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Policy Decisions

By Timothy M. Netkovick, Esq.

The COVID-19 pandemic has caused many businesses to examine their balance sheets. One of the areas that could be looked at is how much benefit a business is getting from its current insurance portfolio, and whether downsizing coverage could be an option.

In today’s world, a common feature of a business-insurance portfolio is employment-practices liability insurance (EPLI), which is different than traditional liability insurance and provides coverage for discrimination, wrongful termination, and other workplace issues.

EPLI typically covers discrimination claims based upon sex, race, national origin, age, and all other characteristics prohibited by law. This includes claims made under the Americans with Disabilities Act, the Family Medical Leave Act, associated state discrimination statutes, and other federal laws. EPLI policies usually provide coverage to the company, management, supervisors, and employees from claims that arise under the policy. EPLI typically does not cover wage-and-hour law violations, unemployment issues, ERISA, or COBRA matters.

Timothy M. Netkovick, Esq

Timothy M. Netkovick, Esq

“COVID has prompted myriad adjustments in the business world. EPLI is one of the expenses a company will want to examine to see if it is getting the most bang for its buck.”

Perhaps your business has been fortunate enough to avoid employment litigation over the past few years. Therefore, the cost/benefit analysis to your business will be different than a business that has been tied up in employment litigation in the recent past. The first obvious cost is the cost of purchasing the policy. Higher insurance coverage costs more than a policy with a lower-policy limit. In addition to the cost of purchasing the policy, businesses will also need to factor in the cost of the ‘retention’ it is required to pay in the event of a claim.

Retention is similar to a deductible in other insurance policies, and is the amount of expenses for which the business is responsible before the insurer will begin paying for the cost of defense. Insurers use retention as a way to avoid incurring the expense of defending against nominal or frivolous claims by passing on that expense to the business. Conversely, the business will also want to evaluate the amount of their retention prior to obtaining EPLI.

A business will need to evaluate its options if it is faced with a high retention and a small amount of discrimination claims that are usually resolved at the administrative level. Has your business had EPLI for several years and never exhausted its retention? Or does your business have a high volume of discrimination cases at the administrative level and also never exhausted its retention?

Another factor to consider in evaluating the cost of EPLI is your company’s approach to employment lawsuits. Businesses will need to have a consistent strategy when it comes to employment lawsuits. Is your company going to vigorously defend against all claims? If so, that may impact your decision on the cost of the EPLI policy you intend to purchase. How many claims are made against your company? The more claims are reported, the more the policy will cost, and the higher the retention amount will be. The increased retention will have an impact on the company’s budget for the next policy period.

COVID has prompted myriad adjustments in the business world. EPLI is one of the expenses a company will want to examine to see if it is getting the most bang for its buck.

 

Timothy M. Netkovick, Esq. is a litigation attorney who specializes in labor and employment-law matters at the Royal Law Firm LLP, a woman-owned, women-managed corporate law firm certified as a women’s business enterprise with the Massachusetts Supplier Diversity Office, the National Assoc. of Minority and Women Owned Law Firms, and the Women’s Business Enterprise National Council; (413) 586-2288; [email protected]

 

Insurance Special Coverage

Sticker Shock

Business-interruption insurance should be a simple idea to explain. But in the era of COVID-19, it has become a thorny topic.

“It is coverage that most businesses have as part of their insurance program; basically, it’s one of the key components to an insurance portfolio for a business,” said John Dowd Jr., president and CEO of the Dowd Agencies. “A covered loss is defined as physical damage to your property or on your property.”

He noted, as one example, a fire that causes a shutdown until repairs are made, with the insurance payout allowing the business owner to pay rent, taxes, and in some cases wages and benefits. “It also covers loss of property, which is a very important coverage.”

But not every event is covered, he noted, and that’s the rub lately among business owners who would like business-interruption insurance to cover losses from the pandemic-related economic shutdown — and lawmakers in several states, including Massachusetts, are pushing to enshrine such losses in the coverage.

