Summary: The Association of Insurance Services (AAIS) has developed a home-based business coverage endorsement, ML-450, that may be attached to an AAIS homeowners, mobile homeowners, or farm owners policy. It extends the homeowners coverage limits so that other structures and property used in the business are covered. Liability coverage is extended to provide for bodily injury or property damage arising out of the designated business. The endorsement is not intended to cover liability arising out of professional services; however, many businesses commonly engaged in by a home-based entrepreneur are covered. Classifications include office, retail, crafts, office, food, service, and bed and breakfast. For a discussion of the AAIS homeowners liability coverages, see Liability Coverages—AAIS Homeowners.
Liability coverage is subject to a per occurrence limit, as well as an annual aggregate limit equal to twice the per-occurrence limit. There is also a separate products/completed work hazard aggregate limit.
The liability coverages are the subject of the following discussion. For a discussion of the property coverages, see The AAIS Home-Based Business Coverage Form—Property. Included in the discussion of the property coverages are the definitions and conditions that apply to the entire coverage part.
Finally, many of the coverages, exclusions, and provisions are similar to those found in the ISO Commercial General Liability (CGL) form. The reader may wish to compare the CGL with the AAIS form. See Commercial General Liability Defintions, CGL Coverage Form—Coverage A, CGL Coverage Form—Coverage B, Medical Payments, and General Provisions of the CGL.
Topics covered: Introduction Insuring agreement Definitions Principal liability coverages Incidental liability coverages Exclusions How much we pay Optional liability coverages Additional insureds
Introduction
Home-based businesses have become increasingly popular. To address the need for coverage, the AAIS endorsement ML-450 may be attached to an AAIS homeowners, mobile homeowners, or farm owners policy. This endorsement deletes or amends the coverage restrictions, particularly those applying to business use, so the coverage of the underlying homeowners policy becomes similar to commercial liability in respect to the insured business. For example, under the homeowners incidental liability coverage for damage to property of others, the most that will be paid is $500 per occurrence. The home-based business coverage part ML-450 increases this limit to $2,500 per occurrence. And, unlike the homeowners, a greater amount of coverage for damage to property of others may be chosen. In addition, the ML-450 adds new business-related coverages.
The home-based business endorsement is designed for six classifications. The first is office, which includes word processing, counseling, tutoring, and the like. The professional liability exposure of these activities, however, is not included. Separate coverage must be arranged. The second classification is service, which includes furniture upholstering and photography. A contracting business that offers installation services is ineligible. The third classification is retail, which includes sales of collectibles, art work, cosmetics, and the like; however, a business that manufactures its own products, or sells items under its own label, is not eligible. The fourth classification is crafts, which includes making and selling crafts such as ceramics and wood products. The fifth classification is food, which includes baked goods and canning. Under this classification, a fruit and vegetable stand is eligible as long as there is no “pick your own” operation. Finally, bed and breakfasts may be written, but the proprietor insured needs to be aware that there is no coverage for liquor liability. The coverage is designed for a small operation having no more than six rooms for overnight guests. The bed and breakfast must be owned and operated by one or more of the persons insured on the underlying homeowners policy.
Certain types of businesses are not eligible. Contracting businesses that offer installation services are ineligible. Child and adult care services are ineligible (coverage for providing such service for no more than three people can be endorsed onto the homeowners; see Common Endorsements—AAIS Program). Also ineligible are home health care services and lawn care services.
Finally, there cannot be more than a single business conducted on the premises; however, the rules allow an exception to be made if the other business is one permitted by the homeowners rules, such as an office or studio.
The endorsement contains many optional liability coverages. These are activated by showing the premium charge on the supplemental declarations. The liability coverages are included within this discussion; for the property coverages see The AAIS Home-Based Business Coverage Form—Property.
The limit of liability chosen for the underlying homeowners applies to the home-based business. Therefore, limits cannot be stacked between the underlying homeowners policy and the ML-450. However, the home-business coverage part includes an annual aggregate limit of liability coverage equal to twice the occurrence limit shown on the declarations of the underlying homeowners policy. If an insured carries a $100,000 limit of liability on the homeowners policy, and a claim for bodily injury arising out of the insured business occurs, the $100,000 is available. However, if another similar covered claim occurs within the policy period for $20,000, only $80,000 of the aggregate remains to cover any losses within the policy period.
