AAIS PERSONAL UMBRELLA LIABILITY PROGRAM ARCHIVE

(November 2023)

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

Archive Index
Analysis	UM 0001–AAIS Personal Umbrella Liability Coverage Analysis
Endorsements	AAIS Personal Umbrella Optional Coverage Endorsements
Quiz	AAIS Personal Umbrella Liability Coverage Analysis Knowledge Tester Quiz
Checklist	AAIS Personal Umbrella Liability Policy Endorsements Checklist

UM 0001–AAIS PERSONAL UMBRELLA LIABILITY COVERAGE ANALYSIS

The personal umbrella program offered by the American Association of Insurance Services (hereafter referred to as AAIS) is like its peer documents, opening with a table of contents.

The table of contents consists of the following:

· Agreement

· Definitions

· Principal Coverage

· Defense Coverage

· Loss or Claim Provision

· Loss Settlement Provision

· Other Insurance Provision

· Policy Conditions

The form advises of the need to examine the applicable declarations page for coverage options and schedules which may affect coverage and to be aware of defined terms.

AGREEMENT

This part states that the policy is subject to all of its terms and will provide coverage that is described in the policy. These coverages are provided for a specific policy period. In return for this protection the insured must pay a premium as required.

DEFINITIONS

The definitions section appears immediately after the Agreement.

You and Your

The person(s) who appear on the declarations as insured(s). The named insured’s spouse is also defined as you, but ONLY if he or she lives in the insured's household.

We, Us, And Our

The company providing the liability coverage.

Bodily injury

Actual or physical harm to a person. Harm includes sickness, disease, or death. Any required care and loss of services also qualifies as bodily injury. However, the definition does NOT apply if injury, illness, or death is the result of communicable disease, mental/physical abuse, any form of molestation (including alleged or threatened), corporal punishment or use of controlled substance. Controlled substances are those items defined by federal act. However, an exception applies to any such substance that is prescribed by and used as directed by a licensed doctor.

Business

A trade, profession or occupation including farming, even if only occasionally practiced. This term includes the rental of property to others but does not include the occasional rental for residential purposes of the part of the covered location that is normally occupied solely by persons in the named insured’s household.

If an insured receives money for an activity, it is considered a business. There are exceptions though. If an insured is caring for a relative, it is not a business even if money is exchanged. When an insured cares for a person, other than a relative, and, in exchange, receives like services, it would not be considered to be business activity.

Example: Don and Willie have been neighbors for years and both are sticklers for caring for their lawns, shrubs, and flowers. During the summer and fall, they have an agreement. Once or twice a week, Don cuts Willie’s lawn. In exchange, Willie expertly trims and shapes Don’s shrubs. As long as neither receives any additional benefit from the agreement, the activity should not be considered a business.

Volunteer activities are also not a business even if the insured receives reimbursement for expenses. However, if compensation is provided, the activity no longer qualifies for an exception and the activity is considered a business. Also, part-time, or seasonal activities involving minors are not considered to be business activity.

Example: Judith and Sally want to start saving money for next year’s vacation. During their entire school Christmas break, the sisters make and sell pine wreaths. They earn nearly $200 selling to their friends and neighbor families. This would be an exception to the “business” definition.

Declarations

This term refers to any document that is related to the homeowner policy and which may be called Declarations, Supplemental Declarations, or Schedules.

Domestic employee

A person employed or leased under contract by an insured to perform duties that are connected to the use and care of the described location such as a butler, housekeeper, or gardener. Included are persons who perform duties of a similar nature elsewhere for an insured provided the duties do not include business-related functions.

A person who is furnished to the insured as a temporary substitute or to meet seasonal or short-term needs is not a domestic employee.

Insured

This definition is a little complicated as it, in turn, is defined by making reference to other defined terms. Persons who qualify as insured are those parties who are eligible for coverage under the primary sources of insurance protection that form the underlying insurance to the applicable umbrella policy. Every eligible party is treated as a separate insured; however, the mechanics of providing available coverage has no affect on the maximum amount that appears as the policy’s limit (also a defined term).

In addition, there are a number of persons who are insured based on conditions and circumstances:

Any person making use of a motorized vehicle, watercraft or a trailer is disqualified as an insured unless he or she believes they had an insured’s permission to make use of the vehicle or craft. The permissive use condition does not apply to household residents who are related to the named insured or resident spouse. Nor does it apply to residents who are younger than 21 that are being cared for by a named insured or resident spouse/relatives. However, the latter exception only applies when these parties are operating vehicle, craft or trailers are owned or leased by a named insured or resident spouse.

Insured premises

Taking advantage of the fact that the umbrella policy is intended to provide excess coverage for underlying (primary) exposures, the form merely defines an insured premises as any and all premises that qualify for the applicable underlying coverage’s protection.

Example: A personal umbrella liability is written for underlying HO Policies A, B, and C. All three policies and their umbrellas have 01/01/08 effective dates. On 02/15/08 each homeowner buys a cemetery plot, but does not report the purchase to their insurer:
HO Policy	Policy’s Insured Premises Definition	HO Loss	Umbrella’s Insured Premises Status As Of the Loss Date
Policy A	…includes newly acquired cemetery plots automatically	Policyholder is sued for an injury occurring at the plot site on 04/01/08	Site qualifies as an insured premises
Policy B	….includes newly acquired cemetery plots, but must be reported to insurer within 30 days of acquisition	Policyholder is sued for an injury occurring at the plot site on 04/01/08	Site disqualified as an insured premises on 3/15/08 (not reported in 30 days)
Policy C	….newly acquired cemetery plots are ineligible for coverage	Policyholder is sued for an injury occurring at the plot site on 04/01/08	Site does not qualify as an insured premises

Limit

The policy merely defines this as the amount of coverage that applies.

