America’s wealthiest families increasingly worry that their wealth alone makes them a prime target for a high-stakes liability lawsuit in this uncertain time of high unemployment and tepid economic growth, according to a new insurance company report.
But many wealthy families remain poorly prepared for such lawsuits in spite of their concern. They fail to appreciate the different aspects of their lifestyle that can lead to a lawsuit. They underestimate the cost of the potential damages, and they misunderstand the affordability of effective protection. As a result, wealthy families often lack the proper types and amounts of liability insurance.
These are among the findings of a new study by ACE Private Risk Services, the high net worth personal insurance business of the ACE Group. The study, Targeting the Rich: Liability Lawsuits and the Threat to Families with Emerging and Established Wealth, includes a survey of individuals from households with more than $5 million of investable assets about their perceptions and behavior regarding the threat of personal liability lawsuits.
“Wealthy families feel increasingly targeted, especially given the national discourse over disparities in wealth, income, and taxation,” said Bob Courtemanche, division president of ACE Private Risk Services.
In the study, more than two-thirds said they think public perceptions of the wealthy have grown more negative since 2008. Almost 40 percent believe they are more likely to be sued in the aftermath of the economic crisis, compared to only 7 percent who say they are less likely to be sued. More than 80 percent agree their wealth alone makes them an attractive target for liability lawsuits.
“Nevertheless, many underestimate the risk,” added Jim Hageman, ACE senior vice president of claims for global personal and small commercial insurance. “Half of the people we surveyed thought the worst-case lawsuit would be less than $5 million. But our experience is that awards for lawsuits involving serious injury can equal many times that amount.”
Because wealthy families tend to underestimate their potential liability from a car accident or other incident, they often lack sufficient liability insurance, according to the ACE executives.
More than 40 percent of survey respondents report carrying less than $5 million in umbrella liability insurance, including 21 percent who have none. Umbrella liability is important because the liability coverage in automobile and homeowner policies rarely exceeds $500,000, according to the insurer. Insurance companies that specialize in insuring high net worth families usually offer coverage amounts ranging from $1 million up to $100 million, and the cost can be offset by increasing the deductible amounts in the underlying homeowner and auto policies.
“Choosing a higher deductible and accepting more responsibility for minor losses so that you can insure against a multi-million-dollar lawsuit is a wise strategy – one that our agents and brokers often recommend,” said Hageman.
Other survey findings include:
• More than half of respondents employ domestic staff such as a nanny, and many do not have employment practices liability insurance to protect themselves if a disgruntled employee decides to sue for discrimination, sexual harassment, wrongful termination, or other wrongful employment practice.
• More than 60 percent of respondents serve or have served as a volunteer board member or trustee of a charitable organization. Among this group, 35 percent do not have their own directors and officers insurance to supplement the insurance provided by the organization, which can often be minimal.
• Wealthy families correctly perceive auto accidents as the most serious liability threat, but they underestimate the risks posed by dog bites and libel, slander, or character defamation resulting from participation in social media platforms.
The survey was commissioned by ACE Private Risk Services and conducted by the market research group of FTI Consulting using its proprietary online marketing research panel of wealthy individuals. The online survey was sent to 936 members of the panel and 168 completed responses were received, which represents an 18 percent response rate. Survey participants were limited to those panel members who held a minimum of $5 million in investable assets (total assets excluding value of a primary residence).
Source: ACE Private Risk