ELITE ADVISOR BEST PRACTICES
Current Trends Impacting Personal Liability Risk
Case studies explain 3 prevalent threats to your clients’ wealth
By Dawn Quinlivan
- Wealth can make your clients targets for personal liability litigation. The best way to protect one’s assets and reputation is to obtain adequate limits of excess liability insurance via an independent insurance advisor.
- Allegations of property damage and personal injury most often stem from everyday activities.
- Parents can be held legally responsible for the acts of their minor children. Encourage parents to talk to their kids, particularly teens, about how to conduct themselves at home, on the road and online.
From an insurance standpoint, your most successful clients are likely some of the most overexposed and under-protected individuals. Those with considerable assets are often naïve about the breadth and depth of the risks they face due to their wealth. Many will rightly consider themselves safety conscious, careful with their own actions and cautious of others’ motives. Therefore, it is hard for them to think of a good neighbor becoming adversarial, a trusted private employee turning on the family or the unforeseen consequences of youthful exuberance. However, these unexpected events are what drive the ever-upward trend in jury awards and damages for personal liability litigation.
Unfortunately, most wealthy U.S. consumers (those with a total net worth of more than $5 million) do not carry adequate insurance to protect their hard-earned assets. For starters, only a select group of providers sell personal excess liability policies with limits above $5 million. When you compound that with the fact that a large percentage of affluent individuals buy insurance without the guidance of a professional independent agent or broker—the ones with access to more-sophisticated insurance programs—the deficiency is not surprising.
Staying abreast of evolving exposures can enable you to raise issues proactively with your clients and strengthen your role as someone they can trust. The following are some of the most prevalent areas of exposure, according to the U.S. personal liability claim specialists at global insurer Chartis. These exposures undoubtedly impact the population as a whole, but the knowledge (and coverage) gap in the high-net-worth sector elevates the risk to another level.
1) The downside of social media
While reviewing her personal email, a wealthy woman came across a new message that recounted an embarrassing personal matter of an acquaintance. Finding it humorous, she forwarded the email to a number of contacts and posted the entry on Facebook. No independent comments were added in either instance. However, the item turned out to be false and the acquaintance sued for libel and defamation of character. Although the lawsuit was eventually dismissed, the woman’s personal email and computer files were subpoenaed, and hefty expenses were incurred.
The cost: more than $75,000 in legal fees and expenses.
Facebook, Twitter, LinkedIn and other social media sites are used and viewed more widely than ever. Twitter alone has more than 140 million active users who send upward of 340 million tweets each day, according to March 2012 data from TweetDeck. One’s opinions can be shared instantaneously with a worldwide audience, and this ease tends to belie the risk.
Social media content has been used as evidence in a number of widely publicized lawsuits, and bloggers have been sued for libel and defamation of character as a result of the content of their messages. Here’s a more public example. In March 2011, Billboard reported that musician Courtney Love settled a lawsuit filed by her fashion designer who alleged that the singer defamed her in a series of tweets. The reported settlement value? $430,000.
Liability risk is not limited to the one who does the typing. Parents can also be sued for the actions of their minor children. Lawsuits are being filed with allegations against parents for negligent supervision of their children. These lawsuits can be costly to defend and often include subpoenas of all personal email and computer records.
2) Risk on the road
A young driver was involved in a head-on collision that killed a female student in her early 20s. The driver’s cell phone records proved that several text messages were sent and received at the approximate time of the crash. The driver’s record also showed that this was not the first time he engaged in dangerous driving behavior. The family of the victim sued the young man for negligence. They also sued his father, claiming that as the owner of the vehicle he was negligent in entrusting his vehicle to his son in light of his driving record. A jury ruled in favor of the victim’s family.
The cost: a jury award of nearly $22 million.
When your clients or their kids get behind the wheel, they encounter much more than traffic.
Although auto-related fatality rates were down in recent years, nonfatal automobile injury claims continue to rise, according to the 2010 edition of Verdict Research-Current Award Trends in Personal Injury. The mean jury award for vehicular liability increased by 54 percent from 2002 to 2008. Medical costs and treatment continue to escalate as well. In 2010, juries across the country returned several multimillion-dollar verdicts in automobile-related lawsuits. Drunken drivers beware: Jury verdicts against intoxicated drivers were punishing and included $16.6 million in Palm Beach County, Fla.; $33.2 million in Lake County, Ill.; and an incredible verdict of more than $330 million in Hernando County, Fla.
Studies also indicate that more and more uninsured drivers are on the road. The Insurance Research Council reports that as many as 13 percent of drivers, or one in every seven, on the road is uninsured. An Ohio Insurance Institute study found a direct relationship between unemployment rates and uninsured drivers; for every 1 percent rise in unemployment, there was a ¾ percent rise in uninsured drivers.
Teenage drivers are in a class of their own in that they face a multitude of dangers and distractions: general inexperience, cellphones, excessive speed, entertainment and GPS systems, and even the friends sitting beside them. Access to luxury and high-performance cars can also heighten the chance of an accident. In fact, drivers aged 16 to 19 have the highest average annual crash and traffic violation rates of any other age group according to recent data from the Centers for Disease Control and Prevention.
Although most advertising campaigns suggest that car insurance is a commodity purchase, there can be significant coverage differences from company to company. High-net-worth insurance providers are much more likely to adequately address high-value damage and liability expenses.
3) Private staff, public lawsuits
A housekeeper who worked for the same family for nearly 15 years filed a wrongful employment claim against her employer. The lawsuit consisted of more than 20 counts, including wrongful termination, sexual harassment, false imprisonment and invasion of privacy. The family members, including the children, were forced to testify during a lengthy trial that ended with a hung jury. The case was ultimately settled.
The cost: more than $1 million in legal fees.
Many high-net-worth individuals employ domestic staff. Personal assistants, nannies, butlers, valets, chauffeurs, gardeners and housekeepers frequently assist in running and maintaining the household or property.
Just as we saw in the corporate sector, the recent economic downturn caused many to reduce their workforces. As a result, a number of lawsuits have been filed by former domestic employees claiming wrongful termination and/or some form of discrimination.
In the business world, a human resources department can maintain records including job descriptions, performance reviews, etc. These same records are seldom maintained for domestic staff. Failing to manage domestic staff with the same structure and discipline as a commercial business can put your high-net-worth customers’ personal wealth at risk. Defending a lawsuit without adequate documentation and support becomes extremely difficult and potentially costly. Workers’ compensation insurance is another consideration. In fact, 23 states now require workers’ compensation coverage for domestic staff in order to protect against on-the-job injuries.
Domestic employees have access to properties, assets and families on a day-to-day basis, and it is critical to ensure that these individuals are reliable and trustworthy. Some risks can be avoided if more upfront attention is paid. Advise your customers to consider candidate sourcing, writing formal job descriptions, augmenting the interview process, conducting background checks, verifying work authorization and seeking assistance with new-hire forms.
It is important for high-net-worth clients to fully understand their liability risks. In addition to the trends described above, their overall lifestyles create unique exposures:
- Owning exotic cars, powerful boats, homes with pools, firearms or other items that pose inherent danger
- Sitting on nonprofit boards, where underlying liability coverage may be minimal
- Entertaining at home, which increases the chances of injuries on the property
A broad array of coverage and services are designed specifically for this population. By introducing your clients with substantial wealth to more-suitable insurance solutions, everyone wins.