Motorized vehicle

Land or amphibious vehicles that are self-propelled qualify as motorized vehicles. An exception exists for vehicles that have the structural intent to assist handicapped persons and are not licensed for road use. Also, such vehicles qualify for the exception only when used for their intended purpose.

Occurrence

There are three specific requirements for an occurrence. First, there must be an accident. This means that the incident(s) cannot have been planned. There can be repeated accidents and still be the same occurrence. Second, bodily injury or property damage must result from the accident(s). Last, the bodily injury or property damage must happen during the policy period.

Personal Injury

The policy specifies several situations as incidents of personal injury such as arresting or imprisoning another party under false circumstances. Wrongful entrance, eviction and detention, misrepresentation, libel, slander, character defamation, invading another privacy and malicious prosecution are also referenced as personal injury. However, the personal umbrella excludes these incidents from the definition if they involve either a communicable disease or any incidents of sexual molestation.

Pollutant

Any solid, liquid, gaseous, thermal, or radioactive irritant or contaminant, including acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Also, electrical, magnetic, or electromagnetic particles or fields – visible or invisible plus sound.

Waste includes materials to be recycled, reclaimed, reconditioned, as well as disposed of.

Property damage

Physical injury or destruction of tangible property; or the loss of use of tangible property, whether or not it is physically damaged (in other words, theft qualifies as property damage).

Suit

Refers to mutual agreements to participate in arbitration, alternative dispute resolution (mediation) and to judicial proceedings involving dealing with parties seeking compensation for bodily or personal injury and/or property damage.

Terms

Refers to any written policy components including exclusions, conditions, defined words, etc.

Underlying Insurance

The term applies to any (liability) coverages described in the umbrella policy’s underlying insurance schedule per the listed limits and dates as well as any policies that are replacements for the listed coverages. However, any replacement policies qualify as underlying insurance only if they offer the same scope of protection and amounts of the coverage being replaced.

Underlying Insurer

Refers to any company who provides coverage that qualifies under the policy as “underlying insurance.”

PRINCIPAL COVERAGE

Under this section, the insurer states its coverage obligation. It will respond to losses involving bodily injury, personal injury, or property damage (as defined in policy) when such injury or damage qualifies under the umbrella (and underlying) policy parameters. The umbrella policy’s coverage obligation depends not only on any applicable exclusions (that are listed in the policy and, by extension, underlying coverages) but also on whether:

Any bodily injury or property damage is created by an occurrence (as defined in the policy)
Personal injury is related to an action that takes place during the policy period

It also states that there is no other obligation to respond (with payment or services) except for those items the policy makes available under its “Defense Coverage” section.

DEFENSE COVERAGE

Under this section, the form explains that the insurer owns a right to provide a legal defense and evaluate and/or settle either claims or lawsuits involving losses that qualify for coverage under the policy. Since coverage under an excess policy depends upon activities in the primary layer of policies, an umbrella insurer has a vested interest in evaluating incidents that may trigger excess coverage. Therefore, the form states that the insurer also has the right to become involved with the policy’s insureds and/or the underlying insurance providers regarding defending against, evaluating and or settling claims or situations that may need to be handled by the umbrella. But whatever the umbrella insurer decides, their action does not mean they have a duty to pay for any loss-related costs/expenses paid or incurred by other insurers. The umbrella insurer only intends to protect its right of involvement that allows it to efficiently assess its possible exposure.

Example: Harmful Casualty writes an umbrella policy for Jip and Parla Plunker. Harmful discovers that the Plunkers’ auto insurer is handling a loss caused by Jip. A couple of months earlier, Jip tried to pass a school bus that was merging onto a highway. He ended up hitting the bus, severely injuring many of the student passengers. Harmful made its own investigation, spending several thousand dollars, before concluding that, due to circumstances, it was unlikely that the umbrella would have to respond to the loss.

Any obligation to defend against a suit or claim only applies to damages that while eligible for coverage by a primary source of coverage, are not paid because those sources are exhausted due to payment. The umbrella’s defense obligation also applies to incidents that are not insured by other sources of coverage, but which do qualify for umbrella coverage subject to the policy’s applicable retention (which is the insured’s responsibility to pay).

Note: The form states that no obligation to defend exists if a loss does not exceed the applicable retention.

The insurer’s defense obligation ends if that insurer pays an amount equal to the applicable policy limit in the form of a settlement or a judgment.

Example: Harmful Casualty writes an umbrella policy for Jip and Parla Plunker. Harmful discovers that the Plunkers’ auto insurer is handling a loss caused by Jip. A couple of months earlier, Jip tried to pass a school bus that was merging onto a highway. He ended up hitting the bus, severely injuring many of the student passengers. Harmful starts its own investigation when the primary carrier notifies them that they are settling the loss for their $500,000 limit. Harmful concludes that the level of legitimate damage and injuries is so great, it is best to pay out its limit. Harmful does so and then notifies the Plunkers that they will not be involved with providing a legal defense.

This section also states that the policy will reimburse its insured for expenses that it approves in writing when circumstances prevent the insurer from fulfilling the umbrella agreement, such as being barred from involvement by a given jurisdiction where a loss occurs.

Claims and Defense Cost

In a defense action, the insurance company will pay:

· the costs that are taxed to an insured and the costs incurred by the insurance company

· the necessary costs incurred by the insured at the request of the insurance company including an insured’s lost earnings caused via time spent away from work (the lost earnings reimbursement is subject to a $100 daily maximum)

· the interest that accrues after the entry of a judgment up to the point of time that limit of the policy is either paid or offered in payment

· the premiums on bonds but only for an amount up to the limit in the policy

· a maximum of $500 premiums for bail bonds that arise from an accident or a traffic violation, but only when such events are related to a circumstance involving a covered vehicle

· the portion of prejudgment interest levied against the insured. The amount of such interest that is paid is based upon the timing of any final payment or offer of payment made by the insurer.

