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Unique aspects of insuring clients with high net worth

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It is not uncommon that high net worth individuals and families have both liability and property exposures that are not addressed by the insurance they purchased in the standard insurance marketplace.

Addressed below are some of the most prominent exposures high net worth individuals should consider when purchasing insurance.

Exposure to labor related lawsuits by domestic employees

Individuals who employ a nanny, chef, housekeeper or personal assistant have created a "place of employment" within their home. A homeowner's policy should be endorsed to provide coverage for the workers' compensation, which can be done by most standard market carriers.

But this does not protect the individual or family from lawsuits arising from claims of discrimination, wrongful termination or sexual harassment. Even if the allegations are not true, a family will be responsible for its own defense and any resulting settlement or judgment.

Litigation is not only expensive, but emotionally taxing as well for a family handling these allegations on its own. Specialty programs will offer not only protection and defense, but also complimentary background checks on domestic employees to head off any potential employment-related problems.

Professional liability

Many high net worth individuals are involved in the community, often through philanthropic and/or nonprofit organizations acting as directors, officers or consultants of these groups. Many of these organizations are either uninsured or only carry a general liability policy that offers no protection for the officers and directors.

As a result, an individual has liability exposure that is not addressed in the standard insurance market. Just as when serving on the board of directors for a major corporation, an individual might make a decision that causes an unfortunate outcome that results in litigation.

Directors' and officers' liability coverage has been available in the commercial market for many years and now is available in the personal lines market from high net worth specialty carriers.

Umbrella coverage

High net worth individuals should purchase umbrella insurance; it is one of the most important components to such an individual's personal insurance package. The tricky part is obtaining the amount and type of coverage needed.

In the event of a loss, an individual's home, cars, savings, treasured possessions and future earnings can be at stake. Therefore, the umbrella policy's limit of liability should be in line with the individual's total net worth.

However, it is difficult to obtain umbrella coverage for more than $5 million. There are only a handful of insurance carriers that offer higher limits within specialty programs.

Also the type or form language of the policy is every bit as important as the amount of coverage. How is the claim to be handled or, in other words, who provides the defense in the event of a lawsuit?

Most carriers do not offer a choice, but rather assign their own attorneys to negotiate and settle the lawsuit. However, it is in the best interest of a high net worth individual to be with a carrier who provides them a choice of defense and even will offer to pay for their own family attorney to be involved.

Adequate limits of dwelling reconstruction coverage

This is an area that is extremely difficult to get "just right," because how much insurance coverage to carry on a homeowner's policy has so many different variables.

There are seven different policy "forms" in the California marketplace. Then throw in confusing insurance language such as "extended replacement cost," "limited replacement cost" or "guaranteed replacement cost" and this all gets a little fuzzy.

Why should this be so difficult you ask? The insurance carrier should know what policy form to use and should also know construction cost in my area, right? Yes and no.

The insurance carriers in the standard market do not want the liability of deciding the amount of coverage. Also, many high net worth families own homes that have unique architecture with sophisticated machinery such as wine cellars, elevators and elaborate heating and cooling systems. Again, standard carriers do not have the expertise in this area.

A select number of carriers that insure in this specialty market provide complimentary home valuations to help determine appropriate replacement cost. These carriers document the results of their home valuations in a report that can be used to expedite the claims settlement process when needed.

Once the proper amount of coverage has been determined, the specialty carriers take it to another level by using a policy form that provides up to 200 percent in "extended replacement cost," which means they will go beyond the stated coverage amount by double the amount.

This approach takes into consideration increased construction costs that can result from a catastrophic event, such as the 2003 Southern California wildfires and the resulting shortage of qualified contractors.

Identity theft - In your good name

We have all read any number of articles or maybe even known someone personally who has been the victim of identity theft.

The loss of your good name and credit standing is not just a temporary inconvenience. It can cost hundreds of hours of time, attorney fees, loan application fees and credit restoration consulting fees.

None of this cost or assistance is part of a standard home policy.

Again, within the high net worth specialty insurance market these services and reimbursement for expenses are available. Some carriers even will assign an identity theft consulting firm to the case and manage it to completion, which can take years in complex cases.

Special policies and services for valuable articles

Many clients mistakenly believe that all of their valuable items are covered under their standard homeowner policy. In fact, typically there are policy limits that do not provide full coverage for jewelry, silverware or other collectibles.

To ensure proper protection, a separate policy for these collections is needed. This will ensure a prompt and fair settlement in the event of a loss.

But before a loss event occurs, some specialty carriers offer important services to protect valuable collections. These complimentary services include managing and facilitating the transportation of fine art from a place of purchase or relocation to a secondary residence.

They also can assist you in developing contingency plans to protect valuable articles in the event of an approaching catastrophe, such as the recent hurricane in Louisiana. These services even can include the task of cataloging and appraising the collections.

Holmes is an account executive in Barney & Barney's personal lines department and small business division. For more information, call (858) 587-7592, or e-mail at PeterH@barneyandbarney.com.>

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