“Obviously COVID isn’t covered — the loss that triggers business interruption has to be the result of physical damage to the property,” Dowd reiterated. “The problem with COVID is that’s not physical damage; it’s a virus. It’s specifically excluded, like other transmittable diseases. The way it’s worded, it’s not a coverage situation. As a matter of fact, the insurance industry cannot cover something like that because they can’t estimate the catastrophic potential of such a situation.”

That didn’t stop 39 Massachusetts legislators from co-sponsoring a bill earlier this spring titled “An Act Concerning Business Interruption Insurance,” calling for business-interruption coverage for losses due to “directly or indirectly resulting from the global pandemic known as COVID-19, including all mutated forms of the COVID-19 virus.”

Moreover, the bill asserts, “no insurer in the Commonwealth may deny a claim for the loss of use and occupancy and business interruption on account of COVID-19 being a virus (even if the relevant insurance policy excludes losses resulting from viruses), or there being no physical damage to the property of the insured or to any other relevant property.”

The legislation applies to policies issued to businesses with 150 or fewer full-time employees, and insurance companies can apply to the commissioner of the Division of Insurance for relief and reimbursement of amounts paid on claims through a fund created by the act, subject to eligibility and reimbursement procedures to be established by the commissioner.

John Dowd Jr.

John Dowd Jr.

“The way it’s worded, it’s not a coverage situation. As a matter of fact, the insurance industry cannot cover something like that because they can’t estimate the catastrophic potential of such a situation.”

Such relief would be needed, as Dowd demonstrated with a little math. He noted that, if business-interruption insurance was triggered by COVID-19 for all businesses with fewer than 100 employees, the cost would be between $280 billion and $350 billion — per month. “Our collective surplus of all insurance companies is somewhere between $800 billion and $900 billion. In three months, the industry would be insolvent.”

Having said that, he noted that pandemic coverage is already available — a development that emerged over the past decade following SARS and other global threats. For example, the organization that operates the Wimbledon tennis tournament bought such a policy, which costs more than $1 million a year, but when this year’s event was canceled, the policy paid out $15 million.

Impossible Costs

State legislation is a different matter, of course, aiming to reshape the very nature of business-interruption insurance. New Jersey lawmakers proposed and defeated such a bill this spring, “presumably because they looked into the potential insolvency of insurance carriers,” Dowd said. “And if people can’t buy insurance, what happens to our economy?”

Carl Bloomfield, managing director at the Graham Co., a Philadelphia-based insurance brokerage, recently told Insurance Business America that, while more than a half-dozen states that have proposed this type of legislation, he doesn’t expect the bills to pass.

“Doing it through state legislation would be very detrimental to the country on a go-forward basis from the aspect of overturning centuries of contract law,” he noted. “If you start upsetting the precedent of contract law that’s been established for centuries, that creates a very dangerous environment for all businesses because there’ll be no certainty around something that’s in the contract today, but could be overturned in court.”

If the Massachusetts bill becomes law, constitutional challenges are certain, writes Owen Gallagher, publisher of Agency Checklists, a news source for the Massachusetts insurance industry.

“Carriers would basically take the claims, get documentation that there was actually loss of income or profit, determine if there are covered claims or not, and then the federal government would pay the bill.”

The rewriting of existing insurance contracts, as proposed by this legislation, he notes, would raise constitutional questions under the U.S. Constitution’s contract clause.

“As members of a regulated industry, insurance companies have not fared well in contesting state legislative or regulatory action claiming a constitutional violation of the contracts clause. The United States Supreme Court has upheld laws impairing contracts based on a state promoting public welfare. However, this legislation may be one of the very few laws that fails that minimal test based on its blatant revision of existing insurance contracts for a limited class of insureds.”

The second constitutional challenge arises under the Constitution’s takings clause, which states that private property cannot be taken for public use without just compensation.

“Insurers have had some success contesting laws where a state’s regulatory mandates go too far and amount to a confiscation of property,” Gallagher notes. “In this case, the proposed law creates new obligations that take money from insurance companies and transfers it to small businesses that have suffered economic loss because of state action. It is difficult to see how these insurers would not have had their property taken for a public purpose in violation of the Constitution.”

