Get Under An Umbrella – Policy That Is

I have been meaning to write an article / blog about umbrella insurance for quite some time now. Howard Yegendorf beat me to it and did a great job of it.  He was kind enough to allow me to use his material and act as a guest blogger for Rhodes & Williams Insurance Brokers.
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Nightmare Scenario #1: You are driving your car, not paying attention momentarily, and you go through a red light colliding with another vehicle going through the green. The accident is clearly your fault. The other driver suffers catastrophic injuries. He makes a good living and his injuries will prevent him from ever being gainfully employed again. He is 35 years old and your negligence will cause him to suffer a lifelong loss of income. He sues you. His own insurance company will pay for most of the care that he requires for the rest of his life. However, there are limits on that policy and there is not enough money in that policy to cover his cost of care for the rest of his life. After a trial in the Ontario Superior Court of Justice he is awarded a judgment against you in the sum of $4,000,000.00. The judgment is made up of his claims for general damages for pain and suffering and loss of enjoyment of life; his lifelong loss of income; his lifelong cost of care; his wife and children's claims under the Family Law Act.


You have an automobile policy with liability limits of $2,000,000.00. Your insurer is obliged to pay the other driver that $2,000,000.00 on his $4,000,000.00 judgment against you. The judgment remains unsatisfied in the sum of $2,000,000.00 and is a personal judgment against you.

The other driver can use all collection remedies at his disposal in order to execute upon the balance owing under the judgment. He can garnish your wages; seize any real estate you own including your home; he can seize all manner of personal property that you own, e.g., bank accounts, stocks and bonds, R.R.S.P.s, automobiles, etc.

Nightmare Scenario #2: You are driving your car in a prudent fashion, travelling through an intersection on a green light when you are struck by another vehicle that has run the red light. Similar to the other driver in Nightmare Scenario #1, you are catastrophically injured, will never again be gainfully employed and will require various types of care for the rest of your life. You are a good income earner with a decent long-term disability policy. But even with your long term disability payments and the accident benefit payments provided by your own automobile insurer, your various claims in the law suit against the other driver amount to an additional $4,000,000.00. The other driver only has $2,000,000.00 in insurance limits, just as you did in Scenario #1. The other driver, however, has no assets of any value and has just been laid off his job. The most you can collect on your judgment is the $2,000,000.00 of insurance that he has, leaving you with a $2,000,000.00 shortfall and a real concern as to how you will be cared for for the rest of your life.

UNLESS, you have properly insured yourself with a substantial umbrella policy on top of the primary limits of $2,000,000.00 of your automobile insurance. If, for example, you had a $3,000,000.00 umbrella policy, then the full $4,000,000.00 judgment rendered against you in Nightmare Scenario #1 would be paid. Your primary automobile insurer would pay the first $2,000,000.00. That primary policy having been exhausted, your umbrella insurer would then pay the next $2,000,000.00 and fully satisfy the other driver's $4,000,000.00 judgment. You would be fully insured for the event and your assets and income would be fully protected.

In Nightmare Scenario #2, the other, negligent, driver would be considered "underinsured" because your claim far exceeds his liability limits. If you had a $3,000,000.00 umbrella policy you could then sue your own insurer for the shortfall you suffered in being able to collect the full $4,000,000.00 judgment against the negligent driver. This claim would be made under the underinsured provisions of your own automobile policy.

Since you and the other driver in Nightmare Scenario #2 both have liability limits of $2,000,000.00, you could not proceed against your own insurer for the shortfall since you cannot "stack" the policies. It is only when you have more liability limits than the underinsured driver that you can access your own policy.

In my law practice I rarely see people with automobile insurance policies having more than $2,000,000.00 in liability limits. I am dumbfounded by that because the umbrella policy is relatively cheap. I personally insure a house, a cottage, two cars and a motorcycle, all with $2,000,000.00 in primary liability insurance. I have an umbrella policy of $3,000,000.00 over all 5 policies which costs a total of $325.00 a year. The $3,000,000.00 umbrella policies for the two cars that I insure each cost $60.00 a year.

My philosophy is that you do not buy insurance for the minor claim. You buy insurance for the catastrophic claim; the type of claim that can leave you in dire financial straits; the situations covered in both Scenarios #1 and #2 above. So if I can offer any advice in this article it is speak to your broker about putting an umbrella policy in place. Although not every insurance company offers them, these policies are without question available.

