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Liability Risk of the Wealthy

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Liability Risk of the Wealthy Empty Liability Risk of the Wealthy

Post by Horizon Mon Jul 23, 2012 10:06 pm

Traits Of Wealthy Raise Risk Of Lawsuits - By David Spencer

5 Traits of the Wealthy That Raise Their Risk of Big Lawsuits
By David Spencer, ACE Private Risk Services

David Spencer, Vice President of Premier Client Services at ACE Private Risk Services, has more than 28 years of experience in the personal insurance business serving families and individuals with emerging and established wealth.

In 2007, the owner of a luxurious lake house agreed to host a bridal shower for the daughter of a good friend. During the party, 23 of the guests posed for a photograph on the home’s raised deck, only to have it collapse beneath them.

Twelve were sent to the hospital. The ensuing lawsuits and publicity put the homeowner under enormous stress for three years, and the case was ultimately settled for an amount well beyond the liability insurance the homeowner had.

Hosting large parties at an elegant home is just one of the many pleasures of a wealthy lifestyle that also have a dark side: personal liability risk. Indeed, simply having wealth tends to attract lawsuits. In a survey, more than 80% of households with at least $5 million of investable assets felt their wealth alone made them a target.

What are other common characteristics of a wealthy lifestyle that pose a high liability risk? Here are five worthy of your consideration and concern:

Multiple homes with swimming pools, ponds, and trampolines on the property.
The more homes you own, the harder it is to supervise the activity that goes on at each location.

Caretakers may help from a supervisory standpoint, but they also add the risk of worker’s compensation and employment practices liability. In addition, swimming pools, ponds, and trampolines raise the risk of serious injury and death.

Home renovations.
Wealthy families with multiple homes often have at least one undergoing some sort of improvement. Unfortunately, construction work represents a very high risk situation both for property damage and injury related claims.

Drivers under the age of 26.
Because it takes many years for most people to accumulate wealth, high-net worth families tend to be older families with children in the household who drive. Moreover, their wealth makes it more likely that the child will drive his or her own car, instead of sharing the family car, and also have a smart phone, the latest cause of distracted driving.

The risk of a serious accident is acute. On June 6, a Massachusetts teen was convicted of homicide as a result of texting while driving and sentenced to serve time in prison. Compared to drivers between 35 and 74 years old, drivers in their teens and early twenties are nearly twice as likely to be involved in a fatal accident, according to National Safety Council 2009 data.

Powered recreational vehicles.
Jet skis, ATVs, power boats, motorcycles, snowmobiles—all those enjoyable adult toys—bring additional risks. The grown-ups in the family may be very responsible operators, but what happens when the kids sneak out for a spin with friends? In one case, a neighbor’s son was killed riding an ATV, and the homeowner found himself on the losing end of a $20 million jury verdict.

Side businesses that bring customers to personally owned property.
For instance, a wealthy family may have a home in the country with a small horse stable or “gentleman’s” farm attached. Stalls may be rented out to other horse owners, or visitors may come to buy produce from the farm.

The more people that come, the greater the chance of injuries on the property.What are other common characteristics of a wealthy lifestyle that pose a high liability risk?

Personal Liability Risk Scorecard
Everyone is at risk for being the target of a personal liabilitylawsuit, potentially for millions of dollars. But some people are more at risk than others, especially if they have substantial assets.

How much are you at risk of being sued? Complete our personal liability risk scorecard to get a rough idea. To really find out, meet with an independent insurance agent or broker. Liability coverage is the most common and serious area of underinsurance, according to our survey of independent insurance advisors.


What is your net worth, including both financial and tangible assets?
<$2 million = 0 points (pt.)
$2 million to <$5 million = 1 pt.
$5 million to <$10 million = 2 pts.
$10 million to <$20 million = 3 pts.
$20 million to <$50 million = 4 pts.
$50 million + = 5 pts.

How many homes, including apartments and condominiums, do you own for residential purposes?
#__ homes X 1 pt. each

How many swimming pools, hot tubs, ponds, and trampolines are on all your properties in total?
#__ X 1 pt. each

How many dogs, horses, or other large animals do you own?
#__ X 1 pt. each

Do you own vacant land or land (such as beachfront) to which the public has access?
Yes, vacant land = 1pt.
Yes, land with public access = 2 pts.

Do you lease out any of your land for farming or agricultural purposes?
Yes = 2 pts
Do you lease out any of your land for hunting purposes?
Yes = 3 pts.

Do you operate a business or side business that brings clients or customers to any of your homes or properties on a regular basis,such as a dentist office, small farm, horse stable, or vineyard?
Yes = 3 pts.

How many household staff do you employ more than 15 hours per week?
#___ X 1 pt. each

Are any of your homes undergoing major renovations, or are you planning major renovations to any of your homes?
Yes = 3 pts.

How many automobiles do you own?
#__ autos X 1 pt. each

How many of those automobiles are high performance sports cars or cars that cost more than $100,000 new, excluding those that are mainly for collecting purposes and rarely driven?
#__ autos X 1 pt. each

How many people have regular use of your vehicles?
#__ drivers X 1 pt. each
Risk Calculation Score
Subtotal from first page

How many of the drivers are under the age of 26? #__ drivers X 3 pts. each

Does anyone in your household serve on a charitable board? #__ people serving X 1 pt. each

Do you or a member of your household manage a family trust? #__ trusts managed X 1 pt. each

Do you rent out other properties you own? #__ tenants X 2 pts. each

How many small powered recreational vehicles, such as
motorcycles, personal watercraft, ATVs, and boats under 40 feet
in length do you own?
#__ X 3 pts. each

How many boats 40 feet or more in length do you own? #__ X 2 pts. each

Do you or a member of your household have a prominent public
Yes, at the national level = 3 pts.
Yes, at the state level = 2 pts.
Yes, at the local level = 1 pt.

How many family members actively participate in online social
#__ people X 1 pt. each

How many times per year do you host parties or events in your
home numbering more than 25 people?
#__ X 2 pts. each
What Does Your Score Mean?
Total Score Level of Exposure Implications
> 50 Very high exposure to a wide variety of personal
liability risks.

Regardless of your score, if within the past
year you have not reviewed all the risks in
this scorecard with an independent insurance
agent or broker to evaluate your need for
liability coverage, you should consider doing
so as soon as possible.

The lower your score, the lower the cost of
coverage should be. The higher your score,
the more urgent it is for you to contact an

36 – 50 High exposure to a variety of personal liability

26 – 35 Moderate exposure to personal liability risks.

15 – 25 Fair exposure to personal liability risks relative
to other affluent families.

< 15 Low degree of exposure to personal liability
risks relative to other affluent families.

Important Notice: This scorecard is advisory in nature. No liability is assumed by reason of the information in this document.


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