Example: Jefferson Mavis was sued by Jones for a serious auto accident. Mavis had turned a corner on a downtown intersection and slammed into Jones’ SUV which was parked in front of a restaurant. At the time of the collision, Jones, his spouse, and another couple were exiting the vehicle, so their doors were open. All four persons suffered substantial injuries and the vehicle was totaled. Mavis was contentious throughout the lawsuit, blaming the Jones party for not watching for traffic.

Mavis’ primary and umbrella insurers agreed to settle, offering $250,000 and $375,000, respectively. Mavis refused to end the lawsuit for another three months. When he finally agreed, he was financially responsible for the interest charges that had accumulated since the earlier settlement offers.

EXCLUSIONS

This policy does not apply to:

· bodily injury or property damage resulting from an insured owning or leasing an aircraft. There is also no coverage for any person who operates, maintains, uses, occupies, loads, or unloads an aircraft. In addition, if an insured entrusts or loans an aircraft to a person, there is no coverage. Finally, there is no coverage for the insured’s negligence or nonexistent supervision of a person with respect to an aircraft. This exclusion does not apply to bodily injury that may occur to a domestic employee of the insured if the injury occurs in the course of that employee’s duties. Also, model aircraft related BI or PD is covered provided the models are not designed to carry cargo or people.

Example: Omelia Groundheart is a radio-controlled airplane enthusiast. One day, while operating a German-style WWI model craft in a city park, she loses control and the model plane crashes, propeller first, into a toddler. His injuries required immediate surgery with the prognosis that several more major surgeries will be necessary in the next two years. The $600,000 lawsuit her parents file against Omelia would be covered by her umbrella policy.

· bodily injury or property damage when such injury or loss is related to another party’s use of aircraft, motorized vehicle, watercraft, or trailer. However, the umbrella policy makes a critical exception. It does provide coverage for these sources of loss when they are covered by the applicable primary insurance.

· bodily injury or property damage resulting from an insured owning or leasing a motorized vehicle or trailer. There is also no coverage for any person who operates, maintains uses, occupies, loads, or unloads a motorized vehicle or watercraft. In addition, if an insured entrusts or loans a motorized vehicle or watercraft to a person, there is no coverage. Finally, there is no coverage for the insured’s negligence or nonexistent supervision of a person with respect to a motorized vehicle or trailer. While the umbrella policy WILL provide coverage for these sources of loss when it is insured by the applicable primary insurance, the umbrella still excludes such loss that involves no-fault (or similar) coverage, uninsured/underinsured motorists coverage or medical expense/payments (or similar) coverage.

· injury or damage that is related to any incidents of watercraft (including trailers) ownership or use, except for instances that are protected by the applicable, existing primary coverage. However, regardless the existence of other coverage, this umbrella will not respond to a loss that involves participation or preparation for any sort of race or competition (with the exception of sailing vessels or involvement in predicted log cruises).

· bodily injury that may occur to a domestic employee of the insured if the injury occurs in the course of that employee’s duties. This exclusion also does not apply in situations where the policy’s Incidental Liability Coverage provides coverage for Motorized Vehicles or Incidental Liability Coverage for Watercraft.

· bodily injury or property damage that are created by any insured’s business activities with the exception of renting living space that is part of a primary residence as long as no qualifying part of that residence premises (as covered by applicable underlying insurance) has no more than two boarders. Coverage exceptions also exist for renting other insured premises to other parties for residential purpose or for use as a school, office or for a private garage. An exception also exists for any business use of a motorized vehicle that, first, qualifies for coverage under the applicable primary insurance coverage.

Note: The business activity that is excluded by the umbrella applies EVEN when coverage may exist under the underlying insurance.

· liability assumed under a contract or an agreement, except as exists under any applicable underlying insurance. However, incidents of assumed liability are also covered when there is a written agreement that involves an insured premises.

In other words, the existence of a contract to shift liability to the umbrella contract is excluded when it is meant to add a loss exposure that would not normally be covered by the underlying and excess level of insurance. However, the umbrella exclusion’s exception also prevents the technicality of the existence of a written contract denying coverage that would ordinarily be available.

· damage to property owned by an insured

Example: Narnia Wood’s home is destroyed by a devastating fire. Her HO coverage handles most of the loss, but, unfortunately, her basement, guest room and attached garage were all filled with expensive, classic, and antique furnishings she had just received from her mother’s estate and they were all destroyed. Narnia submits a loss to her umbrella insurer for the $85,000 property damage that was not covered by her primary coverage. Her umbrella insurer reminds her that its policy provides liability coverage to others, not property damage for her own belongings.

· damage to property that belongs to others, for which an insured holds a contractual responsibility to secure and maintain insurance for that property. This exclusion exempts situations that involve fire loss, smoke loss or loss due to explosion.

Example: Mason Moresound decides to help his son’s budding music agent career. He pays to rent a downtown club where his son holds a fundraiser featuring a dozen area bands. The rental contract holds Mason responsible for damage. After the event, the club owner sues Mason for structural damage caused by the various bands’ sound and lighting equipment. This loss would be ineligible for coverage.

· bodily injury or property damage expected by, directed by, or intended by an insured, as a result of a criminal act of an insured, or the result of an intentional and malicious act by or at the direction of an insured

Note: This exclusion applies even if the bodily injury or property damage that occurs is different than what was expected by, directed by, or intended by the insured, or if someone suffers the bodily injury or property damage other than the person or persons expected by, directed by, or intended by the insured.

This exclusion makes an exception for bodily injury or property damage that is caused by an insured using reasonable force to protect people or property.

· bodily injury or personal injury that is experienced by the named insured, resident spouse, relatives, and persons younger than 21 who live in the named insured’s home. The exclusion applies to younger residents in the care of either the named insured or that insured’s relatives (living in the same household).

· bodily injury or property damage that is related to locations that, while not shown as described locations, are ones an insured owns, rents, or controls.