Dowd sees the U.S. government eventually negotiating a coverage cap for pandemic events much like it did with terrorism in the years following 9/11. “The insurance industry is saying, ‘OK, in the future, we’re willing to participate, but we need a cap, like $250 million, which is the most the insurance industry can absorb for a pandemic, and everything over that, the federal government has to pay.’

“So they’re in the throes of negotiating that,” he said, adding that carrier involvement would likely be voluntary. “That makes sense, as a lot of the smaller mutual insurance companies don’t have nearly the surplus that the Travelers and Liberty Mutuals have. But a lot has to be sorted out.”

A Better Plan?

Dowd, who serves on the board of the Massachusetts Assoc. of Insurance Agents, said that organization backs an idea that would cast insurers in more of a support role to the government on pandemic claims as they relate to business interruption.

“Carriers would basically take the claims, get documentation that there was actually loss of income or profit, determine if there are covered claims or not, and then the federal government would pay the bill,” he explained. “We think that’s a good idea, rather than throw out stimulus money to companies that may not need it, that may not experience a loss of income. Instead, we’d have people file, have their experience validated, and get paid based on need — not an assumption that every small business needs it.”

Such a plan is being considered in the fifth stimulus bill being kicked around in Congress, he added, which makes more sense than forcing insurers to cover for losses they never considered.

“We just don’t have the financial wherewithal to pay that financial bill. We’d be out of business,” Dowd said. “But if we can offer services at an agency level and carrier level, review the claims, and validate the claims, we think that has some merit.”

Joseph Bednar can be reached at [email protected]

Insurance

Beyond the Bottom Line

If a customer wants insufficient coverage, Mark Lussier says, he or she should at least have a conversation about it and understand the risk.

Mark Lussier tells the story of a newly licensed driver backing out of her driveway in South Hadley who didn’t see the 85-year-old walking along the sidewalk. They met, and he fractured his hip and was in rehab for six months.

“Fortunately, the lawyers weren’t bloodthirsty, and they settled for the policy limit for bodily injury,” said the co-owner of Lussier Insurance in West Springfield, noting that, too often, lawyers aim for the maximum award, putting the defendant’s house and savings at risk.

Yet, “in its infinite wisdom, the Commonwealth of Massachusetts has determined that $20,000 of bodily-injury coverage is all you need to be legal,” he told BusinessWest.

Then there’s property-damage coverage on auto-insurance policies, which has a minimum requirement of $5,000. “I had a case not too long ago where someone hit a hydrant and a parked car, and then a porch. I’m guessing $5,000 wasn’t enough to pay for all that stuff. But it’s interesting to see how many people have only $5,000 for property damage.”

Many bare-bones policies come from the direct writers like Geico and Progressive that saturate the airwaves with ads focused only on premium price. But, in reality, insurance customers can get policies for not much more than the bare-bones pricing of the online marketers, but with much better coverage, explained in detail, simply because of the flexibility Massachusetts insurers have enjoyed over the past 12 years — flexibility that, for the most part, didn’t exist before.

Indeed, for much of the past century, auto-insurance rates in Massachusetts were set by the state Division of Insurance. Anyone who requested a premium quote for a certain level of coverage would receive the same price from any number of companies, unless they were eligible for a group discount.

Managed competition, which began in 2008, allows insurance companies to offer their own rates. Although these rates may vary, they must still be approved by the Division of Insurance — hence the term ‘managed.’ The result is that Massachusetts drivers are able to compare the different rates, benefits, and services offered by the insurance companies competing for their business.

“So many people are gathering information online without talking to the agent to explain the coverage, so they don’t understand at all what they’re purchasing. It’s the same old story,” said Trish Vassallo, director of Operations at Encharter Insurance in Amherst.

And, while $5,000 won’t cover the cost of a telephone pole or guardrail, injuring a person with one’s car and being undercovered is usually far worse, she explained. But that doesn’t have to be the case, as the premium difference between $100,000 and $250,000 in coverage can be as low as $10 per year — well worth the peace of mind.

Trish Vassallo

“I don’t think there’s an agent in Massachusetts who doesn’t welcome clients calling and talking to them. We like getting away from billing questions and talking about the nuts and bolts of insurance. It’s what we live for — sharing knowledge. It’s so important to make sure you understand everything you’re getting. You don’t want to learn about it after a loss.”

