Texas General Lines — Property and CasualtyPersonal LinesHard
An insured has a Personal Umbrella Policy with a $1,000,000 limit and a $10,000 Self-Insured Retention (SIR). They are found liable for a personal injury claim of $750,000. Their underlying Homeowners policy has a liability limit of $300,000. How much will the Personal Umbrella Policy pay for this claim?
- A$750,000
- B$450,000
- C$440,000
- D$740,000
Show answer & explanationAnswer & explanation
Correct answer: B. $450,000
The umbrella policy acts as excess coverage over the underlying policy. The underlying Homeowners policy pays its limit of $300,000. The remaining claim amount is $750,000 - $300,000 = $450,000. Since this remaining amount is covered by the umbrella's $1,000,000 limit and is not subject to the SIR (because an underlying policy was exhausted), the umbrella policy will pay $450,000. The SIR only applies when there is no underlying coverage.
Why the other options are wrong
- A. This would be the total claim, not what the umbrella pays after the underlying policy.
- C. This calculation is incorrect. $750,000 - $300,000 (HO) - $10,000 (SIR) = $440,000. The SIR does not apply here.
- D. This would be the amount if the HO policy paid only $10,000, which is incorrect.
Personal Umbrella Policy (PUP) - Excess Coverage
A Personal Umbrella Policy provides additional liability coverage beyond the limits of underlying policies (e.g., auto, homeowners). It 'sits over' these policies, paying when their limits are exhausted.
- Provides high limits of liability coverage.
- Acts as excess over underlying policies.
- Self-Insured Retention (SIR) applies when no underlying policy covers the loss.
Memory trick: The umbrella catches what the smaller policies can't hold.