Finding the right amount of excess liability coverage is a tough question that often goes unanswered.
This is particularly daunting for affluent individuals and families as they face a scarcity of reliable recommendations, and the advice they do receive often comes with conflicting opinions. What works for one person may not be suitable for another due to various lifestyles, family sizes, and levels of wealth.
To complicate matters, when seeking professional advice, it can be surprisingly difficult to get various professionals to commit to a recommendation. Attorneys may caution against carrying too much coverage and cite potential risks, while insurance companies won’t typically advise their insureds as to appropriate amounts of umbrella coverage, telling them to consult their agent instead.
Accountants and agents also contribute to the complexity by redirecting clients to other professionals for guidance. This situation creates confusion and frustration as each party defers responsibility.
Collecting Data – The Courts
Professionals like attorneys and insurance agents often lack the experience needed to provide reliable advice on rare, hypothetical high-liability events. While these events represent real risk, not every professional has the expertise to offer wholistic and reliable advice.
To find more reliable insights, we analyzed aggregated data from three primary sources: courts; attorneys and insurers. When a personal injury or property damage claim is litigated, a plaintiff can get paid from either a court award (public information) or an out-of-court settlement (confidential).
We reviewed 538 court awards or settlements valued over $5 million from the past five years in California, Florida, New York and Texas. Here are our key findings:
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317 verdicts in favor of plaintiff with the average award between $23 and $41 million
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87 settlements in favor of plaintiff with the average award between $8 and $16.5 million
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Converts to 75% of all these cases resulting in plaintiff victories
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The main cause of these claims is vehicle-related (automobiles, snowmobiles, boats, ATVs, etc.)
What Lawyers Look For
Attorneys often handle personal injury cases on a contingency fee basis. You’ve seen the ads: “We don’t get paid unless you get paid.” This means lawyers aren’t going to take just any case. In fact, there’s a trifecta that must exist for a lawyer to take the case:
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Liability of the defendant must exist regardless of percentage of fault assessed
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Damage/bodily Injury must exist. Bodily injury represents potential for highest awards
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Deep pockets must exist
Insurance Company Perspective
We spoke with claims executives from the five leading insurers of the wealthy individuals, gaining insight into their claims that were settled out of court (not publicly available). Based on their input, a typical average, per company:
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25+ cases > $1 million
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8-12 cases > $5 million
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2-3 cases > $10 million
The largest payouts for these four insurers ranged between $15 and $50 million. However, the verdict value is rising faster than most previously predicted. Some factors impacting this growth include “social inflation” which is driven by resentment factors. These include drugs, alcohol and/or texting while driving as a contributing cause of an accident.
Personal Impacts: Things Can Get Scary
It’s difficult for wealthy individuals and their families to get credible information even when talking to professionals (i.e., insurance agents, accountants or attorneys). It’s important for them to take a practical and realistic approach in determining their appropriate coverage level.
For example, imagine a family that enjoys outdoor activities like snowmobiling and boating, with teenage children whose friends share those interests. While the family may trust their children’s judgement and behavior while using these vehicles, what about their friends? What if something happens involving other people in different vehicles? It is important for families to discuss realistic risks like this with their professional advisors.
One’s risk exposure isn’t just based on net worth, but on the potential harm to property and people. If you would like to discuss your potential exposure and available coverage options, contact NSI.
