“Oh he’s off in La La Land.”
Before the movie La La Land became all the rage, the term La La Land didn’t mean Hollywood.
Merriam-Webster – la-la land: a euphoric dreamlike mental state detached from the harsher realities of life
Is this explained in the movie? I haven’t seen it. I just figured since the movie is so hot right now, tying an otherwise humdrum article to a beloved movie, by the transitive property of linguistics, you will love this article.
Am I in La La Land when it comes to my umbrella insurance policy?
Wait, What is Umbrella Insurance?
Let’s rewind a bit. Actually, let’s just point you somewhere else:
- Part 1: Defend Your Money – My Decision to Get an Umbrella Insurance Policy
- Part 2: The Unknown Umbrella – Signing Up for My First Umbrella Insurance Policy
At the end of part 2 I was waiting to receive the fine print in the mail to see exactly what is covered.
Let’s pick up there.
The Fine Print
Part III – Exclusions
…
5. Business pursuits or business property of an insured unless covered by primary insurance described in the declarations. Our coverage is no broader than the primary insurance except for our liability limit.
Well that is pretty vague. Awesome. Now what?
A few more phone calls helped put my mind at ease. I do not believe my rental properties will be interpreted as a business property.
Two reasons. They are single family homes, not multi-unit businesses. And I have 4 or fewer, not a huge operation I run.
It isn’t exactly spelled out in the document though. Lawyers can argue anything they want – often laws or documents are created with enough wiggle room where they have creative license to interpret as they see fit.
At some point it comes down to trust. Do I trust that Geico will cover me in the event something goes wrong, not try to find some loophole? Yes.
However it isn’t a blind trust. I made sure I am following the intended use of the umbrella policy and verified the best I can.
Not Done Yet…
Umbrella insurance kicks in after your primary insurance. There are required limits for your coverage that are quite high.
I already upped my auto coverage, which was incredibly cheap.
However, I have to make sure I have $300k on my renters insurance (for where I live) and my homeowners insurance for both my rental properties.
Something tells me I don’t have nearly that much coverage…
How much is it going to cost to increase my limits?
The good news is this will provide an excuse to get quotes from a few different insurance providers. My rates have creeped up over the years and I’ve been too lazy to look into alternatives. Now is the time!
If possible, it might help to have the same insurance provider for both houses. They are in different states though, which could complicate matters. If anyone has a recommendation, please let me know!
Permission to be Blunt
What do you think … am I off in La La Land with my belief in my umbrella insurance coverage? Is it offering me the protection I hope it does?
The umbrella policy is from Geico, and Geico is also your primary insurer for the rental, your home and auto? Then their umbrella covers your rental.
Geico is my auto insurer, but not for my personal residence or rental properties. But that shouldn’t be an issue …
The paragraph 5 verbage seems the umbrella would not cover the rental, since the primary coverage for the rental is not from the same company and not listed in the declarations of the umbrella policy.
What does Geico say to the question of “does this cover my rental, beyond the primary policy (that I have from another insurance co)?”
Here’s what my umbrella policy says clearly on the front of it.
Your policy premium has been developed using the following information:
• 2 Vehicles • Supporting Mayhem Home and/or Auto
Policy(ies)
• 2 Operators in the household
The following dwellings are covered under Additional Dwelling Rented To Others
Dwelling 01: 666 Happy Trail,
Goodland MI, 48762
Policy number of underlying Allstate policy: xxxxx-xxxx-x-xx
Yes – both rental properties are listed on the declarations page. And yes, Geico says they are covered beyond the primary policy.
I think the term “Our coverage is no broader than the primary insurance except for our liability limit” is funny too. They market it as being board, catch all, but some of the language sure doesn’t look that way!
I think it’s risky. Really. Do whatever you like, but in my job we see all sorts of insurance companies decline coverage for all sorts of things. The second there’s a claim, they’re looking for a loophole. Some insurance companies are worse than others. But the business pursuits exclusion is one that I would expect them to invoke. That provision isn’t found on regular CGL (commercial general liability) policies. If you want an umbrella policy for yourself personally, that’s fine. But if you’re hoping that they will cover liability that arises as a result of your rentals, I would try looking for a commercial umbrella policy or just increase your coverage on the rentals individually.
