Readers Weigh In On Coverage Riddles

In the last “FC&S Answer” column on Aug. 27, we set thestage, leaving National Underwriter readers with a coupleof coverage riddles.

Today were giving the answers. Heres the scene:

In Question 1, a door-to-door salesman inadvertently hit agarage-door opener button rather than a back-door bell, causing thegarage door to collide with the open lift-gate of a van borrowed bythe homeowner.

In Question 2, a hill-dwelling homeowner changing from regularto snow tires allowed a tire to roll down a hill, couldnt find it,and figured another tire rolled down the hill would lead him to thefirst. Both tires landed on a valley-dwelling neighbors property,causing damage.

Then I left the scene, asking readers to e-mail their coverageopinions: homeowners policy, personal auto policy, or justout-of-luck. Heres what we got.

From Paul Dobinsky, with J.W. Terrill, a large independentbrokerage based in Chesterfield, Mo.:

“The first loss had nothing to do with loading or unloading. Theproximate cause was the salesman pushing the wrong button. The carjust happened to be under the garage door. If it had been arefrigerator in that location just sitting there, the cause wouldhave been the same. Coverage should still apply under thehomeowners policy. It could be vandalism and maliciousmischief.”

“On the second loss scenario, stupidity has nothing to do withwhat one is throwing. Once again, [vandalism and malicious mischiefcoverage] should be the basis of adjusting the property damage tohis neighbors property under section II [of the homeownerspolicy].”

Jim Bollinger of J. Bollinger Insurance Agency of St. Louis,Mo., had these thoughts. “First case: I feel it would be coveredunder the non-liability property damage coverage under thehomeowners policy. The salesman was not trespassing because he hadpermission to enter the garage from the wife.”

“Second case should be covered under the hill-dweller'shomeowners liability coverage. The tires themselves are notconsidered a land motor vehicle and the homeowner did not intend tocause damage when he rolled the second tire over the ridge.”

Kat Davis, director of training at Tower Hill Insurance Group inGainesville, Fla., wrote: “I believe the friend has coverage forthis damage under his personal auto policys physical damage section(if he carries comprehensive coverage on at least one of his ownvehicles).”

“Even if coverage could be construed on his homeowners or autoliability, I doubt whether he is truly liable for the damages. Hedidnt push the button or cause the damage. I say go to first-partycoverage via the auto [property damage] (which covers non-ownedvehicles) instead. I could find no exclusion that applies.”

Clint Goodison, risk manager at Edmonds School District #15 inLynnwood, Wash., gave a lot of thought to the questions.

“I do not believe the borrower's homeowners carrier should havedenied the claim based on the vehicle loading-and-unloadingexclusion,” he wrote. “Aside from the lift-gate being opened, thecause of the loss (garage door striking lift-gate) had nothing todo with loading or unloading the vehicle. (If the borrower's sonhad struck the open lift-gate with a baseball, would the carriertry to rely on the same exclusion?)”

“Now, there is a question of negligence and liability. Was therenegligence in leaving the lift-gate open? The answer would possiblybe no. Actually, the unknown salesman was negligent (if the storyis believed), so the carrier would have been better off denyingliability (versus denying coverage).”

“However, the carrier could have paid the $500 'good neighbor(non-negligent property damage)' limit. The use of the (borrower's)auto policy care, custody and control exclusion (CCC) exclusionappears to have been proper.”

“As a risk manager, (after 20 years in the claims business), Iwould have the borrower sign a hold-harmless agreement for alldamages while the vehicle is in the borrower's possession,regardless of fault (whether or not covered by insurance). Let meknow if you agree or disagree” (see the FC&S Answer below).

Mr. Goodison has some thoughts about Question 2, as well. “Thereis no 'stupidity' clause–if one existed, most losses would beexcluded. Absent an intentional act/intended damages, the lossshould be covered under the homeowner's liability coverage.”

“What if the tires had been stolen? One argument would requirethe auto policy to cover the theft, since the tires werespecifically owned for use on that specific vehicle. Another(weaker) argument (in my opinion) would have the homeowner carrierpay the loss, since the tires were not on the vehicle when stolen(a good argument if the car had been sold before the theft and theowner no longer had a vehicle with the same tire size).”

“However, this loss (tires rolling over a hill) had nothing todo with a car accident. The homeowner was negligent in 'launching'the objects, missiles, etc. (tires) over the hillside. The merefact they were tires is not the issue.”