None of us expect a catastrophic event to occur in our lives. They are indeed very rare and that is the reason why umbrella policies are relatively inexpensive. The primary insurance that we have will cover the vast majority of claims that occur and umbrella policies are rarely called upon. However, these catastrophic events occur in our community every day; I see them all the time in my practice. So we can either "whistle past the graveyard" and hope that it doesn't happen to us or protect ourselves in the unfortunate event that it does.

Howard Yegendorf is a partner in the law firms of Howard Yegendorf & Associates LLP and BrazeauSeller.LLP. He practices personal injury law. He is certified by the Law Society of Upper Canada as a specialist in civil litigation and is also a Chartered Insurance Professional.

The Newest Battlefield Between Independent Insurance Brokers and Banks

Battles between insurance brokers and the banks are nothing new. Current legislations states that banks can only promote insurance “outside of a branch”. Restrictions have been in place against banks for a very long time and for very good reason.

At issue this time is that the banks’ current attempts at expansion into insurance is a violation of the spirit of the legislation set up by the federal government in 1991. Obviously the government sees the need for such regulation since time and time again, the banks have tried to get them to reverse it, but it simply isn’t the right thing for the customer. A couple of the strongest reasons against banks retailing insurance in their branches are:

• Fear of tied-selling – If you were at a bank looking for a mortgage, which has an insurance requirement built in to it, would you be comfortable saying “NO” when they offered the insurance with it (which of course has all the requirements of the mortgage built in)? Forget about the “fair competition” dilemma this brings, is it the right thing for the consumer?
• Competition – Competition is healthy for business and results in fair treatment of the consumer. This might sound like an argument for allowing banks in to insurance, but it is quite the opposite. The big six banks already dominate Canada’s banking sector, making ours one of the least competitive banking sectors in the world. If those same institutions were allowed to offer insurance through their branches, they would also come to dominate the insurance brokerage market by virtue of their current size and power. Competition would be diminished and consumers would suffer.

There are many more reasons, but this is not a rant about why banks should not be allowed to retail insurance from their branches … that has already been looked at time-and-time again and the federal government recognizes that it is not the right thing for the consumer.

This is a discussion on what constitutes a bank branch. I can’t comment for all bank customers, but I personally can’t think of the last time I visited a teller in a branch, for my banking needs. The majority of my banking is done at bank machines, or in most situations, over the Internet. Logic would state that those bank machines and websites for banking purposes would be considered a “bank branch”. The same logic for protecting the consumer would apply to these “locations” just as much as they would standard bank branches, which is where most transactions took place when this legislation was written. It's really during the credit application process that consumers are most vulnerable and open to coercion. And as it turns out, you can also apply for credit on-line. Therefore the same threats to consumers exist whether it's in a branch or on-line. Times have changed and it appears that the banks are once again trying to skirt the rules and intent of the legislation by using the Internet, and not considering it a bank branch. What about the virtual banks that now exist? They don’t have “bricks and mortar” branches. Does that somehow make it any more acceptable for them to use unfair competitive advantages and potential tied-selling to the detriment of the consumer?

I sure hope the government decides to put an end to this skirting of the spirit and intent of the law to protect consumers. The same sound logic for not allowing banks to retail insurance products from their bricks and mortar branches applies to their virtual branches as well. Please enforce the intent of the law, or if need be, amend the law to avoid this loop-hole.

Credit Insurance - Worth Considering for Your Business?

Credit insurance is an interesting product that is receiving a lot of talk and becoming a product of interest for many companies.

Most companies extend credit terms to their customers, so that payment can be made after their products have been sold. Credit insurance protects you against unexpected or catastrophic losses due to its customer’s insolvency or non-payment.

There are many benefits to credit insurance, some of which are obvious and others that are a bit more hidden. Credit insurance strengthens your balance sheet by securing your cash flow. This makes you more attractive to banks when looking for your own financing. Lending Institutions may extend more favourable financing terms if they are named beneficiary on a credit insurance policy. This could mean lower interest charges and reduced borrowing costs.

While all companies should consider credit insurance, it is particularly useful for companies that:

• Have large, concentrated receivables from a few buyers
• Are Presently trading on letter of credit terms and wish to offer open account terms
• Operate in low profit margin industries and must minimize their bad debt losses
• Want to improve their financing terms and conditions
• Are experiencing a consolidation of the number of potential buyers
• Have developed a new product but are unfamiliar with the buyers or their financial stability
• Are expanding their sales into unfamiliar regions or countries
• Manufacture highly customized and client specific products
• Have profitability results that are very sensitive to economic recession
• Are exposed to the political risks of international customers

The impact of a single credit loss could be the equivalent of the gross profit on several months of new sales. Credit Insurance is definitely worth taking a look at and making an educated decision as to if it is right for your business.

