Readers Weigh In On Coverage Riddles

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

Today were giving the answers. Heres the scene:

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

In Question 2, a hill-dwelling homeowner changing from regular to 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 the first. Both tires landed on a valley-dwelling neighbors property, causing damage.

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

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

“The first loss had nothing to do with loading or unloading. The proximate cause was the salesman pushing the wrong button. The car just happened to be under the garage door. If it had been a refrigerator in that location just sitting there, the cause would have been the same. Coverage should still apply under the homeowners policy. It could be vandalism and malicious mischief.”

“On the second loss scenario, stupidity has nothing to do with what one is throwing. Once again, [vandalism and malicious mischief coverage] should be the basis of adjusting the property damage to his neighbors property under section II [of the homeowners policy].”

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

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

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

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

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

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

“Now, there is a question of negligence and liability. Was there negligence in leaving the lift-gate open? The answer would possibly be no. Actually, the unknown salesman was negligent (if the story is believed), so the carrier would have been better off denying liability (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) exclusion appears to have been proper.”

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

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

“What if the tires had been stolen? One argument would require the auto policy to cover the theft, since the tires were specifically owned for use on that specific vehicle. Another (weaker) argument (in my opinion) would have the homeowner carrier pay 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 the owner no longer had a vehicle with the same tire size).”

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

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

Steve Coles, regional claims specialist for American Family Insurance in Madison, Wis., weighed in, too. “The first question on the garage door colliding with the lift gate of the borrowed car has an additional answer that puts the issue clearly in perspective.”

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

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

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

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

Finally, we have “The FC&S Answer.” David Thamann, managing editor of FC&S and author of “The Personal Auto Policy Coverage Guide,” says: “In case #1, the personal auto policy does not give the borrower liability coverage because of the care, custody and control exclusion.

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

In case two, Mr. Thamann says: “In my opinion, the hill dwellers personal auto policy is not applicable at all. The liability coverage is for auto accidents and this was not an auto accident. I realize that some judge somewhere may see this as an auto accident because the tires go on a car, but I do not. The auto policy of the valley-dweller would cover the damage to the car from the tires under collision coverage. The dog house and the dog would get no coverage under the valley dwellers PAP.”

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

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

As to number 2, Ms. Richardson holds: “In my opinion, the hilltoppers PAP is primary, because viewing the auto policy as a whole, we find coverage for 'you' for the ownership, maintenance or use of any auto. In this I disagree with Mr. Thamann–I see a casual connection between the maintenance of the auto and the result. Thats the damage done by the first tire. The valley-dwellers HO policy would pay for damage to the doghouse, but not to the dog, if no PAP is in place.

“However, in the second instance (tire 2), I cant see that rolling a second tire in pursuit of the first is maintenance, but that might be for a jury to decide. Therefore, the valley dwellers PAP would pay for damage to his auto. Since the HO policy excludes coverage for property damage arising out of the ownership of an excluded motor vehicle, no homeowners liability coverage for the hilltopper; hes on his own.”

Bruce Hillman, JD, is editorial director of Risk and Insurance Markets for the Professional Publishing Group of The National Underwriter Company, in Erlanger, Ky. Questions and comment are invited at fcs@nuco.com.

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

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