“However, one could argue, I suppose, that the FIRST tire rolledin the course of vehicle MAINTENANCE (planning to install thetire), but the SECOND tire rolled due to ordinary (homeowner)negligence, in an effort to locate the first tire. In such ascenario, loss from the first tire would come under the autoliability policy and the loss from the second tire would come underthe homeowner policy. Another good reason for insuring your houseand auto(s) with the SAME carrier.”

Steve Coles, regional claims specialist for American FamilyInsurance in Madison, Wis., weighed in, too. “The first question onthe garage door colliding with the lift gate of the borrowed carhas an additional answer that puts the issue clearly inperspective.”

“Auto policies generally provide for transference of physicaldamage coverages to non-owned vehicles as long as there ispermission. If the friend desired protection for his exposure whileusing either his own or a non-owned vehicle he would have physicaldamage coverage available on his own policy, which would extend tocover this loss. If he made the choice not to protect himselfagainst physical damages to vehicles he operates, thenas you saythere is no coverage and the lender should beware!”

“The brilliant tire-rolling insured seeking coverage under hishomeowner's policy may face two challenges–first, the motor vehicleexclusion, and second, the intentional act exclusion. It is likelycoverage defenses would fail under either exclusion because, first,most motor vehicle exclusions apply to the use, loading orunloading of motor vehicles. Simply moving the tires with the'intent' to change them seems a far cry from 'using' a motorvehicle.”

“Second, the insurer would certainly have a hard time applying'intent' to the rolling of the first tire. Your loss descriptionseems to allude to the idea that the insured was not even sure whathappened to the first tire. The rolling of the second tirecertainly seems 'intentional,' but most exclusionary language andcase law either require an 'intent to cause damage' or at least a'reasonable man' standard that would lead one to conclude thatdamage is likely to follow.”

“A person dumb enough to do this probably is not 'reasonable' inthe first place. Absent your mythical 'stupidity' exclusion, thehomeowner's carrier of the hill dweller should be on the hook forthis one.”

Finally, we have “The FC&S Answer.” David Thamann, managingeditor of FC&S and author of “The Personal Auto PolicyCoverage Guide,” says: “In case #1, the personal auto policy doesnot give the borrower liability coverage because of the care,custody and control exclusion.

“There is coverage to a degree under the borrowers physicaldamage coverage because this is a non-owned auto. The coverage isexcess over other collectible sources of recovery. If the owner hasphysical damage coverage of his own, the borrowers insurance willonly pay for excess coverage, such as the owners deductible.Anything else is going to come out of the borrowers own pocket. Ifthe owner does not have physical damage coverage, the borrowerspolicy will pay for the damage from dollar one.”

In case two, Mr. Thamann says: “In my opinion, the hill dwellerspersonal auto policy is not applicable at all. The liabilitycoverage is for auto accidents and this was not an auto accident. Irealize that some judge somewhere may see this as an auto accidentbecause the tires go on a car, but I do not. The auto policy of thevalley-dweller would cover the damage to the car from the tiresunder collision coverage. The dog house and the dog would get nocoverage under the valley dwellers PAP.”

Diane Richardson, associate editor of FC&S andauthor of “The Homeowners Policy Coverage Guide,” says that, incase number 1, “The homeowners exclusion is inapplicable. Thedamage to the vehicle did not arise out of the loading or unloadingof a motor vehicle; it arose out of the accidental manipulation ofthe door opener by the salesman. Therefore, the HO policy respondsto the damage.”

“However, because of the other insurance coverage E condition,this coverage is excess over other valid and collectibleinsurance–and see Davids answer (above)–because at this point ithinges on which auto insurance coverage applies.”

As to number 2, Ms. Richardson holds: “In my opinion, thehilltoppers PAP is primary, because viewing the auto policy as awhole, we find coverage for 'you' for the ownership, maintenance oruse of any auto. In this I disagree with Mr. Thamann–I see a casualconnection between the maintenance of the auto and the result.Thats the damage done by the first tire. The valley-dwellers HOpolicy would pay for damage to the doghouse, but not to the dog, ifno PAP is in place.

“However, in the second instance (tire 2), I cant see thatrolling a second tire in pursuit of the first is maintenance, butthat might be for a jury to decide. Therefore, the valley dwellersPAP would pay for damage to his auto. Since the HO policy excludescoverage for property damage arising out of the ownership of anexcluded motor vehicle, no homeowners liability coverage for thehilltopper; hes on his own.”

Bruce Hillman, JD, is editorial director of Risk andInsurance Markets for the Professional Publishing Group of TheNational Underwriter Company, in Erlanger, Ky. Questions andcomment are invited at [email protected].

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, September 21,2001. Copyright 2001 by The National Underwriter Company in theserial publication. All rights reserved.Copyright in this articleas an independent work may be held by the author.

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