“That’s what we explain to them. Accidents happen, and if a building is hit, $250,000 might not be enough, but it certainly gets you closer,” she said, adding that, if a pedestrian is hit and successfully sues, $100,000 isn’t going to cover the costs.

Auto insurance, like all personal lines, is all about understanding risks and making an educated decision on what one’s comfort level is, she said — and not just settling for the lowest bottom-line price.

Bundle of Options

Under managed competition, carriers have been able to offer individualized add-ons and rider endorsements, from accident forgiveness to gap coverages to good-student discounts, and local agents say it’s important to have a conversation to get the best price for the coverage that’s actually sufficient.

“Today’s market is all about packaging and bundling insurance, and when you shop just one product, you sell yourself short in the money game,” Vassallo said.

To that end, she said, picking up the phone and talking to an agent is far superior to pressing a few buttons online.

“It’s about educating yourself, and I don’t think there’s an agent in Massachusetts who doesn’t welcome clients calling and talking to them. We like getting away from billing questions and talking about the nuts and bolts of insurance. It’s what we live for — sharing knowledge. It’s so important to make sure you understand everything you’re getting. You don’t want to learn about it after a loss.”

Part of that education, Lussier added, is understanding what’s most important to insure.

“Why buy auto insurance? In the consumer’s mind, it’s to protect the car; that’s the thing they care about,” he said. “I was the same way when I was a brand-new driver. ‘Give me what I need, whatever’ — until you have a claim. One thing I hear is, ‘I thought I had coverage for that.’”

Under the prior, regulated system, insurance providers were required to apply specific surcharges for certain accidents and traffic violations. Now, insurance companies are permitted to develop their own rules, subject to state approval, for imposing surcharges for at-fault accidents and traffic violations.

They can also include a raft of incentives, such as bundling auto and home insurance when both policies are bought from the same carrier, offering multi-car discounts or AAA membership credits, or using disappearing deductibles to reward drivers for not having accidents over a long period of time.

Then there are away-from-home discounts for college students who are on their parents’ policies, yet spend much of the year away from home without access to the family car.

“A newly licensed driver can add $800 to $3,000 to a premium, depending on whether they have their own car or not,” Lussier said. “A good-student discount can take some bite off that, and then you can get a discount while they’re away at school. Some companies require you to be at least 100 miles away to give you the discount, some only 25.”

What parents should not do in that situation, Vassallo said, is take their child off the policy completely to save some money.

“You don’t want to do that — God forbid he gets in his roommate’s car and gets into an accident, and the roommate has minimal [coverage] limits, and now the family is looking at potential harm to their assets. Companies can give discounts for students who go off to college, but you should keep them on the policy. Even though they’re not a regular driver anymore, it still provides protection.”

Limited Thinking

One rule of thumb when it comes to liability and coverage, Lussier said, is to ask, ‘how much am I worth?’

“If I’ve got a house, a savings account, a 401(k), I have to protect that with bodily-injury [coverage], then $20,000 isn’t going to be good enough,” he told BusinessWest, noting that, often, the difference between coverage levels doesn’t translate to all that much in the annual premium. For instance, he asked, what if the difference between $100,000 and $300,000 is just $80 per year?

“Do you want to take a risk for 80 bucks a year? When an accident happens, we want to know that we had the discussion and that you’re OK with understanding the risk after considering your driving habits and where you drive and what you have to protect,” he explained. “You’re saving 80 bucks to have crappy limits. We can keep your crappy limits, but we want you to tell us that’s what you want.”

Joseph Bednar can be reached at [email protected]

Features

Another Step Forward?

By Jodi K. Miller, Esq.

Jodi K. Miller, Esq

Massachusetts has been a leader in healthcare system reform.

In 2006, Massachusetts passed a first-in-the-nation, comprehensive healthcare-reform law that sought to achieve near-universal coverage for all individuals in the Commonwealth. The 2006 reforms became a model for the federal Patient Protection and Affordable Care Act passed in 2010. In 2012, after making significant gains in healthcare coverage, Massachusetts enacted additional reforms, with a key aim of controlling healthcare costs.