Note: There is umbrella coverage for BI and PD for such instances that are protected under the applicable primary level of insurance. However, this item might cause confusion. Consider a loss involving property controlled by an insured and that loss is eligible for coverage under the primary HO’s liability coverage due to a written agreement. Also, consider that the loss does NOT involve fire, smoke, or explosion. This situation would be at odds with an earlier exclusion; so, a problem could arise over certain losses that, upon reading, would be excluded by one part and covered by another part.

· bodily injury, personal injury or property damage that is related to any sort of polluting activity; even when injury or damaged is alleged or threatened. The exclusion applies to whatever manner the activity occurs, whether it is sudden or slow and regardless whether it affects land, water and/or air.

This pollution exclusion does make exceptions. It does not apply to incidents involving heat, smoke or fumes that are created from an accidental fire at premises that is insured by the policy.

Note: Further, the exclusion is inapplicable to BI or PD related to any incidences of motorized vehicle use or ownership when such losses are eligible for underlying insurance coverage IF the losses ALSO involve vehicles that are subject to motor vehicle registration.

Example: The Hardballs have an auto policy and an umbrella policy. They live in a very upscale, gated community. One day, their teenage son collides with a “Lawn Lords Inc.” trailer that is carrying a large tank filled with pesticides. The tank is knocked over and breaks open, spilling across lawns, tennis courts and the community’s retention pond. Estimates are that it will take hundreds of thousands of dollars to clean up and then monitor the effects of the spill.

Scenario One – he hit the trailer with the family’s SUV which is covered under their auto policy – the umbrella would respond to this loss.

Scenario Two – he hit the trailer with the family’s all-terrain, off-road vehicle which, by special endorsement, is covered under their auto policy – the umbrella would NOT respond to this loss.

· All costs and expenses that are, in any manner, related to any party’s request that an insured mitigate, remediate, test for, assess or monitor the impact of pollutants. This exclusion even applies when a request or order comes for a unit of government and regardless whether the request or requirement results from a formal order, claim or lawsuit.

· bodily injury or property damage resulting from rendering or failing to render a professional service

· bodily injury or property damage connected to using or readying to use a motor vehicle (including trailers) in a race or other competitions and activities

Note: This exclusion may be an area that could cause an issue between an event covered by underlying and excess coverage. It is common in auto policies to exclude such activities that have an element of planning (pre-arrangement), but to provide coverage for spontaneous events that result in loss. An injured party may be able to make an argument that it could be against reasonable expectation to have such a vehicular exposure covered on a primary, but not on an excess level; particularly when the exposure may most likely be triggered by younger, less mature operators.

· All costs and expenses that are, in any manner, related to any party’s request that an insured mitigate, remediate, test for, assess or monitor the impact of lead. This exclusion even applies when a request or order comes for a unit of government and regardless whether the request or requirement results from a formal order, claim or lawsuit.

Example: The Chalkertons have a homeowner policy and an umbrella policy. Their homeowner coverage includes an endorsement for both property and liability coverage for a four-unit apartment building that was built in the 1940s. While attempting to sell the building, an inspection reveals that all of the building’s interior walls have several levels of lead-based paint. The building’s tenants all file lawsuits to have the paint removed and the building detoxified. The Chalkertons’ umbrella policy will not respond to this loss.

· bodily injury, personal injury, or property damage resulting from an insured’s serving on a board of directors. However, the policy offers an important exception, permitting coverage when a loss is related to service on a board for a non-profit organization AND the insured is not paid for his or her work. The exception still applies if a not-for-profit entity’s board member is reimbursed for expenses.

· bodily injury or property damage caused by war or warlike situations including:

undeclared war	civil war
insurrection	rebellion
revolution	warlike act by a military force or military personnel
destruction, seizure, or use of property for a military purpose,	discharge of a nuclear weapon (even if accidental).
defense/hindering hostilities by military force

· bodily injury or property damage involving a covered person who is either covered by either a nuclear energy liability policy or would be covered except that such a policy has used up (exhausted) its policy limits. For purposes of this exclusion, a nuclear energy liability policy is one that has been issued by American Nuclear Insurers, Mutual Atomic Energy Liability Underwriters, Nuclear Insurance Association of Canada, or any company that replaces (succeeds) them.

· bodily injury to any person who is protected by a workers compensation policy or who should be protected by benefits mandated by a law regarding workers compensation, non-work-related disability, or work-related disease. This exclusion applies to domestic employees.

Note: The intent of this exclusion is to prevent the umbrella responding with payment that duplicates coverage that exists under a workers compensation policy.

· liability for any request by an association of property owners to share expenses for a joint financial obligation (an assessment).

· Personal injury due to any of the following:

- Intentionally breaking a law by either the insured or by another party who was directed to do so by an insured

- An act committed by a party who works for an insured and that act is related to that employment

- Any oral or written statement or act that is made by an insured, was ordered to be made by an insured, or was made with the insured’s knowledge and agreement if the instance takes place before the umbrella policy’s effective date

Example: A drunk driver is meandering home from a party. He falls asleep, runs off the road and hits a utility pole that sits on the corner of the Brideluvs’ front lawn. The pole is bent severely enough to snap the power line that’s connected to the Brideluvs’ home. The accident occurs at 2:30 a.m. and there isn’t a loud crash, so the Brideluvs continue their sleep. The Brideluvs are upset because the wedding ice sculpture in their extra freezer has completely melted. The water has leaked out from their freezer and soaked into their wood parquet flooring. The Brideluvs wake up and discover the disaster and they decide to postpone the wedding. The bride-to-be, Whiplash Brideluv, is furious! She notices that the drunk driver is outside, leaning against his car. She runs out, yelling at him. She reaches out and jabs her finger to his chest. Whiplash continues to poke him and the driver backs away from her. As she pokes him again, the driver loses his balance, spins around and falls, sprawling, face first into his car bumper. Even though Whiplash only meant to give the driver a tongue-lashing, the policy will not provide coverage for the injuries. They were connected with her verbal attack and jabbing.

