Accidents happen. Even if you do everything to maintain a low profile— adhere to the speed limit, keep plenty of distance between you and your neighbors—there is still a rising chance that you will be the target of a costly lawsuit whether or not you are at fault. This is even truer for affluent individuals. To help you better understand the risks and mitigate any losses, we asked two of our Private Client team leaders, executive managing director Cindy Zobian (CZ) and managing director Steven Kent (SK), some frequently asked questions around personal liability in today’s ever litigious world.
Why is it important to talk about personal liability? And why now?
CZ: Simply put, people are more likely to sue one another today than ever before. Yet, we still see successful individuals and families who do not have enough personal liability coverage. These cases often involve auto accidents or injuries that occur on someone’s property, but claims can arise in nearly any situation. For example, a teenager who is accused of cyberbullying or a golfer who doesn’t yell “fore!” and then hits someone with a wayward shot. Expect their victims to sue, particularly if they perceive the other party to be affluent.
SK: That’s true. I think it’s fairly common knowledge that affluent individuals are targets for lawsuits. However, you don’t have to be driving a Maserati to be targeted. There are so many ways for someone to conclude you are successful. Social media makes it easier for people to determine that you have money and would be worth the effort to sue. For example, if your profile has pictures of you standing in front of your Malibu mansion, you are more likely to get sued than if you’re standing outside a modest ranch. It’s important to be mindful of what you are posting publicly on social media.
What if my lifestyle isn’t conspicuous? Will I need less liability protection?
SK: Not necessarily. The affluent are more likely to live, work and play around people who own things that are costly to replace if damaged.
CZ: Exactly. For instance, in one extreme case, a fire broke out in a client’s apartment in Manhattan. Their neighbors’ apartments were damaged. In fact, there was considerable smoke damage in one unit, which affected their neighbor’s priceless art and rare antiques collection. In addition to the damage, the residents expected to be put up in nice hotels while the repairs were being made. Our client’s insurance company ultimately paid tens of millions of dollars in claims.
But most high net worth people are properly protected, right?
SK: Excess personal liability insurance, often called “umbrella” policies, cover you against claims of injury to people and damage to property. Typically, your auto and homeowners’ policies have coverage included up to a certain limit. Umbrella policies provide additional protection over and above that limit. When we meet new clients it’s not that uncommon to find that they have very little or no umbrella coverage. That’s why it is so important to have a conversation about this.
CZ: Accidents happen. For example, a few years ago, one of our clients had a relative visiting from out of town who borrowed his car. Unfortunately the relative was not familiar with our roads and ran a stop sign, causing a bus to swerve onto an embankment and roll over. While there weren’t any passengers on the bus, there was a pedestrian riding a bike on the embankment who sustained serious injuries. This is an extremely unfortunate case but the bottom line is that while our client was not actually driving the car, he was still sued.
How do these types of situations generally pan out?
CZ: A few cases go to trial, but most are settled privately. We’re also seeing larger settlements regardless of who was at fault. We had a client hit a pedestrian who was texting while he was walking across the street. The driver, our client, had the right of way. Regardless, his insurance company ultimately paid out a six-figure settlement.
Is there such a thing as too much liability coverage?
CZ: We get this question a lot which is why we developed our proprietary tool, What’s My Liability. This tool calculates a suggested range of liability coverage. There’s no magic number to determine the correct amount because it really depends on the value of the assets that are being protected and the individual’s risk tolerance. We strongly suggest that you talk to a professional for further guidance.
SK: For most of our clients, I’d say that if their limit is below $5 million, they are effectively uninsured. You can get coverage up to $50 million with little hassle. We do have a few clients who are in the public eye and are more concerned about being magnets for lawsuits. For reference, those clients carry more than $100 million in personal liability coverage.
Any last thoughts?
CZ: It’s easy to get this wrong, and the ramifications can be serious and expensive. So it’s always worth a 10 minute chat with a professional to make sure you and your family are properly protected. We’re here to help!