Liability insurance is already vast and complicated, but one aspect of it has flown relatively under the radar in New Zealand.
What is umbrella insurance?
Umbrella insurance – also known as an excess liability policy – is designed to protect you from major claims and lawsuits, and is often a key component to a solid asset protection cover. It comes into force if your other liability policies hit their limit during the course of a claim, and the cover will pick up the remaining costs that you are liable for.
One example is the following scenario: if are involved in a car accident, you are at fault, and car repairs and injury treatment total over $500,000 – or whatever the cap is on your policy – then umbrella insurance will pick up the cost beyond the limits of your car insurance coverage. This could mean the difference between being fully covered, and potentially picking up a hefty bill as a result of your normal policy limits.
An umbrella insurance policy primarily protects against damage to property or accidental injuries, however it can also protect against libel, vandalism, slander and invasion of privacy. The added coverage is useful in situations where a significant volume of expensive assets are at risk of being sued.
Who might benefit from an umbrella insurance policy?
People who make use of umbrella insurance usually own property, have vast amounts in savings, or engage in activities that are at a high risk of causing injuries.
They might also engage in activities that increase their risk of getting sued – landlords, sports coaches, volunteers and sportspeople at a high risk of injury being some examples.
What should your clients take into account when purchasing a policy?
As with any insurance policy, clients need to decide how much they reasonably need to be covered for. This involves taking the total value of their assets into consideration, along with their levels of risk.
According to liability insurance expert Joseph Weiss of Bruce Gendelman Insurance Services, as quoted by Forbes: “Some insurance companies put a cap on the size of the umbrella policies they provide. Usually this is $5 million. First of all, most any really serious accident could conceivably blow through a $5 million liability policy. Now if your net worth is $5 million or less…no problem. Other hand, if your net worth is greater than $5 million, it’s probably a good idea to get a larger umbrella policy.
“If a legal judgment is greater than your liability coverage, you are going to have to come up with the difference and that usually means selling assets…sometimes at fire sale prices.”
Is there anything umbrella insurance won’t cover?
While umbrella insurance is designed to give extra peace of mind, it is worth noting that the cover usually comes with some exclusions.
Personal property
While the cover will take care of costs associated with damages to someone else’s property, it won’t usually apply if you accidentally damage your own property. It is therefore worth ensuring that your home and contents policy is correct and up to date.
Business losses
This exclusion usually applies even if your business is home-based. Umbrella insurance usually doesn’t cover liabilities such as a malpractice lawsuit, or losses in connection with your position within a for-profit organisation.
Criminal or intentional actions
An umbrella policy won’t provide cover if you intentionally cause harm or engage in illegal behaviour. It will not pay for any damages related to a conviction for a crime, or for damages that you caused intentionally.
Contracts
Umbrella insurance won’t usually protect you from any liability that arises in connection with an oral or written contract that you’ve entered into – i.e. if you’re facing a lawsuit from someone you’ve contracted to work on your home.
Where can I find umbrella insurance in New Zealand?
Several providers have options for umbrella insurance cover. Key providers include the following:
Chubb’s “Sleep Easy” cover offers “a broad coverage with higher limits across a range of liability exposures,” with cover including both New Zealand-based and foreign operations.
QBE’s personal umbrella policy offers up to $5 million in additional protection against libel, slander and defamation of character, along with cover for defence attorney costs for applicable claims. It also offers excess liability coverage for most watercraft under 50 feet.
Zurich offers an umbrella insurance policy covering personal injury, property damage and advertising liability.