Example: Max D. Mentid has had enough of his neighbor, Chuck. Their township has strict rules on how many bags of leaves can be put out for trash pick-up and, for three straight weeks, Chuck has sneaked several bags onto Max’s pile. Tired of being ignored, Max decides on a prank. Since Chuck leaves his car in his driveway, Max lets the air out of one of the front tires. The next morning, Chuck pulls out into their busy street but since the car doesn’t respond normally (due to the flat tire), Chuck moves too slowly and causes a crash. Max apologizes because he only meant to inconvenience Chuck, not to injure Chuck or to cause damage to the car and driver that crash into Chuck’s hobbled car. The policy will not pay for the damages to the cars or any injured drivers.

WHAT YOU MUST DO IN CASE OF LOSS OR CLAIM

This section of the policy discusses a very important part of the policy: the promise of the insurer, under described circumstances, to pay for a loss and/or defend against a claim or lawsuit. Since the policy is a contract, both the insurer AND the insured have responsibilities. The manner in which an incident is handled by an insured is a critical matter. It increases the policy’s ability to function as intended. The policy lists the responsibilities and it also makes references to parties that represent an insured as well as refers to responsibilities owed to primary liability insurers.

1. Cooperation With Underlying Insurers (this title is NOT used in the umbrella policy)

The insured is required by the umbrella policy to follow all of the provisions that apply to the underlying insurance policies. The insured must also assist those insurers in the manner laid out by their various policy conditions.

Note: This is a very important provision since the umbrella insurer may asserts its rights by requiring compliance with provisions in underlying coverages that are not specifically mentioned in the umbrella policy.

2. Notice (this title is NOT used in the umbrella policy)

When a loss or an event that may lead to a loss occurs, the insured is obligated to quickly contact the umbrella insurer and make sure that adequate information is contained in the notification.

While speed in reporting a loss is important, quick notification is useless if it doesn’t include enough information with which to make decisions. Therefore, the notification has some content requirements. Specifically, the notice should include:

· the name of the named insured

· the policy number

· the time, place, and the details of the occurrence, and

· the names and addresses of all known potential claimants and witnesses.

The above actions serve important functions. First, they permit the company to begin the loss investigation process, including any action to protect its rights and to determine if an insured is actually liable for payment under the policy. The reporting duty also minimizes fraud on the part of an insured. Persons tempted to make phony claims may be stopped by the requirement of a police report. This aspect of the provision is less important, though, because in nearly all instances, a legitimate loss is likely being handled on a primary insurance level.

Note: While the provision does not state that notification has to be in writing, in order to comply with notification requirement, doing so in writing is a natural consequence.

3. Cooperation

The insured must cooperate with the insurer in performing all acts required by this policy. The policy requires that an insured work with, rather than against, the insurer in order to investigate and process a possible claim.

4. Volunteer Payments

An insured must not make payments, pay, or offer rewards, or assume obligations or other costs, except at the insured's own cost. The policy allows an insured some leeway to make payments in order to respond to emergencies or to help mitigate problems. However, an insured has to take great care in making payments that fall outside of the parameters permitted by the company. EVEN when an insured agrees to make payments out of his or her own pocket, he or she needs to be aware of the ramifications of such payments. Certain actions may be interpreted as an admission of guilt or responsibility for a loss when that interpretation may be wrong.

5. Other Duties

Insureds are required to provide rapid notification to the insurer of any communications, especially paperwork that is related to an occurrence. Specifically, the insured must send copies of such paperwork to the insurer as quickly as possible. Failure or significant delays can compromise the insurance company’s ability to properly investigate and handle a claim.

At the request of the insurance company, an insured must help the company:

· to settle a claim

· to participate with lawsuits, such as appearing at trials and hearings

· with their efforts to recover payments or take other action against separate parties who may be legally responsible for applicable injury or damage

· with efforts to obtain and provide evidence, and

· to ensure attendance of all witnesses.

HOW MUCH WE PAY FOR LOSS OR OCCURRENCE

In this portion of the policy, the company’s obligation to provide insurance protection to the insured is described. It states that the policy’s described limit appears on the declarations and it acts as the maximum possible amount that the insurer is obligated to pay for a single occurrence (as defined by the policy) or offense. This maximum obligation is not affected by the number of persons who are insureds, the number of parties who sustained injury or damage, the number of vehicles or crafts involved, or the number of legal actions (claims or lawsuits).

EXCESS INSURANCE

1. Other Insurance

This insurance is excess over other insurance that applies to the loss or claim, particularly the underlying liability coverage required by this umbrella policy. This provision applies regardless whether the other source or sources of protection are valid and/or collectible. However, this condition does not apply to insurance written specifically to act as an additional tier of coverage above this policy's limits.

This condition attempts to make any liability protection provided by this policy act only after another source of coverage responds to a loss. It adds that the policy will only respond to an eligible loss that exceeds the policy’s retained limit. Such a response only takes effect when an insured does not have a source of valid and collectible insurance (including underlying insurance). Any response made by the umbrella policy is subject to its separate provisions concerning primary insurance maintenance and underlying insurer bankruptcy.

2. Failure to Maintain Underlying Insurance

This part of the excess insurance provision states that, should the insured not keep the applicable underlying insurance in force, the policy will respond as if the underlying insurance, as required, still exists and is collectible.

Example: Elyn Nayharm has an umbrella policy that provides coverage over her auto and homeowner policies. A month after she replaced her standard auto policy with a specialty insurer’s minimum coverage policy, she caused a multi-vehicle accident. The claims against her exceed $600,000. Elyn files a claim with her umbrella insurer. The insurer tells her that, since she didn’t maintain the underlying insurance required by the policy, they will treat the loss as if the $500,000 underlying limit was still available to her, even though the minimum coverage policy only offered $25,000.

3. Bankruptcy of Underlying Insurer

This part of the excess insurance provision states that, should any underlying insurer become bankrupt, the policy will respond as if that insurance was still available.