This coverage part covers the “business” described on the Home-Based Business Supplemental Declarations Page and conducted by an “insured” on the “insured premises.” “We” provide the Principal and Incidental Property and Liability Coverages described in this coverage part. “We” also provide those Optional Coverages for which coverage is shown on the Home-Based Business Supplemental Declarations Page. Coverage is subject to the “terms” of this coverage part and to the “terms” of the policy, except as amended by this coverage part. The “terms” of this coverage part apply only to coverage for the “business” described on the Home-Based Business Supplemental Declarations Page.
Analysis
The terms of the homeowners form to which the home-based business coverage part is attached apply. The ML-450 may amend certain of the homeowners terms and provisions, but only in regards to the business being insured.
Definitions and conditions that apply to the entire coverage part are discussed separately; see AAIS Home-Based Business Coverage Form—Property.
1. The definition of “insured” is deleted and replaced with the following with respect to the Liability Coverages provided by this coverage part:
”Insured” means:
a. ”you” and “your” spouse, but only with respect to the conduct of the “business” covered by this coverage part of which “you” are the sole owner, if shown on the Home-Based Business Supplemental Declarations Page as an individual;
b. ”you” and all “your” partners or members and their spouses, but only with respect to the conduct of the “business” covered by this coverage part, if shown on the Home-Based Business Supplemental Declarations Page as a partnership or a joint venture;
c. ”you” and all “your” members and managers, but only while acting within the scope of their duties for the “business” covered by this coverage part, if shown on the Home-Based Business Supplemental Declarations Page as a limited liability company;
d. ”you” and all “your” executive officers and directors, but only while acting within the scope of their duties for the “business” covered by this coverage part, if shown on the Home-Based Business Supplemental Declarations Page as an organization (other than a partnership, joint venture, or limited liability company). It also includes “your” stockholders, but only for their liability as such;
e. if “you” die while insured by this coverage, “your” legal representative while acting within the scope of those duties or a person who has custody of “your” property with respect to liability arising out of the maintenance or use of that property until “your” legal representative is appointed. “Your” legal representative has all “your” rights and duties under this coverage;
f. ”your” relatives if residents of “your” household;
g. persons under the age of twenty-one residing in “your” household and in “your” care or in the care of “your” resident relatives;
h. any person or organization, except “your” “employees”, while acting as “your” real estate manager;
i. ”your” “employees”, for acts within the scope of their employment by “you” with respect to or while performing duties related to the conduct of the “business” covered by this coverage part. (This does not include “your” managers if “you” are a limited liability company or “your” executive officers if “you” are an organization other than a limited liability company.) None of these “employees” are “insureds” for:
1) ”bodily injury”, “personal injury”, or “advertising injury” to “you”, “your” partners or members (if “you” are a partnership or joint venture), “your” members (if “you” are a limited liability company), a fellow “employee”, or a volunteer worker;
2) consequential injury to a spouse, child, parent, brother, or sister of such injured fellow “employee” or volunteer worker;
3) an obligation to fully or partially reimburse a third party for damages arising out of paragraphs 1.i.1) or 1.i.2) above; or
4) ”property damage” to property owned by, rented to, or loaned to “you”, “your” “employees”, volunteer workers, any of “your” partners or members or their spouses (if “you” are a partnership or joint venture), or any of “your” members (if “you” are a limited liability company); and
j. ”your” volunteer workers but only while acting at “your” direction and within the scope of their duties related to the conduct of the “business” covered by this coverage part. None of these volunteer workers are “insureds” for:
1) ”bodily injury”, “personal injury”, or “advertising injury” to “you”, “your” partners or members (if “you” are a partnership or joint venture), “your” members (if “you” are a limited liability company), an “employee”, or a co-volunteer worker;
2) consequential injury to a spouse, child, parent, brother, or sister of such injured “employee” or co-volunteer worker;
3) an obligation to fully or partially reimburse a third party for damages arising out of paragraphs 1.j.1) or 1.j.2) above; or
4) ”property damage” to property owned by, rented to, or loaned to “you”, “your” employees”, co-volunteer workers, any of “your” partners or members or their spouses (if “you” are a partnership or joint venture), or any of “your” members (if “you” are a limited liability company).
No person or organization is an “insured” with respect to the conduct of any current or past partnership, joint venture, or limited liability company that is not named as the insured on the Home-Based Business Supplemental Declarations Page.