Among other things, the 2012 reforms set statewide benchmarks to limit the growth of healthcare costs and created a new agency, the Health Policy Commission, which is responsible for monitoring increases in healthcare spending and market activity.

Last month, seeking to further overhaul the healthcare-delivery system in Massachusetts and build upon past reforms, Gov. Charlie Baker introduced new healthcare-reform legislation, titled “An Act to Improve Health Care by Investing in Value.” The legislation seeks to tackle challenges in the current healthcare system by improving access and care delivery, further containing costs, and protecting consumers from high out-of-pocket costs.

As a former healthcare executive and former Massachusetts secretary of Health and Human Services, Gov. Baker has a particular interest in healthcare. According to the governor, his “legislation supports holistic approaches to care, provides consumers and employers with affordable care options, promotes behavioral-health parity, and ensures everyone has access to the services they need.”

Preventive Measure

The governor’s proposal prioritizes investment in primary care and behavioral-health services with the goal of keeping patients healthier and avoiding more expensive services, like emergency-department visits. Specifically, the legislation requires that providers and insurers increase spending on primary care and behavioral-health services by 30%, while at the same time staying within spending-growth limits required by the 2012 healthcare-reform law. The new legislation introduces new penalties for failure to stay within those limits.

As a means to increase access to primary care, the legislation reforms the requirements for mid-level practitioners, such as nurse practitioners. States like California that have expanded the scope of practice for nurse practitioners have seen an increase in the use of, and access to, primary-care services. The new legislation would allow nurse practitioners and psychiatric nurse mental-health specialists to prescribe medications without a supervising physician.

“The governor’s proposal prioritizes investment in primary care and behavioral-health services with the goal of keeping patients healthier and avoiding more expensive services, like emergency-department visits.”

Similarly, the bill creates a mid-level dental-provider position to provide basic dental services, and expands the scope of practice for optometrists and podiatrists. To address the shortage of nurses in Massachusetts, the legislation makes it easier for nurses to move to the Commonwealth by allowing nurses licensed in another state to practice in Massachusetts without having to obtain a new license.

The bill also seeks to expand access to, and coverage of, mental and behavioral-health services through various measures, including provisions to encourage behavioral-health providers to accept insurance and to develop and grow the number of providers. The legislation establishes a Board of Registration of Recovery Coaches — a recommendation of the Recovery Coach Commission formed as part of the opioid legislation enacted in Massachusetts last year — which will credential recovery coaches who provide addiction-recovery services.

The legislation includes new consumer protections to manage healthcare spending and reduce consumers’ out-of-pocket costs. For example, it seeks to curb the practice of ‘surprise billing’ that consumers receive for emergency and unplanned services from out-of-network providers by establishing a default, out-of-network rate for such services. The bill also imposes limits on when a hospital can charge a fee for services delivered at an outpatient or satellite site and prohibits such fees for certain types of evaluative and diagnostic services.

The legislation also seeks to contain healthcare costs by addressing the high costs of prescription drugs. In addition to requiring pharmacists to inform consumers about the lowest cost options for the drugs they purchase, the legislation creates a review process for certain high-cost drugs and imposes financial penalties on manufacturers for increases in drug prices that exceed certain set percentages. Drug manufacturers also would be required to participate in annual cost-trend hearings before the Health Policy Commission.

Relatedly, the legislation imposes new oversight authority over pharmacy benefit managers, companies that negotiate contracts with drug manufacturers and manage pharmacy benefits and payments for health plans. Pharmacy benefit managers would be required to be certified with the Mass. Division of Insurance and report financial data to the Massachusetts Center for Health Information and Analysis.

In addition to cost controls, the legislation includes provisions aimed at improving access to appropriate, coordinated healthcare, including access to urgent-care centers and telemedicine services. According to a 2018 analysis by the Massachusetts Health Policy Commission, there has been a sharp increase in the use of urgent-care centers, where services are less expensive than those provided at hospital emergency departments.

