A client has a Personal Umbrella Policy (PUP) with a $2,000,000 limit and a $1,000 Self-Insured Retention (SIR). They are found liable for $1,500,000 in damages after their dog bites a neighbor, and their underlying HO-3 policy has a Personal Liability limit of $300,000. How much will the Personal Umbrella Policy pay?
- A$1,200,000
- B$1,700,000
- C$1,500,000
- D$1,199,000
Show answer & explanationAnswer & explanation
Correct answer: A. $1,200,000
The umbrella policy acts as excess coverage over the underlying HO-3 liability limit. The total damages are $1,500,000. The underlying HO-3 pays its limit of $300,000. The remaining liability is $1,500,000 - $300,000 = $1,200,000. Since this amount is less than the umbrella's $2,000,000 limit, the umbrella policy will pay $1,200,000. The SIR only applies if there is no underlying coverage available, which is not the case here.
Why the other options are wrong
- B. This calculation is incorrect and exceeds the total damages.
- C. This is the total damages, not the umbrella's contribution after underlying policy.
- D. This incorrectly applies the SIR when underlying coverage exists.
PUP Excess Coverage & SIR
A Personal Umbrella Policy (PUP) provides excess liability coverage over underlying policies once their limits are exhausted. The Self-Insured Retention (SIR) only applies when there is no underlying coverage for a loss.
- PUP is secondary to underlying policies (e.g., auto, homeowners).
- SIR is a 'deductible' for losses not covered by underlying policies but covered by the umbrella.
- The umbrella 'kicks in' after the underlying policy pays its maximum or if no underlying coverage exists.
Memory trick: The umbrella 'catches' what the primary policy 'misses', but only if the primary is empty, or it's a new type of rain.