Rental Car Insurance Coverage - Are you Covered

If you have rental car coverage on your automobile insurance policy, and you go and rent a uhaul cargo van or pick-up truck - are you covered? What do you think?

This is not an easy question and is misunderstood by most. The safest route is to talk to your insurance broker before assuming anything is covered ... that is what we are here for. That being said, here is the basic answer:

The rental car coverage on your auto policy is designed for when you rent a personal vehicle, and not for most trucks and vans that you might hire for a move. As a result, there are some exclusions that would apply. Here are the main ones that would apply:

1. The coverage would not apply to any vehicle with a gross vehicle weight rating over 4500kg (that would exclude most moving trucks and large vans) (check your specific policy wordings to confirm exclusions)
2. The coverage would not extend to carrying passengers or commercial use of the rented vehicle, in case you were running errands for your business.
3. The coverage is restricted to only those people named on the underlying policy.
4. Note that there is also a dollar limit to the coverage that might be an issue.

So as mentioned, every situation is unique, so give us a call to make sure.

Of note, one of the recommendations put forth in the Report on the Five Year Review of Automobile Insurance, presented to the Financial Services Commission of Ontario is as follows:

"The superintendent intends to amend the OAP 1 to provide a limited amount of coverage for vehicles with a GVWR over 4,500 kg's."

This is just a recommendation and has not been adopted, so ensure you are properly covered.

Tax Savings for Home Improvements

There are many comments/articles/ stories about the temporary Home Renovation Tax Credit (HRTC). The basic explanation is that the federal budget offers a 15 percent non-refundable tax credit for certain renovations costs incurred between January 27th 2009 and February 1, 2010.



So, if there are so many comments/articles/stories about it and I am not an accountant or tax expert ... why am I writing about it?



The reason is because there are insurance implications.



Insurance to Value (ITV) is a "hot button" topic in the industry these days. Many people are underinsured. This happens due to a few reasons. One is because "inflation increases" that are put through annually on insurance policies, may not keep up with actual increase in costs. It is a really tough thing to keep on top of, and results in many people being under-insured if they have a loss that results in the complete destruction of their home. I recently helped out a friend of mine who was insured with one of our competitors. When we wrote his insurance for him, we properly insured his house at a value of about $100,000 more than he was previously insured at! Another reason is that many clients don't think to advise their insurance broker when they do renovations. If your broker doesn't know about it, he can't insure it.



So, back to the HRTC ... if you are taking advantage of this incentive, give us a call and let us know so that we can make sure that your home is properly protected for the true replacement cost of your home. This will result in the proper protection being there when you need it most.

Disaster Planning

Well we have been preaching disaster planning to our clients for years, and this weekend, we had a bit of a test for ourselves! Temperatures rose, causing pooling water on our roof, the roof drain however was frozen over, so the overflow started leaking in through the roof. Luckily, we have done disaster planning, AND this disaster was a lot less serious than it could have been. Disaster Planning is a very complex planning excercise which I don't plan to discuss in depth here, however there were a couple small lessons that I thought I could share with our clients.

Even in areas where water isn't leaking through the roof, water seeps through carpet walls, cupboards, etc. Make sure you don't have important equipment or documents on the floor to seep up water - put them up! Keep your computer equipment up off the ground. Make sure you always have an up to date contact list for all emergency contacts, readily available - and a phone tree for advising staff. Act immediatley to minimize damage, and call in the experts.

Well it is Monday morning, and we are operating as normal, with no loss. Thankfully, planning made this an easier task to deal with.

Find us on Facebook

Well, we finally did it. Although I am not convinced that it will be embraced, Rhodes & Williams Insurance Brokers is now on Facebook. I spent some time over the last couple weeks, creating what I hope may encourage some participation. If anyone has any ideas for how to make it more useful, please let me know. Future ideas include, video insurance tips, links to tools to help our clients, and bios on staff. Do you have any other ideas?

http://www.facebook.com/pages/Rhodes-Williams-Limited/42887671031?ref=nf#/pages/Rhodes-Williams-Limited/42887671031