Texas General Lines — Property and CasualtyPersonal LinesHard
An insured has a Personal Umbrella Policy (PUP) with a $2,000,000 limit and a $5,000 Self-Insured Retention (SIR). Their underlying Homeowners policy has a liability limit of $300,000, and their underlying Auto policy has a liability limit of $250,000. They are found liable for $400,000 in damages from an incident that is NOT covered by their underlying Homeowners or Auto policy (e.g., an exotic animal bites a guest on their property, which is excluded by the HO policy). How much will the PUP pay?
- A$95,000
- B$400,000
- C$100,000
- D$395,000
Show answer & explanationAnswer & explanation
Correct answer: D. $395,000
When a loss is covered by the PUP but not by the underlying primary policies, the Self-Insured Retention (SIR) applies. The PUP will pay the total damages minus the SIR. $400,000 (total damages) - $5,000 (SIR) = $395,000.
Why the other options are wrong
- A. This might be the difference between the total damages and the HO limit, but the HO policy does not cover this loss.
- B. The PUP would pay the full $400,000 only if there was no SIR or if the underlying policy had covered the loss up to its limit, and the PUP was paying the excess.
- C. This is the difference between the underlying HO limit and the total damages, but the HO policy does not apply here.
PUP Self-Insured Retention (SIR)
A deductible-like amount that a Personal Umbrella Policy (PUP) policyholder must pay out-of-pocket for a covered loss that is not covered by any underlying primary insurance policy.
- Applies when the PUP acts as primary coverage.
- Does not apply when underlying policies pay their full limits.
- Higher SIRs can lead to lower PUP premiums.
Memory trick: SIR is the 'self-starter' deductible when your umbrella opens first.