Risk management is not just a commercial line thing. Homeowner-insureds have to practice risk management also. No work should be engaged, no contractor or sub-contractor allowed to begin, until there is proof of existing workers' compensation and general liability insurance and all required licenses and permits are in place. Otherwise, this is what can happen:

The insured had a tenant homeowners policy and was building a new house, acting as his own contractor. He hired an excavator who, while driving to the insured's property with a load of gravel, went left of center and caused a serious accident in which one person was killed and another injured. In the resulting lawsuit, the plaintiff alleged that our insured's negligence in not hiring a driver with a commercial drivers license (CDL) was the cause of the accident. Our insured did not know the driver did not have a CDL; he actually contracted with a heavy equipment firm whose driver did not have the necessary license.

Would there be any personal liability coverage under the HO policy?

This proves my adage, “those who can be sued will be.”

As to the answer to this question, it may take a court to make a determination. There are some areas of the policy, however, that should be considered. The property upon which the new house was being built qualifies as an insured location by definition: “land owned by or rented to an 'insured' on which a one- or two-family dwelling is being built as a residence for an 'insured.'” Turning to the Section II liability coverages, we find that there is an exclusion for bodily injury or property damage arising out of a premises that is not an insured location. Because the property is an insured location, that exclusion is inapplicable.

Then, we come to the exclusion for BI or PD arising out of the “ownership, maintenance, use, loading, or unloading of motor vehicles … owned or operated by or rented to or loaned to an 'insured.'” The insured did not own, operate, or borrow the truck. Possibly, he might be held to have rented it. Some jurisdictions might hold that because the truck was the nexus of the accident, the exclusion applies.

On the other hand, if “arising out of” an insured location encompasses the allegation of negligence in hiring, then coverage exists.

Because there are so many issues of fact in this situation, we believe that, at the least, the insured is owed a defense under a reservation of rights by the insurer.

Going Once, Going Twice

We are public adjusters. We have a client with a homeowners policy written by ——- Insurance Co., which is a non-ISO writer. The form that applies covers both perils of fire and theft.

My question is on the number of occurrences when the house is broken into and items stolen, then a fire is set inside the house. Is this one loss or two? The thief chose to commit two different acts, theft and arson, and the perils clearly are different. The reason this becomes important is that policy limits reinstate after each loss, so that the insured may make claim for whatever the amount of each loss is, up to the limits available.

[The insurer] believes this to be one loss. What do you think?

In the circumstances that you present, we think that the damage arises out of one occurrence. There was one break in. During commission of the act, the criminal stole property and set a fire. The insurance company would not be justified in imposing two deductibles in this case, nor the insured justified in claiming two occurrences.

We have seen situations in which a break in occurred and, because the culprit broke a window or left a door open, at some other time another culprit or vagrant entered the building and fire erupted. In those cases, the acts were separated in time, such that two occurrences can be said to have been involved. In an unbroken string of events, however — the crook's breaking in, stealing items, and setting a fire to cover up his acts — only one occurrence is involved. Deductibles and occurrences flow from the loss (the damage), not each separate peril involved.

More Insure-speak

We are looking for your interpretation on a CP 04 50 (0788) Vacancy Permit. We have this form that is made part of the policy and Vandalism has an x under it, which is one of the two Excepted Causes of Loss. In this case, it is for premises 1 and building 1. The form is somewhat confusing. Is the form saying that if Vandalism has an x by it in the schedule, no coverage exists for the peril of vandalism?

You are correct. The Vacancy Permit endorsement changes the policy's loss condition so that the policy does apply to direct physical loss at the location during the endorsement's period as shown in the declarations. However, an x indicates that the Vacancy permit does not apply to that cause of loss (i.e., it is excepted from the coverage of the endorsement and is as if there were no endorsement and the policy's terms apply). In this case, vandalism is the cause of loss excepted, such that the Vacancy Loss Condition does apply to the vandalism cause of loss.

This is more words to explain than are in the endorsement itself. Hope I stated it clearly.

Bruce Hillman is editorial director, Professional Publishing Division, of the National Underwriter Co.

The FC&S Claim Queue is prepared and written by the editorial staff of The Fire, Casualty and Surety (FC&S) Bulletins, the most widely used encyclopedic reference service devoted to insurance policy interpretation and coverage topics. FC&S is published by The National Underwriter Company. The editors welcome comment at fcs@nuco.com. For more on FC&S, visit www.fcsbulletins.com

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