Side note: If the primary coverage for your rentals is a regular homeowner’s policy, I would change that up, too. Or at least make sure you add on “residence rented to others” coverage. Otherwise your primary insurer might deny you, too.
I hate to be a wet blanket on this stuff. I just don’t want you to pay years’ worth of premiums and then if something happens, have the company deny your claim. Even if you prove that the agent misrepresented what the coverage was, if the stuff hits the fan, the insurance company might be able to rescind the contract by reimbursing only the last premium payment you made for the policy. Not everything you’ve paid in prior years: just the payment made on the current policy.
Here’s an example of how hard some companies will try to weasel out of coverage. We had a potential client call in the other day. He has CGL coverage for theft, among other things. He received an email from one of his vendors saying that their banking info had changed, and to send his regular $18,000 wire transfer payment to this new account instead. He sent the money and then found out that it was a scam. He tried to make a claim on insurance. The policy defined theft as the stealing of money, and defined money as “currency, coins, cash, or checks.” (paraphrasing) The claims adjuster took the position that a wire transfer didn’t count as “money” because it wasn’t directly any of those things. WTF?!?! I think the insurance company would lose if that case were taken to court, but it would cost far more than $18,000 to sue to get your $18,000 back. So unfortunately, unless the policy holder wants to take his insurance company to court in pro per, he’s probably better off just taking the hit.
Yes! I was looking forward to your thoughts.
Well it’s not risky compared to not having the policy, which is where I was before. For $9 a month, it can’t hurt. Hard to tell what exactly it covers though …
In the end it really does come down to trust and working with a reputable company. Look at that wire transfer example. He did everything right, had the right insurance, but there is always a loophole. Which is worse, a big insurance company with better lawyers or a small company that a big claim hurts way more? I’m not sure.
I’ll have to check on my homeowner policy, thanks for the tip!
You’re right, for $9 per month, if you feel like you’re getting some benefit from it, that’s good. I personally think one of the biggest risks we face is every is auto coverage. The good thing about umbrella policies is that they kind of force you to get a lot of auto coverage, and then they cover for catastrophic possibilities above and beyond that. It’s ridiculously easy for auto accidents to exceed the coverage limits most people buy. Maybe not hitting another car, but if you hit one or more pedestrians, or a motorcycle rider, you can blow through the limits of a policy pretty darn quickly.
That’s something I never really put much thought into, but it makes sense. Things can really add up quickly. Even just thinking about the umbrella policy as better auto coverage, with any other benefits just a bonus, I think it is worth it.
Is there some way to see cases that coverage was denied to see why? Like searching the case law for my provider + umbrella + rental. That sounds like a lot of work though.
Sorry, but I gotta say this first:
DISCLAIMER: this is not intended to be a legal opinion. Tiny changes in facts can cause diametrically different results. Consult an attorney if you have a similar legal issue, rather than relying on any of the information below.
OK, now to the response. It is definitely a bit of work to do what you propose, but the bigger problem is (1) access to legal databases, and (2) finding a case that is factually on point that is officially reported and therefore usable as precedent. I’ve got access to a legal database due to my job of course, but (2) is an issue because only a tiny fraction of cases make it to legal reporters. It’s usually only cases that get appealed, and even then, only those cases that resolve some new or meaningful legal issue.
Because all of the insurance companies use different language in their policies, you really have to look for a case involving that specific company’s policy, or a company that uses similar policy language. (And you have to hope the company’s policy language hasn’t changed since that last case was reported.) Even assuming you can find a few cases on similar topics, that’s where the work comes in: analyzing policy language and parsing the court’s decision to see how it might turn out for you. The addition or deletion of just a few words can make or break a decision.
Just for kicks, I ran a search of California cases (state + federal) for “insurance & geico & umbrella” and got only four results. Two are “reported” cases–meaning you could cite them in a legal brief to support your position–and two are “unreported,” meaning they’re not binding precedent and you can’t mention them in court, even if they would otherwise help you. Of the two reported cases, one is about auto insurance and the other is about property insurance. The property insurance case involves a claim by an insured that the insurance company (via its agent) had an obligation to suggest that the insured buy a policy with sufficient insurance limits (the court disagreed). Dead end. **More on this case below**
I ran a similar search under “insurance & ‘business pursuits’ & rental” and now I have 13 cases with various insurance companies (none of them GEICO). Only 4 of the 13 cases are published.