Unfortunately, not all circumstances can be foreseen by policy conditions so there are times that insureds and insurers will dispute how coverage is to apply.

Although it involves a professional liability loss, we suggest that you please refer to PF&M Section 399_C020, “Other Insurance Clauses In Consecutive Policies Determined Obligation Of Each Insurer” in Court Cases for an example of how insurers argue other coverage and subrogation issues.

CONDITIONS

1. Appeals

This provision deals with the fact that the company providing umbrella coverage has financial interests that may be quite separate from those of an underlying insurer. In the instance that a third party may be awarded damages that exceed the limits offered by an underlying insurer and that insurer chooses not to appeal the decision, the umbrella insurer states that it has a separate right to make an appeal on its own. Of course, it is also obligated to handle all costs associated with an appeal.

2. Bankruptcy of An Insured

This policy and its coverage are not affected by an insured whose financial situation causes him or her to file bankruptcy.

3. Cancellation and Nonrenewal

This policy may be canceled by the insured by returning the policy to the insurance company or by giving the insurance company written notice that states at what future date coverage is to stop.

The insurance company providing coverage may cancel or not renew this policy by written notice to the insured at the address shown on the declarations. Proof of delivery or mailing is sufficient proof of notice.

If it is during the policy’s first 60 days, the insurance company may cancel for any reason with at least 10 days’ notice before the cancellation is effective.

This condition goes on to say that, if the policy is canceled for nonpayment of premium, the company providing insurance will give the named insured at least 10 days’ notice before the cancellation is effective. If the policy is to be canceled for any other reason after it has been effective for 60 days or more, the insurance company is obligated to provide at least 30 days’ notice before cancellation. If the company providing coverage elects to non-renew the policy, it is obligated to provide at least a 30-day notice.

Important: Generally, this provision is pre-empted by state law regarding cancel or nonrenewal reasons, amount of notice and proof of delivery. It is critical that state law is followed concerning any decision to cancel or non-renew a homeowner policy.

If any return premium is owed, it will be refunded at the time of the cancellation or as soon as is practical. Payment of the unearned premium has no bearing on cancellation.

4. Change, Modification, or Waiver of Policy Terms

Only the insurance company has the option of waiving or changing this policy’s terms and such waiver or change must be in writing. If the insurance company providing coverage under this policy adopts a revision that broadens coverage without additional premium, the broadened coverage will apply to this policy as of the date the insurance company adopts the revision in the state in which the described location is located. This condition applies only to revisions adopted 60 days prior to or during the policy period shown on the declarations. This condition does not apply to changes in a policy that both broaden and restrict coverage whether in an edition change or an endorsement. Further, if a policy does not contain an expiration date, the issuing insurance can add program changes to the policy on that policy’s anniversary date.

This provision also notifies the insured that the policy’s terms are not waived by a request for an appraisal or for an insured to be examined under oath.

5. Conformity With Statute

Terms in conflict with the laws of the state in which the mailing address shown on the declarations is located are changed to conform to such laws. This provision is rarely relied upon since amendments or endorsements are added to policies to match the state where the policy is used. However, there are instances where the condition is relied upon.

6. Inspections

The insurer reserves the right to inspect the property owned or controlled by an insured and it can do so with its own personnel or it can have another organization make an inspection on its behalf. The condition also warns the insured that, while an inspection and related information about the results of the inspection may imply a type of warranty or guarantee about the fitness of the insured location that is not an assumption that should be made.

What purpose does this serve? This is a warning and a notice to an insured that a company inspection cannot be used as evidence of the worthiness of the property. A company has their own underwriting rules and philosophy for providing coverage and will not permit its actions to be used to the benefit of other parties. This also prevents the company from being held liable to other areas of authority concerning the property.

7. Legal Action Against Us

The insured is not permitted to file suit against the insurer without, first, complying with all of the policy’s terms. Further, such action is barred until the amount of the insured’s liability has been determined by:

· a final judgment against the insured as a result of a trial, or

· a written agreement between the insured, the claimant, and the insurer.

Note: No person has a right under this policy to join the insurance company or to speak for the insurance company in actions related to determine the amount of an insured’s liability.

8. Maintenance of Underlying Insurance

This provision requires the insured to keep all of the underlying coverage (as defined in the policy) in force and to keep the policy limits at the levels originally agreed to. The insured is warned that underlying coverage that is cancelled or which has been replaced by different coverage (lower limits) will not affect the umbrella insurer’s coverage obligation. The policy will only respond on the basis that the original coverage and amounts were in place. Also, the insured is required to notify the umbrella insurer if coverage is lost or changed.

Note: Notification of lost or reduced coverage does not mean that the insurer would accept the condition; rather, it would allow the insurer to take underwriting action (such as cancellation or non-renewal).

9. Misrepresentation, Concealment, or Fraud

Any intentional concealment or misrepresentation on the part of any insured can void the policy for ALL insureds. If an insured lies or hides a material fact or any circumstance that relates to the insurance that is granted by this policy will cause the insurance to not provide coverage for any insured. This may occur either before or after any loss.

Simply put, the company should be able to rely on the statements made by the insured in making its decision to insure a person or, later, regarding how it handle a claim. If the statements are seriously in error (with the insured’s knowledge), then the insurance contract has no right to exist and the company has no obligation to honor it.

10. Subrogation

When an insurer pays damages, it may ask the insured to transfer his or her right to attempt to recover damages from another party. The insured must agree, in writing, to do so and to fully cooperate with the insured in pursuing the recovery. This act of seeking payment from a party responsible for a loss is called subrogation. This right is very valuable to an insurer. In fact, if an insured damages this right to recover payment after a loss has occurred, the insurer may no longer be obligated to pay for the loss.

The insured may waive all rights to recover before a loss occurs—but this waiver must be in writing. Signing this waiver BEFORE a loss does not affect coverage under the policy.