The governor’s proposal seeks to improve access to, and to eliminate confusion regarding, urgent-care centers. For example, the names of clinics operating as urgent-care centers would have to include the term ‘urgent care’ or otherwise suggest that urgent-care services are provided. The bill also requires urgent-care centers to be licensed by the state Department of Public Health, and, as requirements of licensure, such centers must accept MassHealth (the Massachusetts Medicaid program), provide behavioral-health services, and meet standards for coordinating with patients’ primary-care providers.

The legislation also seeks to expand access to care by improving and increasing the use of telemedicine (healthcare services provided via telecommunication services such as videoconferencing). Telemedicine can be a cost-effective form of care, and it eliminates the requirement of travel, which can be significant for individuals living in rural areas. In an attempt to increase the use of telemedicine in the Commonwealth, the legislation creates a regulatory framework for such services and requires insurance-coverage parity for such services (i.e., if there is coverage for the services if provided in person, there must be coverage if the services are provided via telemedicine).

The legislation seeks to support community health centers and hospitals by investing in the Health Safety Net Trust Fund, which pays hospitals and community health centers for services provided to low-income residents who are uninsured or underinsured. The governor’s proposed investment – $15 million – constitutes less than 5% of the total amount paid out by that trust fund to hospitals and community health centers in 2018. The legislation also provides for additional funding to the Community Hospital and Health Center Investment Trust Fund through the penalties that the legislation imposes on drug manufacturers and providers for failing to meet cost-containment requirements.

Along with efforts to control healthcare spending, the legislation also seeks to control the price of insurance premiums, particularly those paid by small and mid-size employers and their employees. An October 2019 report from the Massachusetts Center for Health Information and Analysis found that premiums and cost-sharing obligations for private-sector employees in Massachusetts are continuing to increase at a faster rate than wages and inflation. Among other things, the legislation includes provisions which are designed to give small employers (50 employees or fewer) greater access to health-plan options.

Finally, on Oct. 18, the same day he filed his healthcare-reform bill, Gov. Baker issued an executive order to create a commission to study the combined individual and small-employer group health-insurance market. This unique market — known in Massachusetts as the ‘merged market’ — was established in 2007 with “the intention of increasing and stabilizing its risk pool to provide greater access to affordable health-insurance coverage,” according to the governor’s executive order.

The commission is tasked with analyzing the merged market in light of the legislative reforms and changes to the healthcare market that have occurred over the past 12 years and reporting recommendations to the governor by April 30, 2020, with the objective of “ensuring that all residents have access to affordable health-insurance coverage.”

Bottom Line

Gov. Baker’s proposed reforms are just that — proposals. Lawmakers at the State House are working on their own healthcare-reform legislation, including bills supporting a Medicare-for-all, single-payer system. What will follow are negotiations among legislators and the Baker administration, with the goal of passing comprehensive healthcare-reform legislation in Massachusetts before the Legislature’s formal session ends on July 31, 2020.

Jodi K. Miller, Esq. is a partner at Bulkley, Richardson and Gelinas, LLP, in Springfield, where she represents clients in commercial and other civil-litigation and regulatory matters, with a focus on health law.

Insurance

Shelter from the Storm

In the insurance world, an umbrella policy is exactly what it sounds like, sitting atop home, auto, and business insurance coverage and providing excess protection against liability risks. What is less clear, area insurance experts say, is why more people don’t avail themselves of this relatively inexpensive vehicle. After all, life’s storms can strike at any time, and when they do, no one wants to be totally exposed.

Even the best intentions can’t always fend off an expensive lawsuit, said John Dowd, president and CEO of the Dowd Agencies in Holyoke. Take a field trip, for example.

“If you or your spouse has volunteered to chaperone your kid’s school field trip to an amusement park, you both can be held legally responsible for anything that goes wrong on the trip,” he explained. “If a child under your care is injured during the excursion, that child’s parents might try to sue you for damages.”

Which could wind up being a trickier situation than simply loading that child into one’s own car and crashing it — because the driver’s auto-insurance policy covers bodily injury. But what about situations like that field trip — what policy covers that?

It’s just one example, Dowd said, of why an umbrella policy is a good idea for most people. “A personal umbrella policy can provide coverage for such potential incidents, allowing you to chaperone a trip without worrying about potential financial risks.”

