ELITE ADVISOR BEST PRACTICES
Helping HNW Clients Assess Personal Liability Risk Factors
Insurance professionals who specialize in high-net-worth personal lines can be a big asset to your clients and help you cement your client relationships.
By David Hubbard
- Most high-net-worth people don’t have enough coverage in place to protect them adequately from personal liability claims.
- Wealth can make people more of a target for litigation due to their perceived “deep pockets.”
- Insurance professionals who specialize in high-net-worth personal lines solutions can provide the high coverage limits required to protect successful lifestyles.
Too often people find out that the insurance policies they’ve been counting on have gaps in coverage or are simply inadequate to cover the types of exposure they face. That’s a hard enough truth to face when everything is calm. Making that discovery after someone has filed suit against you can cause significant financial damage and mental distress.
So, how do careful, responsible people find themselves unprotected even though they have insurance? It’s usually because they’ve neglected to compare their coverage limits and breadth with their current lifestyle.
Even many financially savvy people greatly underestimate the amount of liability coverage they need. It’s easy to understand why: Responsible, successful people are used to giving careful thought to a situation before they act and they don’t see themselves as engaging in risky behavior. But no matter how careful you are, there’s no way to predict everything. And the more complex your lifestyle is, the greater the chance of a curveball coming your way—a bitter former household employee who claims harassment or improper firing, a neighbor with an ax to grind, or even an underinsured motorist who hits your vehicle and can’t pay for the damage he or she has done.
Excess liability insurance can protect the assets of your high-net-worth clients from unforeseen accidents and mishaps. To make sure they’re fully protected in a worst-case scenario, use the following points in your discussions and planning sessions.
- Your excess liability policy limits should match your net worth. If a judgment or settlement exceeds the coverage provided by primary policies, insufficient coverage can put personal assets at risk. If the current insurance provider can’t offer sufficient coverage limits, know that more fitting solutions are available elsewhere. Insurance carriers that specialize in high-net-worth personal lines typically can offer coverage limits of up to $100 million.
- Some situations are not addressed in standard “umbrella” policies. Depending on your lifestyle, it may be prudent to add coverage for specific risk factors such as employing domestic staff or sitting on a not-for-profit board.
- All secondary homes, watercraft, cars and off-road vehicles should be listed on the excess liability policy. Relying on primary insurance to cover liability incidents with these types of properties will usually leave you with significant coverage gaps.
- Make sure your insurance agent knows if any special circumstances apply to the homes or vehicles named on the policy. Examples: assets owned by a family trust or LLC; vehicles used for racing; or homes or vehicles that generate business income from tours or exhibits.
- If your children, domestic staff or others ever use your vehicles, make sure these additional risks are included in your coverage.
- If you have household staff, your insurance advisor may need to document additional information for the policy, including the kinds of background checks that have been performed on the staff and if you have workers’ compensation insurance in place.
The need for excess liability insurance: real-life examples
It’s an unfortunate fact that accidents can stem from innocuous, everyday activities. And in today’s litigious society, a single incident can cause significant financial consequences for your family. Here are a number of real-life scenarios that underscore the need to protect your net worth as completely as possible:
1. Negligence at home. A houseguest dove into a pool, sustained injuries and became paralyzed from the waist down. Claiming the injuries resulted from poor lighting in the pool area, the guest sued the homeowner for $30 million.
2. Underinsured motorist. While en route to his granddaughter’s soccer game, an executive was rear-ended and tragically sustained fatal injuries. The driver at fault had policy limits of only $400,000—not nearly enough to compensate the estate and family properly.
3. Parental liability. A teen was driving a “souped-up” golf cart in her gated community and made a sudden turn. Her friend was ejected from the cart and sustained a serious head injury. The accident resulted in a seven-figure settlement.
4. Actions of household staff. A couple offered to host a charity event at their estate. During the setup, the housekeeper instructed workers to take a route around the side of the house and through the pool area. The tiled patio was wet, causing one of the workers to fall and suffer serious injuries. Although they weren’t even on the property at the time, the homeowners were sued; they were vicariously liable for their staff member’s actions and the subsequent injuries.
5. Employment practices liability. A housekeeper who worked for the same family for nearly 15 years filed a wrongful termination claim against her employer. The family members, including the children, were forced to testify during a lengthy trial, which ended with a hung jury. Although the case was ultimately settled, the family incurred over $1 million in legal fees.
6. Malicious prosecution. An art collector loaned a famous painting to a family member and later requested its return. The relative refused, claiming the painting had been a gift. In response, the collector contended it was stolen; he filed a police report and litigation ensued. Additionally, the collector sent unflattering emails about the relative to various individuals in the art community. The painting was eventually returned and the collector dropped the theft lawsuit. However, the collector was then sued by the relative for malicious prosecution and defamation.
Insurance claims can be disruptive on many fronts, and liability claims in particular can take a great deal of time to resolve. Your clients with substantial wealth can benefit from consulting an independent insurance agent or broker who specializes in the high-net-worth niche. Working with a true specialist is the best way to access the broadest range of product and service solutions designed for their lifestyle.