Each of the above is a separate “insured”, but this does not increase “our” limit.
Analysis
The definition of “insured” is amended in this endorsement only as regards to the home-based business being insured. The definitions of “insured” found in the underlying homeowners policy remain intact in regards to the homeowners liability coverage. For example, the homeowners policy under coverages L and M (liability and medical payments) includes within the definition of “insured”: “persons using or caring for vehicles, watercraft, or animals owned by an 'insured' as defined … above and to which [the] insurance applies.” So, for example, if a neighbor volunteers to walk the insured family pet, the neighbor is an “insured” while caring for the pet.
But interestingly, the same neighbor may achieve “insured” status performing a similar act on behalf of the insured business. For example, if the insured business is a pet grooming concern, and the neighbor, knowing the insured to be extremely busy, volunteers to take one of the pets brought in for grooming for a walk, the neighbor becomes an “insured” by virtue of acting as a “volunteer worker.”
The insured's resident relatives and persons under the age of twenty-one in the care of the insured or a resident relative are also insureds in regards to the home-based business.
For the most, the definitions of “insured” are amended to apply to the different forms the insured business may take—whether partnership, limited liability company, or corporation. Partners or members and their spouses, members, and managers, or executive officers and directors are all insureds but only while acting within the scope of their duties for the insured business. Employees and volunteers are insureds but only while acting within the scope of their duties. It is not uncommon for a home-based business to “conscript” family members or other willing helpers to assist, at least in the early stages of a home business. Such nonresident relative “volunteers” are insureds while they are carrying out their duties for the business. Neither employees nor volunteer workers are insureds, however, for bodily injury, personal injury, or advertising injury to the insured (including partners and members), to fellow employees, or to other volunteer workers. Nor are employees or volunteer workers insureds for consequential injury to a relative of an injured fellow employee or volunteer worker.
There is no coverage for property damage to property owned by, rented to, or loaned to the insured, partners, employees, volunteers, or members or their spouses (if the business is a partnership or joint venture).
The coverage does not apply to any person or organization with respect to a business—either past or current—that is not the business indicated on the supplemental declarations page. Finally, each person as indicated in the definition of “insured” is a separate insured; however, the coverage limit is not increased. This latter is known as the “severability of insurance” clause, but remember that an excluded act is still an excluded act. In other words, if an act is excluded, there is no coverage for any insured, even one not committing the excluded act.
2. The following definitions are added with respect to the Liability Coverages provided by this coverage part:
a. ”Advertising injury” means injury (other than “bodily injury”, “property damage”, or “personal injury”) arising out of one or more of the following offenses:
1) oral or written publication of material that:
a) slanders or libels a person or an organization;
b) disparages a person's or an organization's goods, “products”, or services; or
c) violates a person's right of privacy;
2) misappropriation of advertising ideas or style of doing business; or
3) infringement of copyright, title, slogan, trademark, or trade name.
b. ”Basic territory” means the United States of America, its territories and possessions, Canada, and Puerto Rico
c. ”Coverage territory” means:
1) the “basic territory”;
2) international waters or airspace, only if the “bodily injury”, “property damage”, “personal injury”, or “advertising injury” occurs in the course of travel to or from the “basic territory”;
3) the world, if the injury or damage arises out of:
a) ”products” “you” have made or sold in the “basic territory”; or
b) the activities of a person who normally resides in the “basic territory”, but is away for less than a month on duties related to the conduct of the “business” covered by this coverage part; and
provided that the “insured's” liability to pay damages has been determined in a suit on the merits in the “basic territory”, or in a settlement that “we” have agreed to.
Analysis
While the definition of “insured” is amended from that in the underlying homeowners to the definitions, other definitions are added in the ML-450 to provide necessary coverage for business activities.
The definition for “advertising injury” is interesting in that only injury other than bodily injury, property damage, or personal injury is included. By way of contrast, the current ISO CGL form states that “personal and advertising injury” means “injury” (italics added); in other words, if the advertising injury results in bodily injury, the loss is covered. The current CGL definition of “personal and advertising injury” is “injury, including consequential 'bodily injury' arising out of [a covered offense].” This definition makes it clear that if, for example, the advertising injury caused another business owner such stress that he suffered an outbreak of hives, this bodily injury would be covered. Not so, however, in the AAIS form.
Coverage for advertising injury is not included within the ML-450 unless shown as included on the home-based business supplemental declarations page and a charge is made.
