If someone has significantly less assets than the monetary value of an umbrella policy is there a concern for being sued for their personal assets?

Question

If someone has an umbrella insurance policy for a large amount, for example, $1 million and they have significantly less personal assets (for example $100,000), would it be possible that a lawyer could come after their personal assets or would the umbrella policy always be the target?

Answer 1

Yes.

Insurance proceeds are just one more pot of money and if a judgment exceeds insurance, a judgment can be kept in force for typically on the order of twenty years unless the defendant goes bankrupt. A creditor can get a $5 million judgment, partially satisfy it with $3,000,000 of insurance proceeds, then take $100,000 of personal assets, and then require the judgment debtor to disclose any employment or newly acquired assets every year or so until the remaining $1.9 million is paid off for the next twenty years, until the judgment debtor goes bankrupt, or until the judgment debtor dies and the judgment debtor's probate estate is exhausted.

Insurance isn't identified in the lawsuit, except in the rare case where the defendant has died and the probate estate claims deadline has expired, but the statute of limitations hasn't, in which case a suit can be brought directly against the insurance company. But insurance matters a lot in how cases are litigated and settled and in U.S. federal courts and in most U.S. state courts, insurance coverage is disclosed to the plaintiffs in the early stages of the litigation, even though the jury in the case never learns that it exists and it isn't disclosed to the judge in a bench trial case.

A salaried employee can be forced to give up about 25% of their wages in excess of full time minimum wage, in perpetuity, although state laws vary.

Usually the insurance is the first target since it's easy. But not always.

For example, suppose that you represent one of thirty neurosurgeons whose bus your client caused to fall off a cliff, leaving them all grievously injured with millions of dollars of medical costs each. An attorney in a case like that for one of the injured neurosurgeons might want to force an involuntary bankruptcy to distribute proceeds from a lawsuit equitably among all injured people, or might want to focus on seizing personal assets first, since the insurance proceeds are likely to be exhausted.

I've never actually seen that fact pattern, but I have seen something similar when a professional (e.g. a lawyer, soil engineer, or architect) has a breakdown and seriously messes up in large numbers of cases at once, exhausting available insurance with many claims all at once.

Answer 2

The person is sued

The insurer indemnifies the insured

The plaintiff does not care if the defendant is insured or not. The defendant wronged the plaintiff so the plaintiff sued the defendant.

The contract between the insurer and insured will determine when and if the indemnity is triggered and the insurer will assume liability for the defense and any damages that follow.

Answer 3

A lawyer can't "come after" a specific source of compensation. The "target" is simply the person who is held liable -- the defendant has been found liable, and there is an order to compensate a certain amount. If the defendant is ordered to pay $1M, it's basically up to him to figure out how to pay (up to the point that the defendant doesn't have sufficient assets). The defendant's insurance contract isn't (directly) the plaintiff's business, and the whole point of having insurance is to protect the customer against specified losses, such as getting sued. Because of the nature of that contract, the insurance company will therefore have to pay the first million, and the defendant only pays if (1) in fact the loss is not covered by the policy or (2) the liability judgment is more than the limit on the insurance policy.

If the defendant has $500K in quasi-liquid assets and a $1M umbrella policy but the judgment is $2M, the plaintiff can "go after" other assets, to some extent via further legal process, but they can't for example go after their home (at least in the US).