Note: This provision could be a sticky one, particularly when the subject of subrogation is not also being pursued by an underlying insurer or the umbrella insurer is seeking reimbursement from an underlying insurer. In such instances, the insured would be forced to violate a provision of either the underlying or excess insurer.

11. Transfer Of Your Rights And Duties Under This Policy

No insured or other party can sign this policy and its coverages over for use by any other party unless, first, getting the insurance company’s permission (in writing).

If the named insured or the named insured’s in-resident spouse dies, the legal representative of the person who died becomes an insured as respect to the deceased insured’s premises and property but only for the coverage provided by the policy at the time of that person’s death.

Note: Recognizing that the status of the residents in the household change in the policy once the named insured or spouse die, the definition of insured is changed for the time of transition following the death. The definition of insured is expanded to include members of the deceased person’s household who were members at the time of death but only while residing at the described premises. In addition, if a person is granted temporary custody of the covered property belonging to the deceased, that person is an insured but only for that property and only under a legal representative is appointed.

AAIS PERSONAL UMBRELLA OPTIONAL COVERAGE ENDORSEMENTS

AAIS has a variety of optional endorsements used to address insureds with exposures that are not completely met by a base umbrella contract. Naturally, since these endorsements provide additional coverage, they typically require additional premium.

The AAIS form numbering consists of two letters (UM for this line of business), followed by a four-digit form number, then the form's edition date, expressed as mm yy.

Note: These forms are listed in numerical order, followed by their form title.

UM 0030 - Personal Umbrella Liability Declarations

This form is available to document and identify the entity and limits that apply to the umbrella policy.

UM 0031 - Personal Umbrella Schedule of Underlying Insurance

A supplemental form that allows an insured to document the types and coverage limits of primary (underlying) insurance that applies to the umbrella. It also serves as documentation of the coverage that must be maintained in order to comply with the umbrella provisions.

UM 0100 - Change Endorsement

This form merely facilitates attachment of other forms and documents that action.

UM 0130 - Specified Business Activities

This form modifies the umbrella so that coverage is provided for the business activity described on the form. The form includes a description of the activity and the location where the activity takes place.

UM 0131 - Specified Farm Activities

This form modifies the umbrella so that certain coverage is provided for the farming operation described on the form. The form includes a description of the farm activity, the location where the activity takes place and whether the operation includes the application of pesticides and herbicides.

UM 0132 - Exclusion - Designated Premises

This form permits the insured to exclude a location from coverage under the umbrella. The excluded premises and location must be described in the form.

UM 0133 - Exclusion -- Designated Vehicles or Watercraft

This form permits the insured to exclude watercraft or a vehicle (including any accessory trailers) from coverage under the umbrella. The excluded vehicle or craft must be described in the form.

UM 0134 - Exclusion -- Designated Driver

This form permits the insured to exclude any incident of vehicular liability under the umbrella for any person listed on the form. It requires entry of the excluded person’s name and birth date. It’s important to note that the exclusion would bar coverage for driving and non-driving liability for the applicable person. So, even if an excluded person seriously injured a third party while unloading a car or closing a car trunk, liability would not apply.

UM 0135 - Exclusion -- Punitive Damages

This form specifically bars the umbrella from responding to a demand for damages intended to punish or make an example of an insured, though non-punitive damages would still be addressed.

UM 0136 - Business Activities

This form modifies the umbrella to provide liability coverage to certain business activities engaged in by the insured, particularly those that are insured by applicable underlying coverage.

UM 0137 - Specified Home-Based Business Activities

This form modifies the umbrella so that coverage is extended to the business activity that is described in the form. It applies a separate set of coverage, definition, conditions, and exclusions for the business conducted in the insured’s residence. It also applies separate aggregate insurance limits to the general and completed products exposures.

UM 0140 - Uninsured/Underinsured Motorists Coverage

The form extends the umbrella coverage to losses involving the uninsured/underinsured motorist exposure; subject to such losses being covered by the underlying policies.

UM 0141 - Rejection of Uninsured/Underinsured Motorists Coverage

This form documents that an insured has been informed about the availability of UM/UIM coverage under the umbrella, but that insured has deliberately declined the coverage.

UM 0143 - Fungi, Wet or Dry Rot, or Bacteria Exclusion

Bars coverage under the umbrella for any liability related to direct or indirect damage or injury caused by mold, fungus, etc. However, the form makes exception for loss caused by food poisoning, slip, and falls and certain injuries when covered by the underlying policies.

UM 1001 - Personal Umbrella Liability Coverage Part

Allows an insured to secure excess coverage by attaching the added protection to an underlying liability policy.

UM 1130 - Personal Umbrella Liability Coverage - Specified Business Activities

This form modifies the umbrella coverage part to provide liability coverage to the business activity described on the form. The form specifically excludes exposure related to employment practices.

UM 1131 - Personal Umbrella Liability Coverage - Specified Farm Activities

This form modifies the umbrella coverage part so that certain coverage is provided for the farming operation described on the form. The form includes a description of the farm activity, the location where the activity takes place and whether the operation includes the application of pesticides and herbicides.

UM 1132 - Personal Umbrella Liability Coverage - Designated Premises Exclusion

UM 1133 - Personal Umbrella Liability Coverage - Designated Vehicles or Watercraft Exclusion

This form permits the insured to exclude watercraft or a vehicle (including any accessory trailers) from coverage under the umbrella coverage part. The excluded vehicle or craft must be described in the form.

UM 1134 - Personal Umbrella Liability Coverage - Designated Driver Exclusion

This form permits the insured to exclude any incident of vehicular liability under the umbrella coverage part for any person listed on the form. It requires entry of the excluded person’s name and birth date.

UM 1136 - Personal Umbrella Liability Coverage - Business Activities

This form modifies the umbrella coverage part to provide liability coverage to certain business activities engaged in by the insured, particularly those that are insured by applicable underlying coverage.