The coverage territory includes three locations. The first is the “basic” territory—the United States, its territories and possessions, Puerto Rico, and Canada. The second is international waters or airspace but only if the covered bodily injury, property damage, or advertising injury occurs in the course of travel to or from the basic territory. Possibly, a product could be traveling from the United States in the hold of ship and explode, damaging surrounding property. The loss would be covered. Finally, there is worldwide coverage for two situations, provided the insured's liability is established in a suit in the “basic” territory or if the insurer agrees to settle. The first of these is if a loss arises out of the insured's products, whether made or sold in the “basic” territory. Second, if a person residing in the “basic” territory is away for less than a month on duties related to the insured business, there is coverage for his or her business-related activities. This territory definition removes any question that could otherwise arise as to whether the homeowners or the home-based business coverage part should respond in event of a loss.
d. ”Employee” includes a “leased worker”. “Employee” does not include a “temporary worker”.
Analysis
It is a common practice for a start-up home business to bring in a temporary worker—perhaps during a seasonal increase. The business owner insured must remember that such an employee does not fall within the definition of an “employee,” and therefore the temporary employee is not an insured, even while performing duties within the scope of employment. A “leased worker,” though, is considered an “employee.”
e. ”Impaired property” means tangible property (other than “products” or “your work”):
1) whose value has been decreased:
a) because it includes “products” or “your work” that is, or is believed to be, deficient or dangerous; or
b) because “you” failed to carry out the terms of a contract; and
2) whose value can be restored:
a) by the repair, replacement, adjustment, or removal of “products” or “your work”; or
b) by “your ” fulfilling the terms of the contract.
Analysis
As will be seen later in this discussion, there is no coverage for a decrease in value caused by the insured's “impaired property.” This is property that includes an insured's product or the insured's work and suffers a decrease in value as a consequence. If the property containing the insured's product as a component, or upon which the insured has worked, can be restored to its value by removal of the product or work, there is no coverage. The exclusion prevents the insured from engaging in manufacturing or selling a shoddy product or performing shoddy work and then expecting the insurer to pay a claim for any resulting property damage.
f. ”Leased worker” means a person whom “you” lease from a labor leasing firm under a contract or agreement to perform duties related to the conduct of the “business” covered by this coverage part. “Leased worker” does not include a “temporary worker”.
Analysis
A “leased worker” is considered an “employee”; therefore the leased worker is an insured while performing duties connected with his employment. The fellow employee exclusions apply; for example, if the leased worker injures the insured, the policy will not respond to a claim by the insured for bodily injury.
g. ”loading or unloading” means the movement of property:
1) starting after it is removed from the point where it has been accepted for transit by a “motorized vehicle”, aircraft or watercraft;
2) continuing while it is in or on such vehicle; and
3) ending when it has been removed from the vehicle at its point of destination.
”Loading or unloading” includes movement by:
1) a hand truck; or
2) any mechanical device only when attached to the vehicle.
Analysis
As will be noted later in this discussion, there is an exclusion of coverage for bodily injury, property damage, personal injury, or advertising injury that arises out of loading or unloading of a motorized vehicle, watercraft, or aircraft, except as provided by the incidental watercraft and vehicle liability coverage.
h. ”Products” means goods or products manufactured, sold, handled, distributed, or disposed of by “you” or others trading under “your” name in the course of conducting the “business” covered by this coverage part.
”Products” includes:
1) warranties or representations made at any time with respect to the fitness, quality, durability, or performance of “products”;
2) containers (other than vehicles), materials, parts, or equipment furnished in connection with such “products”; and
3) providing or failing to provide warnings or instructions.
”Products” does not include:
1) vending machines or other property that is rented to or placed for the use of others, but not sold; or
2) real property.
i. ”Products/completed work hazard”—
1) If the “business” covered by this coverage part includes selling, handling, or distributing “your” “products” for consumption on premises owned by or rented to “you”, “products hazard” means “bodily injury” or “property damage” arising out of “products” after physical possession of the “products” has been relinquished to others. Otherwise, “products hazard” means “bodily injury” or “property damage” occurring away from premises “you” own or rent and arising out of “products” after physical possession of the “products” has been relinquished to others.
2) ”Completed work hazard” means “bodily injury” or “property damage” occurring away from premises “you” own or rent and arising out of “your work”. It does not include work that has not been completed, or that has not been abandoned.
