Dear Clients, Colleagues, and Friends,
In previous Client Alerts, we have described the necessity and benefits of instituting effective “firewalls” in your estate planning to protect assets and lifestyle from an unforeseen financially ruinous lawsuit. Often this advice goes unheeded until an incident arises which makes it too late to do any planning. We recently came across this following article in which the insurance industry similarly acknowledges the risks of high-stakes liability lawsuits:
March 05, 2012
Wealthiest Americans Fearful Of Liability Lawsuits, Survey Says
America’s wealthiest families increasingly worry that their wealth makes them a prime target for a high-stakes liability lawsuit in the current unstable period of high unemployment and weak economic growth, according to an ACE Private Risk Services survey released Monday.
But despite their concern, those same wealthy families are poorly prepared for such lawsuits and fail to recognize that their lifestyle can lead to a lawsuit. They underestimate the cost of the potential damages, and they misunderstand the affordability of effective protection. As a result, the survey contends that wealthy families often lack the proper types and amounts of liability insurance.
The survey, “Targeting the Rich: Liability Lawsuits and the Threat to Families with Emerging and Established Wealth,” polled individuals from households with more than $5 million of investable assets about their perceptions and behavior regarding the threat of personal liability lawsuits.
“Wealthy families feel increasingly targeted, especially given the national discourse over disparities in wealth, income, and taxation,” said Bob Courtemanche, division president of ACE Private Risk Services, the high net worth personal insurance business of the ACE Group.
Based on the study, more than two-thirds of the respondents surveyed think public perceptions of the wealthy have grown more negative since 2008. “Almost 40 percent believe they are more likely to be sued in the aftermath of the economic crisis, compared to only 7 percent who say they are less likely to be sued,” Courtemanche said. “And more than 80 percent agree their wealth alone makes them an attractive target for liability lawsuits.”
Jim Hageman, senior vice president of claims for global personal and small commercial insurance for ACE, said many of those families underestimated the risk. “Half of the people we surveyed thought the worst-case lawsuit would be less than $5 million,” he said. “But our experience is that awards for lawsuits involving serious injury can equal many times that amount.”
Wealthy families tend to underestimate their potential liability from a car accident or other incident, they often lack sufficient liability insurance, according to the study. More than 40 percent of survey respondents reported carrying less than $5 million in umbrella liability insurance, including 21 percent who have none.
According to ACE executives, umbrella liability insurance is a critical part of a personal insurance program because the liability coverage in automobile and homeowner policies rarely exceeds $500,000. An umbrella policy provides additional coverage on top of those policies. Insurance companies specializing in insuring high net worth families usually offer coverage ranging from $1 million up to $100 million, and the cost can be offset by increasing the deductible amounts in the underlying homeowner and auto policies.
Relying on an umbrella policy or your general liability policy as your sole source of protection could be a miscalculation. Often insurance policies cover you if you “fall off the roof” but not if you “hit the ground” meaning carriers have been known to deny coverage where coverage questions arise. The insurance company that insured the Twin Towers denied coverage as to some of the buildings using certain express policy exclusion provisions with the owner and the carriers litigating the issue of coverage.
It is socially responsible to carry a reasonable level of umbrella coverage, but the larger the policy limits, the larger the “target” you become for specious lawsuits.
Protecting you and your family with the appropriate type and amount of insurance and asset protection is critical to building effective firewalls to protecting your assets. Please give us a call so we can assist you in evaluating your total protection from proper insurance planning to proper total asset protection. At Jeffrey M. Verdon Law Group, LLP you get more than you expect, but exactly what you need.
Jeffrey M. Verdon, Esq.
Jeffrey M. Verdon Law Group, LLP