An umbrella policy — sometimes referred to as ‘family insurance,’ he noted — essentially sits atop existing auto and homeowners policies to deliver an additional layer of protection, especially against catastrophic liability loss.

“I would like to see anybody who has any net worth — say, more than $100,000, which would include most homeowners these days — to have a personal umbrella,” said Mark Lussier, who co-owns Lussier Insurance in West Springfield.

“The idea behind a personal umbrella is, you want to cover your net worth. When I get a phone call from someone who says, ‘I have this umbrella, but I don’t really need it,’ I say, ‘if somebody were to sue you for everything you were worth, is what you have on your home or auto policy enough?’”

Dowd noted that the coverage from a personal umbrella policy is wide-reaching, providing protection for scenarios not covered by a typical home or auto policy. For instance, if a family member rents a snowmobile on vacation and is involved in an accident, the umbrella policy may help pay for the cost of repairs and medical bills of the injured parties.

Perhaps the most compelling aspect of an umbrella policy, Lussier said, is its cost — maybe $250 or $300 per year for $1 million in coverage, with additional coverage available beyond that, typically in increments of $1 million. “I have a couple of clients who’ve got $5 million umbrellas because their net worth justifies the extra cost.”

“The idea behind a personal umbrella is, you want to cover your net worth. When I get a phone call from someone who says, ‘I have this umbrella, but I don’t really need it,’ I say, ‘if somebody were to sue you for everything you were worth, is what you have on your home or auto policy enough?’”

That’s on top of legal defense fees, which insurers cover as part of any policy. “So, if the unimaginable happens and you’re called by Mark E. Salomone, you have peace of mind knowing your insurance is going to defend you as well as pay anything you’re legally responsible for.”

Mark Lussier

Mark Lussier says the inexpensive cost of a personal umbrella policy, coupled with the many scenarios it covers, present a strong argument for buying one.

In addition, the umbrella is worldwide coverage. “So you can be vacationing in Europe, and if someone is injured because of something you’re responsible for, your umbrella is going to respond,” Lussier said.

Bill Trudeau, president of the Insurance Center of New England in Agawam, said he draws a simple diagram to explain the umbrella concept to customers, with policies like home and auto represented by rectangles, and the umbrella hovering over all of them.

“You can imagine a multi-fatality accident, where the claims might easily surpass $1 million. If an accident is deemed your fault, you may run out of insurance,” he explained. “But if you’ve bought a $2 million umbrella to go on top of a $1 million policy, now you have $3 million in protection in that instance. It’s a policy for excess liability claims — product liability, premises liability, bodily injury, property damage, all kinds of claims. It’s one policy, and you can decide how much protection you want to buy.”

Surprising Circumstances

Lussier stressed that umbrella coverage isn’t technically coverage the policy holder doesn’t already have. “You can’t get umbrella unless you have the underlying policy.”

While some may ask why not just increase coverage on existing home and auto policies, he pointed to the broad nature of umbrella protection, and, again, its cost.

“Many times, to buy more coverage under the basic policy begins to beg the issue of why you shouldn’t have the umbrella. I can have a $1 million umbrella for three cars and two houses for $250 a year. So it’s cheap.”

In Massachusetts, Dowd explained, most umbrella policies provide coverage for the policy holder and their immediate family members living in the same household, with some exceptions. And he listed a few scenarios where that wide net may come in handy.

For example, “if a dog attacks a guest in your home, you may be responsible for any medical bills,” he explained. Even a small bite could end up costing thousands of dollars, and, while some homeowners insurance policies provide liability coverage for dog bites, they typically restrict what breeds are covered. “If your policy excludes your dog’s breed, umbrella insurance may help cover any financial responsibility you have for the incident.”

As another example, if a recently licensed teenager causes a multi-vehicle auto accident, the resulting financial liability could be expensive. “While a single-car accident likely won’t exhaust your auto-insurance policy, a multi-car accident might exceed the coverage,” he said. “Personal umbrella insurance can cover expenses beyond those covered in your auto policy.”

