Does an Umbrella Policy Cover a Car Accident? Finding It

An umbrella, or personal excess liability policy, sits above a person's auto and homeowner's policies and pays liability claims that exceed their limits. It is sold in million-dollar increments, is inexpensive relative to its limit, and is carried by a substantial share of homeowners, professionals, business owners and anyone with assets to protect. It requires the policyholder to maintain underlying auto and home policies at specified minimum limits, commonly $250,000 or $300,000 per person for auto, and it pays only after the underlying limit is exhausted.

For a car accident, the umbrella covers the same liability the auto policy covers, injuries and property damage the policyholder caused by negligent driving, and generally follows the auto policy's terms, including who is an insured, which vehicles are covered, and the exclusions for intentional acts and business use. Some umbrellas are broader, covering liability the auto policy excludes, and the umbrella's own language governs those cases.

The umbrella insurer, which may or may not be the same company as the auto insurer, is a separate party to the claim. It is notified when the claim may exceed the underlying limit, it evaluates the claim independently, and it participates in negotiation and settlement, often with its own counsel in litigation. A claim that is clearly within the auto limit never reaches it.

Drivers exchange auto insurance information at the scene and the police report records it; neither identifies an umbrella. The first indication is the driver's circumstances: a homeowner in an expensive area, a professional, a business owner, a person who drives an expensive car and carries a high auto limit, is a candidate. The auto policy's limit itself is a clue, since umbrella carriers require a high underlying limit, and a driver with $250,000 or $300,000 per person often has an umbrella above it.

Many states require a liability insurer to disclose its policy limits in writing on request after a crash, and some require disclosure of all coverage available to the insured, including excess and umbrella policies, within a set period; an attorney sends the request as a matter of course. Where the state does not require pre-suit disclosure, the insurer may still disclose, particularly when the claim plainly exceeds the auto limit and the insurer wants to avoid a bad faith exposure for failing to settle within limits when it could have.

In litigation, the existence and limits of all insurance that may cover the claim, including umbrella and excess policies, are discoverable in every state, usually in the first round of written discovery, and the defendant must disclose them under oath. The umbrella is then a known quantity and the claim is valued against the full coverage.

Suppose you were struck at an intersection by a driver who ran a red light, suffering a fractured pelvis and a brain injury, with $287,000 in medical bills, six months off work and lasting cognitive effects. The driver was a physician. His auto policy carried $250,000 per person, which the insurer offered within weeks, saying it was the limit.

Your attorney sent a written request under the state's disclosure statute for all coverage available to the driver, including excess and umbrella policies. The auto insurer's response identified a $2 million umbrella with a different carrier. The claim, valued well above the auto limit on the injury, the lost income and the cognitive effects, was presented to both insurers, and the umbrella carrier retained its own adjuster and counsel.

The case settled at mediation for the auto limit plus a substantial contribution from the umbrella carrier, within its limit. Had the umbrella not been identified, the claim would have been settled at $250,000 with the balance claimed from your own underinsured motorist coverage, if any. All figures are hypothetical; the disclosure request that surfaces an umbrella is routine and routinely decisive in serious injury claims.

The umbrella question is answered early, because it changes the whole strategy.

• Note the at-fault driver's circumstances: home, occupation, vehicle, and the auto policy's limit once disclosed; a high auto limit suggests an umbrella above it.
• Have a written request for disclosure of all coverage, including excess and umbrella policies, sent to the auto insurer under the state's disclosure statute where one exists.
• Do not accept the auto limit as the end of the claim until the existence or absence of an umbrella is confirmed in writing.
• Ask whether the driver was working, which brings an employer's commercial and umbrella coverage into play.
• Identify your own underinsured motorist coverage, which applies after the at-fault driver's coverage, including any umbrella, is exhausted.
• If the auto insurer offers its limit, consider the release carefully; a release of the driver without reserving the claim against the umbrella can end it, and the umbrella carrier must be a party to any settlement that involves it.
• In litigation, request insurance disclosure in the first discovery round; the umbrella is disclosed under oath.

Pre-suit disclosure of policy limits is required by statute in a growing number of states, including California, Florida, Georgia, Texas in some circumstances, New York and others, with varying scope: some require only the auto limit, some all coverage available including excess, and some disclosure only after a claim is presented with specific documentation. Where no statute applies, disclosure is at the insurer's discretion before suit and mandatory in discovery after it.

Bad faith law shapes the umbrella's role: an auto insurer that fails to settle a clear claim within its limit when it could have exposes itself to liability for the excess judgment, and the umbrella carrier, which bears that excess, has an interest in the auto carrier settling. The interaction between the two insurers is governed by the policies and by state law on the duties between primary and excess carriers, and it often produces a settlement at or near the combined limits in a serious case.

Umbrella policies' uninsured and underinsured motorist coverage, for the policyholder's own injuries, is available from some insurers as an endorsement and is otherwise absent; a policyholder injured by an uninsured driver looks to the auto policy's UM coverage, not the umbrella, unless the endorsement was purchased. Deadlines for the underlying claim are the state's injury statute, one year in Tennessee and Kentucky, two in Texas, California, Florida and Georgia, three in New York and North Carolina.

Businesses carry commercial umbrella and excess policies above their auto and general liability coverage, often in multiples of a million dollars, and a driver who was working at the time of the crash brings the employer's full tower of coverage into the claim. Trucking companies, delivery fleets, contractors and any business with vehicles are examined for excess coverage as a matter of course, and the disclosure is obtained the same way.

Government entities are self-insured or covered by pools with their own limits and caps, and umbrella concepts do not apply in the same way. Rideshare companies' $1 million policies are primary and excess layers above them are rare for the driver, though the company's own excess coverage may exist.

A claim against several parties, a driver and an employer, a driver and a bar, two drivers, involves each party's primary and excess coverage, and the total available is the sum, which is why the parties are identified before the coverage is assessed.

An umbrella policy can turn a claim capped at the auto limit into a claim paid in full, and whether one exists is established by a written disclosure request, by the driver's circumstances and, in litigation, by discovery, before any settlement at the auto limit is accepted. The questions to answer early are what the auto limit is, whether the state requires disclosure of excess coverage, whether the driver was working, and what your own underinsured coverage provides. Most personal injury attorneys work on contingency and pursue coverage disclosure in every serious claim.

Ask Legal Matters is a free claim-review request service, not a law firm. Requests may be shared with independent attorneys and legal services partners who handle inquiries in your state, and an attorney must evaluate the facts before anyone can say what the claim is worth. If your injury exceeds the at-fault driver's auto limit, you can request a free claim review before accepting it.

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• What Is the Average Car Accident Settlement? What Sets the Value

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