In Private Client Services, we are often asked “What is the most common exposure found when reviewing a prospective client’s current personal risk management program?”. Without question the answer surrounds the lack of adequate liability limits and the exposure to significant financial loss.
Personal liability is arguably the most critical piece of a successful individual’s personal risk management program. Yet unfortunately it seems to be an area where many clients do not receive adequate consultation. Accomplished individuals certainly have the financial means to self-insure specific areas of their personal risk program – for example, choosing to forego physical damage coverage on a vehicle at the risk of being responsible for repair costs after an accident.
That is a seemingly easy decision as the risk and reward can be measured. The bigger questions surround the “What if” moments. What if you are at fault in a motor vehicle accident that leaves the other driver paralyzed? What if the deck railing on your beach house gives way and a tenant is severely injured? “Those cases can result in eight-figure judgements,” says Rob Glickman, a managing partner at McCarthy, Lebit, Crystal & Liffman Co. in Ohio.
We cannot emphasize enough how important it is to have a thorough understanding of risks and exposures and proper coverage in place to protect and preserve your wealth. This is just one reason why you should turn to a trusted risk advisor for consultation and advice.
What Do You Stand to Lose in a Lawsuit?
The short answer is “everything,” according to Ted Kaplun, a personal injury lawyer in Pennsylvania. While certain assets are protected, there are several things that can be taken to satisfy a judgement if the amount awarded exceeds your liability coverage limit:
- Your Home(s). While laws vary from state to state, many experts state you could lose your residence, particularly a second home.
- Your Savings. Certain retirement accounts, such as a 401(k) and IRAs, are typically protected from a liability lawsuit. However, checking and savings accounts can be seized as well as certain investments.
- Your Car(s). Vehicles can be confiscated.
- Personal Property. Valuables, such as jewelry and art, furniture, and other personal property are at risk.
The Higher the Profile, the Bigger the Lawsuits
The sad reality is that we live in a highly litigious society. Furthermore, being financially successful ultimately puts more affluent individuals at higher risk of being a target for lawsuits. We have all seen the commercials, heard the radio ads, and driven past the billboards for personal injury law firms. “If you’re injured in an accident, don’t call the insurance company, call (insert law firm here) first!”.
These law firms admit that they “very rarely seek personal assets,” says Tina Willis, a personal injury lawyer in Florida. “We are looking for insurance funds, and very frequently turn down new cases, or withdraw from existing cases, as soon as we realize there is no insurance.” The exceptions? If the case involves catastrophic injury, such as paralysis, any lifelong disabling injury or death. Or (as you probably already guessed) if the defendant has substantial wealth but little insurance protection.
According to South Carolina personal injury attorney Kenneth Berger, “The likelihood of someone attempting to go after your personal assets increases if there is a significant disparity between the value of your assets and the amount of liability coverage you have.”
It Won’t Happen to Me
This is a common sentiment, and we hope you never find yourself facing a liability lawsuit. However, anyone can be at risk of being involved in a catastrophic situation. Below are some examples of actual liability claims which resulted in very large awards:
- $7.7 million awarded to a man attacked by his neighbor’s three dogs, resulting in multiple lacerations to both legs and a lower back injury.
- $29 million awarded to a 4-year-old boy for a spinal cord injury resulting from a vehicle crash.
- $15 million awarded to a 14-year-old boy who suffered moderate brain damage in an auto accident.
- $31 million awarded to two individuals swept off a boat and injured by its propellers.
How Can You Protect Yourself?
You can protect yourself through an Umbrella, or Excess Liability, policy. This policy affords additional liability coverage above the underlying liability limits of your primary policies, such as homeowners, automobile, and watercraft. The premium for a one-million-dollar liability limit often starts around $200 annually and certain carriers can offer limits up to $50 million.
For those with substantial assets and wealth, it is imperative to work with an advisor who has a deep knowledge of the various liability risks faced by successful individuals, along with access to specialty insurance markets that can help tailor coverages for clients with unique exposures.
Have your current program analyzed for potential exposures by scheduling a Personal Risk Assessment with our Private Client Services team.