The insured chartered a sailboat for a race. During the race, the mast broke and struck a member of the crew, who was seriously injured. No primary coverage was available to the insured, but a personal umbrella liability policy was applicable.

Situation 2 - During their vacation, a family rented an inboard-outboard boat. The boat was rated considerably in excess of 50 horsepower. While (towing and) watching his water-skiing child, the insured ran into and seriously injured another person. His homeowner’s policy (Section II) was not applicable because of its exclusion of owned or rented inboard and inboard-outboard watercraft of more than 50 horsepower. His personal umbrella liability policy was applicable.

CIVIC ACTIVITIES

Situation 1 - The insured was a member of an incorporated school board. He and other school board members were sued by a schoolteacher for defamation of character. The question was raised whether the business pursuits exclusion of his personal umbrella liability policy applied to the claim. It was decided that civic service of this nature was not "business activity" and that personal acts in connection with his school board duties were eligible for coverage.

Situation 2 - The insured, which was on a school board, was sued individually by a dismissed teacher who alleged racial discrimination. The umbrella policy provided defense coverage for the claim.

Situation 3 - An insurance agent who was a member of a city school board agreed with a board decision to "not re-hire" a particular teacher. The decision was due to the recommendation of the school’s superintendent. The superintendent adequately documented the teacher’s inability to perform her job. As a result of this action, the board was sued and each of the members was included in the suit as individual defendants. The teacher alleged that she was deprived of her civil rights.

The city attorney advised that, under the city code, it could provide a defense for the board, but not the individuals. The agent's umbrella carrier supplied him with an attorney. Several other board members carried similar insurance and their insurers agreed to the same attorney. Fortunately, it was found that the statutes of the state permitted a local school board to provide defense for individuals in such a matter and the expense was eventually paid by the board. Furthermore, the case was thrown out of the Federal District Court.

Situation 4 - The insured, who was a municipal commissioner, allegedly slandered two policemen. His personal umbrella liability policy provided coverage against the claim.

Situation 5 - The insured, who had never been a politician, ran for governor. His campaign focused upon corruption in state government. He was subsequently sued for libel. The insured’s umbrella insurer paid for the cost of his defense as well as the judgment awarded to the claimants.

PERSONAL INJURY

The following incidents were also handled by their respective umbrella insurers:

Situation 1 - It was alleged that the insured libeled the claimant (who was a state legislator) in a newspaper column.

Situation 2 - The claimant alleged assault and wrongful detention by an employee of the insured. The insured owned a farm and the claimant was a reporter attempting to get a story.

Damage to Property in Custody of the Insured

Situation - The insured borrowed a tractor from a neighbor and seriously damaged it. His personal umbrella liability policy covered the loss, subject to the self-insured retention.

Foreign Territory Claims

Situation 1 - The insured was driving a rental auto in Jamaica and was involved in a fatal accident. Very limited coverage ($10,000) was available from the rental company. The underlying automobile policy carried on his cars in the United States excluded losses occurring outside of its territory. His personal umbrella liability policy was applicable.

Situation 2 - The insured rented an automobile in France and was involved in a serious accident. Only limited coverage was available to him there. His umbrella responded.

Liability Assumed By Contract

An insured contacted a driveway contractor and asked that they pour a driveway for her. She signed what she thought was a simple purchase agreement without reading it. The contract contained a provision that held the contractor harmless. The contractor negligently poured half a load of cement down a storm sewer. When the city demanded compensation, the contractor produced the agreement containing the "hold harmless" provision. The ensuing claim against the insured was handled by her personal umbrella liability insurance.

Rented Motorcycle Claim

The insured's son, a college student, decided to rent a motorcycle for the day. He was involved in a serious accident. The insured’s underlying automobile liability insurance and homeowner’s Section II (personal liability) insurance did not cover the ensuing third party claim. The insured's personal umbrella liability policy did.

True Umbrella Or Following Form

The scope of coverage affects the cost of that coverage. IF the policy involved is a true umbrella, then any premium will reflect the fact that the policy will respond to a broader range of losses that may fall outside of the protection that exists in the underlying coverage. Conversely, a following form policy acts strictly as excess coverage. Its purpose is to increase the limits of insurance for the exact scope of coverage found in the underlying layer.

Example: Melissa owns a home that is protected by a HO policy and an excess liability policy. In the years since she originally bought the protection, she has started a modest business in her home. Melissa, a gifted seamstress, makes beautiful quilts and custom window treatments. Melissa's HO policy is not modified by any type of business endorsement. One day, Melissa has an open house to display her work and to attract some new customers. She serves food throughout the open house and the event is well-attended. A couple of weeks later, Melissa receives a flurry of legal papers. Most of her visitors became violently ill because of food poisoning (from bad potato salad).

Scenario 1 - Melissa's excess policy is a following-form contract and it will not respond in any manner to the loss since the underlying HO excludes any loss related to business activity.

Scenario 2 - Melissa's excess policy is an umbrella contract and, because the food poisoning circumstances might be considered ultimately as a social host rather than as a business exposure, the umbrella insurer agrees to handle Melissa's legal defense against the lawsuits and may end up handling any settlements as well.