The Umbrella, a Holiday Party Essential

By Michelle Singletary
Thursday, December 14, 2006

If you're hosting a holiday party this year and think your homeowners insurance provides enough coverage, think again.

Let's say you serve alcohol at your party. Your guests have a grand time, but one partygoer gets a little too happy and leaves the celebration drunk. That guest crashes into another car or someone's home. The next thing you know, you're involved in a lawsuit because of your intoxicated guest.

It's possible. According to the National Highway Traffic Safety Administration, 16,885 people died in alcohol-related crashes last year.

It's even more likely that you don't have enough insurance to cover the legal fees and damages you could be forced to pay. According to a study released by Trusted Choice, a group of more than 7,000 insurance agencies and financial firms, most party hosts are underinsured.

While homeowners insurance policies typically provide a minimum of $100,000 worth of liability insurance, to insure yourself against larger liabilities, you need an umbrella policy -- and that's something many people don't have.

"I think a lot of people think that their friends will not sue them, but the reality is that it won't be their friends. It's going to be the person that they injured," said Madelyn Flannagan, Trusted Choice's vice president of education and research.

From its survey, Trusted Choice estimates that of the 28.5 million people who planned to host parties from Thanksgiving until the Super Bowl, 21.3 million do not have personal umbrella insurance policies to protect them from huge financial losses. Umbrella policies are usually sold in increments of $1 million and cost $150 to $250 a year per $1 million of coverage, according to Flannagan.

If you host a party and a guest drinks and then drives and causes an accident, you can be held responsible. Thirty-five states and the District of Columbia have enacted laws or have case law that allow a host to be held liable for any damage and injuries caused by a drunken driver, according to the Insurance Information Institute. The laws vary by state. For example, many laws specify that the drinker must be "obviously" intoxicated, while others focus on minors and alcohol.

In the Trusted Choice survey, a majority of the respondents said a party host should be held responsible. Having said that, however, most haven't purchased an umbrella policy, which is what they would need in such a case.

"People don't buy umbrella policies because they think they have enough coverage from their homeowner and auto policies, but they don't," Flannagan said. "The high dollar value of jury awards coupled with skyrocketing health-care costs means one lawsuit can easily exceed the liability limits on the average policy."

You need only one umbrella policy, which can be added to a basic homeowners or auto insurance policy. This insurance usually kicks in after you've exhausted the coverage on your homeowners or auto insurance policy.

Typically, a personal umbrella policy covers you for any number of accidents or claims that occur during the policy term. For example, if you have a $1 million limit, you may be covered for several claims at $1 million each. However, to limit their liability, many insurers are writing umbrella policies that impose a maximum dollar amount that may be paid, according to Independent Insurance Agents & Brokers of America.

There is no standard personal umbrella liability policy. The types of claims covered vary by insurer, so you should shop around.

While it's good to have insurance, there are some things you can do to ensure you don't have to use it. Here are some tips from Trusted Choice:

· Shift the liability by hosting your party at a restaurant or bar that has a liquor license.

· If you are going to serve wine, beer or liquor, arrange transportation or overnight accommodations for guests who appear to be intoxicated. "We are seeing a lot more states pushing for stiffer penalties and holding servers responsible," Flannagan said.

· Serve all the drinks yourself (or hire a bartender) so you can monitor how much guests are drinking. Stop serving alcohol at least one hour before the party is scheduled to end.

· Don't serve alcohol. This year, auto club AAA printed a special edition of its "Great Pretenders Party Guide" featuring some of the best nonalcoholic drink recipes from its top-rated restaurants. To get a free copy of the booklet, visit any AAA office, call 800-222-1333 or download one at http://www.AAA.com.

Finally, ask yourself this: Would you stop serving your guests alcohol if you thought they'd had too much to drink?

Although most people said they would, 7 percent of respondents in the Trusted Choice survey answered either "no" or that they "didn't know." No matter how much umbrella insurance those people get, they should never host a party where alcohol is served.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.