One hindrance to purchasing umbrella coverage, Lussier noted, is that the holder must first increase his or her automobile bodily-injury coverage to $250,000 — and that floor can rise to $500,000 for older drivers. “In some cases, especially with multiple cars, that can be unaffordable. People say, ‘I can’t allocate that risk transfer; I’d rather retain the risk myself and take my chances.’ And that’s really what insurance is all about — it’s a transfer of risk.”

Then there’s something called ‘personal-injury coverage,’ Lussier said, which is different from bodily injury, instead referring to libel, slander, false arrest, and defamation of character. And this has become a minefield in the age of social media.

“Many times, to buy more coverage under the basic policy begins to beg the issue of why you shouldn’t have the umbrella. I can have a $1 million umbrella for three cars and two houses for $250 a year. So it’s cheap.”

“Some people, especially teens, don’t fully comprehend the power of social media,” Dowd said. “If your child makes a disparaging remark or unsubstantiated claim about someone on social media, that person might try to sue for libel.”

An umbrella policy may provide coverage for such situations, with most policies extending coverage to online statements. “Aside from just physical damage, umbrella protection can provide financial assistance if you’re being sued for libel or slander.”

Lussier agreed that this is a significant issue in an era when everyone is quick with a camera, and when images, videos, and statements online can live forever.

“Depending on your means, you can find yourself liable for substantial sums,” he told BusinessWest. “Nowadays, something said innocuously or without much thought can be a big deal. It goes viral, and the next thing you know, you’re saying, ‘I didn’t really mean it the way it was taken, but if I’d have known it would go that far, I would’ve kept my mouth shut.’ And if you put it in writing, you can make it even worse.”

Cost of Doing Business

Clearly, personal umbrella policies cover a wide net of possibilities. But it can be tricky when they cross over into the business realm. Lussier cited the example of a photographer who closes his studio and moves his enterprise into his house. “Now his house is a business exposure, and an umbrella excludes business exposures.”

That’s where a business umbrella comes in, working in much the same way a personal umbrella does, but covering liability risks related to a business.

Bill Trudeau

Bill Trudeau says growing businesses should continually reassess what level of coverage they need from an umbrella policy.

“If you have a relationship with your broker, they’re likely to offer you umbrella liability,” Trudeau said of business owners. “If you’re doing a review of your insurance, it’s something almost any competent broker brings up. As your business grows, it would be part of the basics of insurance coverage.”

The nature of the business would impact the risk exposure and, hence, the level of coverage needed, he noted. While a $1 million umbrella might be fine for a storefront shoe store or florist, a business owner with a fleet of heavy trucks would likely need more.

“We’re hoping not to scare people, but we want them to make realistic choices,” he said. “And a lot of times, those choices are informed by some requirement from the place you’re doing business with, like a contractor taking on bigger jobs, like a casino or office tower or hotel chain. The risk managers for those entities tend to have a requirement for higher limits of liability. So, like it or not, if you want to play in that area and do business with these kinds of clients, you probably have to buy an umbrella of some sort.”

Fame is a factor, too, Lussier said — and often results in higher rates per million of coverage, because famous people are seen as bigger targets for lawsuits.

“If you’re a high-profile person, like a news anchor, you won’t get an inexpensive umbrella, because of the higher exposure,” he explained. “If we’re selling you cheap insurance, we’re basically gambling that you’re never going to use it. That’s really what insurance is all about. The most people participate for the least amount of risk, so we can then price it accordingly.”

In addition, the level of coverage should reflect not only one’s net worth, but future earning potential as well. A doctor who just graduated from medical school and plans a career in brain surgery might have little more than debt to show right now, but a lawsuit could put significant future earnings at risk.

In the end, Trudeau said, umbrella coverage can bring peace of mind in myriad scenarios.

“If something’s gone wrong in your business — someone went through a stop sign, something terrible happened, some member of the public is injured badly, and your company is sued for $5 million — you can take some comfort: ‘I bought insurance, and I’m able to pay what people wanted to negotiate without having to declare bankruptcy.’ It’s still awful, but you have that small comfort, as opposed to sitting there wondering what to do.”

Joseph Bednar can be reached at [email protected]