”Your work” is deemed completed at the earliest of the following times:
a) when all work specified in “your” contract has been done:
b) when all “your work” to be done at a job site has been completed if “your” contract includes work at more than one site; or
c) when “your work” at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same job site.
Work which requires further service, maintenance, correction, repair or replacement because of defect or deficiency, but which is otherwise complete, is deemed completed.
3) Neither of these hazards include “bodily injury” or “property damage” arising out of:
a) the transportation of property, unless the injury or damage arises out of a condition in or on a vehicle, created by “loading or unloading”; or
b) the presence of tools, uninstalled equipment, or abandoned or unused materials.
j. ”Temporary worker” means a person who is furnished to “you” as a temporary substitute for an “employee”.
k. ”Your work” means:
1) work or operations performed by “you” or on “your” behalf;
2) materials, parts, and equipment supplied for such work or operations;
3) written warranties or representations made at any time regarding quality, fitness, durability, or performance of any of the foregoing; and
4) providing or failing to provide warnings or instructions.
Analysis
Since the home-based business coverage part (ML-450) may be used to insure an operation that makes, handles, or distributes food, or a bed and breakfast operation, note that the definitions of “products” and the “products/completed work hazard” include bodily injury or property damage arising from consumption of food. If a guest at the bed and breakfast becomes violently ill after consuming the insured's cooked breakfast and claims damages, there is coverage. Similarly, if the insured cans preserves and sells them and a consumer becomes ill after eating the preserves, there is coverage for claimed damages. The exceptions to this are that vending machines or such items placed for the use of others and real property do not fall within the definition.
Although the definition of “products/completed work hazard” does not include bodily injury or property damage arising out of the transportation of property, there is an exception to this. There is coverage if the bodily injury or property damage is a result of a condition in or on the vehicle created by “loading or unloading.” Normally such liability coverage would be found in the appropriate policy—auto, watercraft, or aircraft. The exclusion of coverage for operation, use, loading or unloading, etc., of such vehicles is addressed later in this discussion.
Whether or not the policy defines the “term” “personal injury”, the following definition of “personal injury” applies to the coverage provided by this coverage part:
”Personal injury” means injury (other than “bodily injury”, “property damage”, or “advertising injury”) arising out of one or more of the following offenses:
a. oral or written publication of material that:
1) slanders or libels a person or an organization;
2) disparages a person's or an organization's goods, “products”, or services; or
3) violates a person's right of privacy;
b. false arrest, detention, or imprisonment;
c. malicious prosecution; or
d. wrongful entry into, wrongful eviction from, or invasion of the right of private occupancy of a room, dwelling, or premises that a person occupies. This offense must be committed by or on behalf of the owner, landlord, or lessor of the room, dwelling, or premises.
Analysis
Coverage for personal injury is an optional coverage. It is triggered when indicated on the home-based business supplemental declarations page and a charge is shown. The definition for “personal injury” is similar to that found in the CGL.
1. Coverage L is extended to apply to “bodily injury” or “property damage” arising out of the “business” covered by this coverage part. The “bodily injury” or “property damage” must occur during the policy period and be caused by an “occurrence” which takes place:
a. in the “coverage territory”; and
b. if a Home-Based Business Coverage Date is shown on the Home-Based Business Supplemental Declarations Page, on or after that date.
2. with respect to “bodily injury” arising out of the “business” covered by this coverage part, Coverage M is deleted and replaced by the following:
Coverage M—Medical Payments
a. ”We” pay the medical expenses defined below for “bodily injury” covered by this policy and caused by an accident:
1) on premises “you” own or rent;
2) on ways adjacent or next to premises “you” own or rent; or
3) arising out of “your” operations.
b. ”We” pay such expenses regardless of fault but only if:
1) they arise out of an accident that occurred in the “coverage territory” and during the policy period; and
2) they are incurred or medically determined within three years of the accident.
c. Medical expenses means the reasonable and necessary expenses for:
1) medical, surgical, x-ray, and dental services, including prosthetic devices, eye glasses, hearing aids, prescription drugs, and contact lenses;
2) ambulance, hospital, professional nursing, and funeral services; and
3) first aid at the time of an accident.