UM 1137 - Personal Umbrella Liability Coverage - Specified Home-Based Business Activities

UM 1140 - Personal Umbrella Liability Coverage - Uninsured/Underinsured Motorists

The form extends the umbrella coverage part to losses involving the uninsured/underinsured motorist exposure; subject to such losses being covered by the underlying policies.

UM 1141 - Personal Umbrella Liability Coverage - Rejection of Uninsured/Underinsured Motorists

Permits an insured to document their refusal to purchase UM/UIM coverage (under the umbrella coverage part).

UM 1143 - Personal Umbrella Liability Coverage - Fungi, Wet or Dry Rot, or Bacteria Exclusion

Bars coverage under the umbrella coverage part for any liability related to direct or indirect damage or injury caused by mold, fungus, etc. However, the form makes exception for loss caused by food poisoning, slip, and falls and certain injuries when covered by the underlying policies.

AAIS PERSONAL UMBRELLA LIABILITY COVERAGE ANALYSIS KNOWLEDGE TESTER QUIZ

1. What is required by the “Maintenance of Underlying Coverage” condition?

2. How does the personal umbrella policy respond to loss involving watercraft?

3. How are volunteer activities treated under the umbrella policy’s definition of “business”?

4. How does the Appeals provision protect the umbrella insurance company’s financial interests?

5. Besides bodily injury and property damage, what other source of loss does the umbrella policy protect against?

6. What is the definition of a “domestic employee”?

7. What exception does the umbrella policy make under its intentional acts exclusion?

8. What qualifies as an occurrence under the umbrella policy?

Answers

1. This provision requires the insured to keep all of the underlying coverage (as defined in the policy) in force and to keep the policy limits at the levels originally agreed to. The insured is warned that underlying coverage that is cancelled or which has been replaced by different coverage (lower limits) will not affect the umbrella insurer’s coverage obligation. The policy will only respond on the basis that the original coverage and amounts were in place. Also, the insured is required to notify the umbrella insurer if coverage is lost or changed.

2. It responds to injury or damage that is related to any incidents of watercraft (including trailers) ownership or use, except for instances that are protected by the applicable, existing primary coverage. However, regardless the existence of other coverage, this umbrella will not respond to a loss that involves participation or preparation for any sort of race or competition (with the exception of sailing vessels or involvement in predicted log cruises).

3. Volunteer activities are not a business even if the insured receives reimbursement for expenses. However, if compensation is provided, the activity no longer qualifies for an exception and the activity is considered a business. Also, part-time, or seasonal activities involving minors are not considered to be business activity.

4. This provision deals with the fact that the company providing umbrella coverage has financial interests that may be quite separate from those of an underlying insurer. In the instance that a third party may be awarded damages that exceed the limits offered by an underlying insurer and that insurer chooses not to appeal the decision, the umbrella insurer states that it has a separate right to make an appeal on its own. Of course, it is also obligated to handle all costs associated with an appeal.

5. Personal Injury.

6. A “domestic employee” is a person employed or leased under contract by an insured, to perform duties that are connected to the use and care of the described location such as a butler, housekeeper, or gardener. Included are persons who perform duties of a similar nature elsewhere for an insured provided the duties do not include business related functions.

A person, who is furnished to the insured as a temporary substitute or to meet seasonal or short-term needs, is not a domestic employee.

7. The intentional acts exclusion makes an exception for bodily injury or property damage that is caused by an insured using reasonable force to protect people or property.

8. There are three specific requirements for an occurrence. First, there must be an accident. This means that the incident(s) cannot have been planned. There can be repeated accidents and still be the same occurrence. Second, bodily injury or property damage must result from the accident(s). Last, the bodily injury or property damage must happen during the policy period.

AAIS PERSONAL UMBRELLA LIABILITY POLICY ENDORSEMENTS CHECKLIST

The listing that follows identifies endorsements that, typically, are available to modify or otherwise attach to an AAIS Personal Umbrella Liability Policy. For an explanation of any of the listed endorsements, please refer to PF&M Section 442.4-3, AAIS Personal Umbrella Liability Policy Endorsements.

Place a checkmark beside any endorsement as a recommendation.

UM 0030–Personal Umbrella Liability Declarations

UM 0031–Personal Umbrella Schedule of Underlying Insurance

UM 0100–Change Endorsement

UM 0130–Specified Business Activities

UM 0131–Specified Farm Activities

UM 0132–Exclusion - Designated Premises

UM 0133–Exclusion -- Designated Vehicles or Watercraft

UM 0134–Exclusion -- Designated Driver

UM 0135–Exclusion -- Punitive Damages

UM 0136–Business Activities

UM 0137–Specified Home-Based Business Activities

UM 0140–Uninsured/Underinsured Motorists Coverage

UM 0141–Rejection of Uninsured/Underinsured Motorists Coverage

UM 0143–Fungi, Wet or Dry Rot, or Bacteria Exclusion

UM 1001–Personal Umbrella Liability Coverage Part

UM 1130–Personal Umbrella Liability Coverage - Specified Business Activities

UM 1131–Personal Umbrella Liability Coverage - Specified Farm Activities

UM 1132–Personal Umbrella Liability Coverage - Designated Premises Exclusion

UM 1133–Personal Umbrella Liability Coverage - Designated Vehicles or Watercraft Exclusion

UM 1134–Personal Umbrella Liability Coverage - Designated Driver Exclusion

UM 1136–Personal Umbrella Liability Coverage - Business Activities

UM 1137–Personal Umbrella Liability Coverage - Specified Home-Based Business Activities

UM 1140–Personal Umbrella Liability Coverage - Uninsured/Underinsured Motorists

UM 1141–Personal Umbrella Liability Coverage - Rejection of Uninsured/Underinsured Motorists

UM 1143–Personal Umbrella Liability Coverage - Fungi, Wet or Dry Rot, or Bacteria Exclusion