One of those four is about a business pursuits exclusion which was used to bar coverage for a person who was injured while taking down a porch on a commercial building owned by the insured. The court found that was a business pursuit, even though the work was being done for free, because it happened on commercial property and the removal of the busted porch probably increased the value of the property. (Note also that the commercial property was not listed on the insured’s declarations page.)
Another is about whether the business pursuits exclusion applies to a quasi-farming operation where the owner charged others money to have their horses graze in his field. A horse escaped and caused an auto accident. (Irrelevant.) The third is about auto insurance. (Irrelevant.) The fourth is about a partnership that built a house, rented it out, and later sold it. The buyers claimed the home was defective. The sellers had a rental dwelling policy, a regular homeowner’s insurance policy, and an umbrella policy. Ultimately, none of them covered the loss. (Most likely irrelevant, unless you’re trying to get coverage for acts involving the sale of rental property, in which case it’s relevant but it goes against you.)
Running these searches and reading the underlying cases took about an hour and a half. So the time involvement wasn’t huge, but only because I didn’t find anything really meaningful. If you find something meaningful, you might get lost in the weeds for tens of hours parsing specific language, and trying to make arguments based on sentence construction. I’ve been there.
Long story short: insurance is complicated. The agents don’t always know what they’re doing, and if an agent steers you down the wrong path, it’s usually the insured (you) that is deemed ultimately responsible for figuring out if you have enough and/or the right coverage. **see the case in the asterisks above — the court found that the insured is liable for knowing the right amount of insurance to buy, even though the agent probably has more experience knowing that sort of thing.**
If you know a good agent or a good insurance coverage attorney, I’d bounce your policy and your coverage needs off of that person to make sure they don’t see any red flags. In the absence of that, be really careful about the business pursuits exclusion and how you describe your insurance needs to your insurance agent, e.g., using the words “rental property” instead of a “second home.” Also, be really careful to review your insurance application to make sure all of that information is true, so you don’t have a claim denied for a “material misstatement.”
Wow, thanks for doing all that research! I guess even with large databases of info, there still might not be any that are a close match to my situation.
The absence of any issues doesn’t mean they don’t exist. It just means we couldn’t find them. On the flip side, finding 100 people at Geico who say the policy does what I want, still doesn’t guarantee anything.
It is kind of crazy how complicated the legal world is! I guess that’s why it takes so much school and specialization. From my perspective, it isn’t possible to always be on the right side of the law (criminal or civil). There are those “dumb laws” books that list silly laws that still exist from hundreds of years ago. Similarly there is always something for which I could be sued. We just have to do our best to limit that exposure.
My head hurts just reading this! Haha i still havent taken the plunge or really dove into whether or not I want to get an umbrella policy. Got to admit though, this post isnt helping me want to get it. 🙂
Thanks for keeping us informed.
It’s hard to know what you get – but it is so cheap it can’t hurt! Meaning they say you are covered, but who knows until something actually happens…
After reading that exclusion, it does make me wonder if rentals will be covered. I think insurance companies intentionally are vague so they have wiggle room if something happens. As Yetisaurus says with the wire transfer example, ultimately if the case goes to trial, it may be determined that the insurance should be covered but you’d have to expend the attorney fees to come to that conclusion…which the Insurance company with the bigger pockets can afford…and they know this and figure you won’t expend the money if it won’t be worth it. In this case, maybe the best solution is to increase the limits on the primary coverage for the rental. However, the umbrella insurance is not a waste since it does cover liability from other incidents…even if it’s not clear whether it covers the rental. Is this topic covered in any BP forum or blog post?
I didn’t include the whole document, but the rentals are covered on the first page. So they seem to indicate rentals can be covered.
I’m not sure about BP forums on this. I feel like it will be either people saying yes or no, but without really knowing. I’m sure the reality falls somewhere in the middle.
I think you’re far better off by having the rental properties listed on the declarations page. It gives you a much better argument later, especially if you specifically told your insurance agent that they are rental properties. Hopefully you won’t ever have to use the insurance coverage anyway, but if you do, I think that’s a big help.