Umbrella insurance carriers would expect fewer claims on their policies than, for example, a carrier that provides a typical homeowner’s policy or private automobile policy.
This is because the idea behind umbrella coverage is that it only is used as a last resort. Victims file claims against umbrella liability policies when they exhausted the policy limits of available basic policies, including homeowner’s or automobile coverage.
Umbrella policies may also offer gap coverage, that is, coverage for a situation that the underlying insurance policy does not cover.
Gap situations are tricky to sort through. For one, an insurance company will want to verify that their umbrella policy actually covers the claim. Umbrella policies are broad, but they do not cover all situations.
Second, the company will want to determine if another policy would apply before the umbrella coverage kicks in. Doing so will involve a careful study of all the policies involved.
The umbrella carrier will have to decide whether their policy requires immediate payment. On a related point, if an insured faces a lawsuit, the umbrella carrier may depending on the circumstances have an obligation to pay for their insured’s defense of the claim.
An umbrella insurance company may have to the defend their position in court
With respect to these difficult coverage questions, Nevada’s laws continue to change. Furthermore, insurance policies can read differently depending on which company issued them.
In a hotly contested claim, an umbrella carrier could find itself accused of breaching its policy and doing so in bad faith. The penalties for bad faith are severe, and they may involve an insurance company’s having to pay far more than their policy’s limits.
They will want to make sure they have adequately analyzed and supported their position.