Now that we’ve reviewed the Section I property coverages, we’ll turn our attention to Section II, the liability portion of the homeowners policy.
Individuals face many direct and indirect exposures to liability.
A homeowner may be held liable for damages arising from his home or yard, as when a visitor slips and falls on a freshly waxed floor or a dead tree falls on and crushes a neighbor’s bicycle.
An individual can also be held liable for the actions of his children and pets, as when a five-year-old breaks all the windows in a neighbor’s garage or the family dog bites the mail carrier.
Finally, an individual may be held liable for damages arising out of personal activities away from the home, such as when an individual opens an umbrella in the crowded stands at a football game, accidentally poking it in the eye of another sports fan.
Remember, Section II is the same in all homeowners forms.
1. Coverage E—Personal Liability
There are two major coverages provided under Section II of the homeowners policy:
■Coverage E—personal liability
■Coverage F—medical payments to others
Coverage E—personal liability covers damages that the insured becomes legally obligated to pay because of bodily injury or property damage caused by an occurrence to which coverage applies. As used in the homeowners policy:
■bodily injury means bodily harm, sickness, or disease, including required care, loss of services, and death; and
■property damage means physical injury to or destruction of tangible property, including loss of use.
In general, Coverage E applies to liability for bodily injury or property damage arising out of insureds’ personal, nonbusiness activities that occur anywhere. Coverage E also applies to liability for bodily injury or property damage arising from insured locations. These include:
■the premises described in the declarations;
■residences newly acquired during the policy period;
■locations where an insured is temporarily residing;
■locations an insured is renting for nonbusiness use;
■vacant land owned or rented by the insured;
■the insured’s land on which a residence is being built; and
■cemetery plots or burial vaults.
The policy also states that the insurance company will provide a defense for the insured at the insurer’s expense, even when the charges are groundless.
The insurer’s duty to defend ends once the amount it pays for damages reaches the policy limit.
The standard liability limit provided for all BI or PD arising out of any one occurrence is $100,000.
This includes any prejudgment interest awarded on any amount of a judgment the insurer is obligated to pay.
2. Coverage F—Medical Payments to Others
Coverage F—medical payments to others pays all necessary medical expenses incurred within three years of an accident that causes bodily injury. This coverage applies to injuries:
■sustained while the injured party is on an insured location with any insured’s permission; or
■sustained while the injured party is off the insured location if the injury arises out of a condition
——on the insured location,
——or the ways immediately adjoining the insured location,
——caused by the activities of an insured,
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——caused by any residence employee in the course of employment, or
caused by an animal owned by or in the care of any insured.
Injury to the named insured or regular residents, other than resident employees, is not covered under Coverage F.
For this reason, Coverage F is sometimes called guest medical.
Notice that there is no requirement under Coverage F that the insured be legally liable for the injuries.
Coverage F covers injuries to others that occur on the insured’s premises or result from the insured’s activities, whether the insured is liable or not.
Coverage F has a limit of $1,000 per person per accident.
There are some important exclusions that apply to Coverages E and F, including:
■liability for injury or damage that is expected or intended by the insured;
■BI or PD arising out of business pursuits or the rendering of or failure to render professional services;
■BI or PD arising out of the rental of any part of the premises, except for the rental of part of an insured location as a residence;
■liability arising out of ownership, maintenance, use, loading, or unloading of aircraft, watercraft, and motor vehicles;
■liability arising out of war and war-like acts, such as insurrection and rebellion;
■liability arising out of the transmission of a communicable disease by aninsured;
■liability arising out of sexual molestation, corporal punishment, or physical or mental abuse; and
■liability arising out of the use, sale, manufacture, delivery, transfer, or possession of a controlled substance (does not apply to the legitimate use of prescription drugs).
There are some exceptions to the exclusion for liability arising out of the use of watercraft:
■Watercraft that are not sailing vessels and are powered by inboard or inboard-outdrive motors or engines that
——have 50 horsepower or less and are not owned by the insured, or
——have more than 50 horsepower and are not owned by or rented to an insured
■Watercraft that are not sailing vessels and are powered by one or more outboard engines or motors with
——25 total horsepower or less,
——more than 25 total horsepower if the engines or motors are not owned by the insured, or
——more than 25 total horsepower and owned by the insured if the insured acquired the engines or motors during the policy period or
owned the engines or motors prior to the policy period and either listed them on the declarations or asked the insurer to provide insurance on them within 45 days of their acquisition
■Sailing vessels that are
——less than 26 feet long, or
——more than 26 feet long but not owned by or rented to an insured
■Watercraft that are in storage
Additional exclusions that apply only to Coverage E include exclusion of liability:
■for any loss assessment charged against the insured as a member of an association, corporation, or community of property owners;
■assumed under a contract or agreement, except contracts that relate directly to the insured location or contracts where the liability of others is assumed prior to an occurrence;
■for property damage to property owned by, used by, or in the care of the insured; and
■for BI or PD for which the insured is covered under a nuclear energy liability policy.
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These exclusions apply only to Coverage F:
■BI to a residence employee that occurs off the insured location and does not arise out of or in the course of work the employee performs for the insured
■BI due to nuclear reaction, radiation, or radioactive contamination, including any consequential injuries
4. Additional Coverages
Section II of the homeowners policy also provides the following additional coverages:
■Claim Expenses: Reimburses the insured for:
——premiums for bonds required in a suit the insurer defends,
——postjudgment interest, and
——reasonable expenses incurred by the insured at the company’s request, including loss of earnings of up to $250 per day
These expenses are paid in addition to the limit of liability. So if an insured had a $100,000 liability limit and a $100,000 judgment against him, the insurance company would pay the judgment plus claim expenses.
■First Aid Expenses: Reimburses the insured for expenses the insured incurs for first aid to others at the time of an accident. These expenses are included in the policy limit.
■Damage to Property of Others: Pays up to $1,000 per occurrence for property damaged or destroyed by the insured, without regard to legal liability.
Covers the insured’s “moral obligation” to pay for damage to property that the insured may have borrowed or rented.
Property owned by any insured is excluded, but unlike under Coverage E, other property in an insured’s care, custody, or control is covered.
When a loss is also payable under Section I of the homeowners policy, this additional coverage applies on an excess basis.
■Loss Assessment: Pays up to $1,000 of the insured’s share of any loss assessment charged against the insured during the policy period by a corporation or association of property owners when the assessment is made as a result of an occurrence to which Section II applies, or as a result of liability for the act of a director, officer, or trustee acting in that capacity for the homeowners.
5.1. Section II
Section II of the homeowners policy contains many of the conditions we’ve already discussed, including an other insurance condition. In the homProperty
eowners policy, Coverage E is considered excess insurance over other insurance, except for liability insurance specifically written to be excess over the limits of liability that apply to the homeowners policy.
5.2. Section I and Section II
In addition to the conditions that apply separately to Sections I and II of the homeowners policy, there are general conditions that apply to both sections.
These conditions include policy changes, assignment, concealment or fraud, liberalization, subrogation, policy period, and cancellation.
Under the cancellation condition, the insurance company may cancel for any reason with 10 days’ written notice to the insured during the first 60 days of a policy term. After that, the company may only cancel for the following reasons:
■Material misrepresentation by the insured (30 days’ notice required)
■Substantial change in risk insured (30 days’ notice required)
■Nonpayment of premium (10 days’ notice required)
The insurance company retains the right of nonrenewal, with 30 days’ written notice to the insured required.
While this is the condition that appears in the standard policy, some state laws may require different cancellation procedures for policies issued in those states.