Umbrella Liability Insurance – What Limit of Protection is Enough?

Umbrella Liability Insurance

So you have a commercial umbrella liability insurance policy. How did you select the limit of protection? Is it high enough or should it be higher? Perhaps lower? Although at the end of the day the particular risk preference of your enterprise will weigh heavily in your selection of limit, here are some other considerations to keep in mind.

Lease Obligations

Some of the larger broadcast tower companies are now requiring that tenants have umbrella liability insurance limits of up to $5,000,000. We have found that in many cases for small and mid-sized broadcasters the tower companies have relented and accepted lower limits (occasionally $1,000,000). But the important thing is to evaluate your tower and building premises leases and make sure you are compliant (or negotiate terms for which you can be compliant).

Deep Pockets

In handling a legal complaint the courts, among other things, are going to look to punish wrongful behavior and to compensate the injured. In evaluating a defendant the courts will find a stronger ability to pay, of course, in a larger company. Has your company had any acquisitions or significant growth in recent years? Any significant influxes of capital? If you have and your umbrella liability limit has remained unchanged you might want to consider bumping your limit.

Legal Jurisdiction

Certain legal jurisdictions are renown to be litigious and plaintiff-friendly. Tops on the list according to the American Tort Reform Foundation include Florida, California, St. Louis, MO, Philadelphia, PA and New Jersey. You should be sensitive to the legal environment of not only your stations/markets but also of your headquarters location as a plaintiff could bring a legal complaint in either. Some plaintiff-friendly jurisdictions have been home to almost shocking damage awards which appear to dramatically outweigh the injury sustained. It can happen.

Events and Activities

Regular, around the town commercial shoots and remote broadcasts are generally not of much concern with respects to umbrella liability. But it’s the larger events – concerts, festivals, and the like – that should be included in the calculus when selecting an umbrella liability limit of insurance. Do you organize or conduct any large public events? And what is the nature/format of the events – bridal show or high energy, youth-oriented concert? There are heightened responsibilities for event organizers with respects to crowd control, security, and spectator safety. And you should also consider events for which you are not the organizer and thereby not subject to direct liability, but a participating sponsor and thereby subject to possible vicarious liability (liability by association). Think deep pockets legal theory – if the organizer for an event for which you are a sponsor does not have adequate insurance and something bad happens the consequences of the lawsuit could flow through to you as you were a participating sponsor and are the only deep pocket still standing.

Vehicle Fleets

Another key exposure to evaluate when setting your umbrella liability limit of insurance is your vehicle fleet. For even the best of organizations, in favorable legal jurisdictions, and with the best risk management protocols, a single auto accident can trigger a huge claim(s). And the larger the fleet, the greater the likelihood of an accident. I’d suggest that an umbrella liability limit of insurance that is appropriate for an organization with seven vehicles is on the light side for an organization with a fleet of twenty-seven vehicles.

Broadcasters Errors & Omissions

The umbrella liability insurance policies for some of our clients include following-form broadcasters errors & omissions liability coverage. While it is possible that most any broadcaster could be subject to a significant broadcasters errors & omissions liability claim, and for which high limits of protection would be necessary, television stations with locally produced news are my primary concern. An investigative reporting news story for which the general message is correct but for which the details are flawed can trigger a serious legal complaint. And defense costs in broadcast errors & omissions liability claims can escalate quickly.

Cost

The first million dollars of umbrella liability insurance is the most expensive layer of coverage. And the premiums for each successively higher layer of coverage are successively less expensive (up until the point where the calculated premium is less than the minimum premium that the insurer will charge per million dollars of coverage). So although a $5M umbrella policy may cost $15,500, to increase that limit to $10M may cost only an additional $5,000 (an additional $5M in coverage for a minimum premium of $1,000 per million).

This discussion is intended to be general in nature. The circumstances of your organization and the terms, conditions, and considerations under your umbrella liability insurance policy may differ. Consult your actual policy forms for details.

Contact: Stephen W. Patterson, MBA, CPCU, steve@preston-patterson.com, 800-516-5199 ext. 111