April 2002 Bulletin

Liability exposure beyond your profession

Is umbrella coverage for you

By Joel M. Blau, CFP

As you well know, the risk of legal liability is unfortunately a fact of modern life. It also may be the largest financial risk most physicians face today. Many orthopaedic surgeons believe that they have risks covered through their medical malpractice insurance policies. While this may be the case with professional exposure, it most certainly does not cover other potential personal liabilities. Common occurrences such as automobile accidents or the neighbor’s child slipping on your kitchen floor can, and often does, result in lawsuits with enormous damage awards being assessed. Without the proper type and adequate amount of personal liability insurance, orthopaedic surgeons and their families could be faced with financial disaster.

Personal liability insurance is designed to cover you for acts of possible negligence that result in the legal obligation of a monetary award. Many risks will typically be covered under your homeowner’s and automobile insurance policies. The details of these provisions are provided under the "personal liability" and "medical payments to others" sections of the policies. A problem arises when the maximum amount of protection isn’t adequate to satisfy judgments.

Advantage of umbrella coverage

Umbrella liability insurance is specifically designed to provide coverage for those situations where the potential liability could exceed the limits of a typical homeowner’s or auto policy. Umbrella policies are particularly advantageous for individuals who have a great deal of personal wealth and certain professionals, such as physicians and specifically orthopaedic surgeons, who face additional risk simply because they are perceived as having the ability to pay large judgments or settlements.

The term "umbrella" implies that the policy will require the insured to still have a base amount of liability coverage from their homeowner’s or automobile policy. In the event of a covered loss, reimbursement will come from the base policy first. The liability in excess of the base limit will be covered by the "umbrella" policy up to its policy limit, which can vary but is generally more than $1 million.

As with any type of insurance product, it is important to have an understanding of the key policy provisions. For personal liability coverage, make sure you know which perils are covered and which are not. When looking at the dollar limit of coverage, you also want to know the amount of the deductible. Obviously, the higher the deductible, the lower the premium–but be sure you’ll be able to come up with a high deductible amount in the event that you need the coverage.

Is umbrella coverage for you?

Once you understand key concepts, you can investigate the logic of adding umbrella liability coverage to protect yourself and your family. To determine if your personal liability policy provisions are adequate, consider the following:

If your answers to the above questions leave you wondering if you’re adequately covered, an umbrella policy may be in order. An umbrella policy provides the benefit of larger amounts of protection than are available in a "base" policy and broadens the protection by filling in existing coverage gaps. In addition, umbrella liability policies generally have less exclusions than other policies.

The protection provided by the umbrella policy typically represents a significant portion of a physician’s overall "risk management" program, in addition to disability, life, auto and homeowner’s insurance. Your insurance agent or advisor should be able to provide you with the type of personal liability coverage that best fits your needs.

Joel M. Blau, CFP, is president of MEDIQUS Asset Advisors, Inc.

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