In 2007, the owner ofa 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 commissioned by ACE, 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.
To get a more complete picture of the risks inherent in a wealthy lifestyle, advisors and their clients can use a personal liability risk scorecard developed by ACE. In just a few minutes they can run through 22 individual characteristics that provide a rough idea of their risk of being sued. A high score would indicate an urgent need to contact an independent insurance agent to get a more complete assessment of liability risk and the adequacy of the liability insurance currently in place.
Understanding liability risk should be considered as an essential part of developing an asset protection plan. If adequate insurance is lacking, successful plaintiffs will target savings and investments, valuable collections, real estate holdings and future employment income to make up the difference.
As the example of the collapsed deck illustrated, too many wealthy families learn this lesson only after the damage has been done.