Analysis
The insuring agreement of the principal liability coverages extends the liability coverage as set forth in the underlying homeowners policy, but only insofar as the bodily injury or property damage arises out of the insured business. Further, the bodily injury or property damage must be caused by an occurrence (defined in the homeowners form as “an accident, including repeated exposures to similar conditions, that results in 'bodily injury' or 'property damage' during the policy period”). Since the ML-450 is an endorsement, it may be attached to the homeowners policy at any time during the homeowners policy period. For this reason, for bodily injury or property damage to be covered by the ML-450, the occurrence resulting in the injury or damage must take place on or after the effective date of the ML-450.
Similarly, the homeowners policy's medical payments coverage agreement is deleted and replaced with the above wording but only in regards to bodily injury arising out of the insured business. So, for example, if a neighbor child is on the insured premises and is accidentally injured while playing ball with the insured's children, the homeowners medical payments coverage responds. But if the child of a bed and breakfast guest is injured falling down the premises stairs, then the home-based business medical payments coverage responds.
Incidental Liability Coverages
The AAIS program, rather than noting exceptions to exclusions within the exclusions themselves, lists the exceptions separately as incidental liability coverages. For example, rather that stating that there is no property damage coverage for premises the insured borrows, rents, or occupies except for liability for fire, the AAIS form indicates fire legal liability as a separate “incidental coverage.”
With respect to the Liability Coverages provided by this coverage part, the Incidental Liability Coverages are deleted and replaced by the following. Unless otherwise shown, they are subject to all the “terms” of the policy. With the exception of Claims and Defense Cost, the Incidental coverages do not increase the “limits” stated for the principal coverages.
1. Fire Legal Liability Coverage
a. ”We” pay for “property damage” to buildings, or parts thereof, which “you” rent from another for use with the “business” covered by this coverage part or which are loaned to “you” for use with the “business” covered by this coverage part, if the “property damage” is caused by fire for which “you” are legally liable. Buildings include fixtures permanently attached thereto.
b. Subject to the “limit” shown for coverage L and the General Aggregate “limit”, the most “we” will pay for this Incidental Coverage is $50,000 for each “occurrence” unless otherwise shown on the Home-Based Business Supplemental Declarations Page.
c. All of the exclusions otherwise applicable to “property damage” do not apply to the Fire Legal Liability Coverage. However, “we” do not cover:
1) liability arising under any contract or agreement to indemnify any person or organization for damage by fire to premises which “you” rent or are loaned to “you”; or
2) liability arising out of “property damage”:
a) which is expected by, directed by, or intended by an “insured”;
b) that is the result of a criminal act of an “insured”; or
c) that is the result of an intentional and malicious act by or at the direction of an “insured”.
This exclusion applies even if:
a) the “property damage” that occurs is different than what was expected by, directed by, or intended by the “insured”; or
b) the “property damage” is suffered by someone other than the person or persons expected by, directed by, or intended by the “insured”.
However, this exclusion does not apply to “property damage” that arises out of the use of reasonable force to protect people or property.
Analysis
The coverage for fire legal liability may be increased; otherwise a $50,000 per occurrence limit applies. This amount is also subject to the general aggregate limit shown on the supplemental declarations page.
The insured must be legally liable for the property damage caused by the fire in order for coverage to be triggered. Further, the liability cannot be solely the result of a contract obligating the insured to provide coverage. In other words, if the insured is liable simply because of a contract, there is no coverage. Say an insured leases a portion of a building to carry out a canning operation. A kettle accidentally boils dry and a fire ensues. The coverage will apply up to $50,000. But say the insured leases the building, and a fire starts because the landlord contracts to have some work done in the building. The contractor negligently starts a fire with a welding torch. The insured has a contract stating he will pay for any fire damage to the building. The insured is not legally liable except under the terms of the contract, and so the coverage is not triggered.
Expected or intended property damage is not covered, even if the degree of damage is different from what was expected or intended. This definition is more stringent than that found in the ISO CGL, which simply states that “bodily injury or property damage expected or intended from the standpoint of the insured” is excluded. However, property damage arising out of reasonable force to protect persons or property is covered. If an insured sets a part of the rented premises afire in order to prevent further spread of a brush fire, that resulting fire loss is covered.
2. Claims and Defense Cost
If “we” defend a suit, “we” pay:
a. the costs taxed to the “insured”;
b. the expenses incurred by “us”;
c. the actual loss of earnings by the “insured” for the time spent away from work at “our” request. “We” pay up to $50 per day;
d. the necessary expenses incurred by the “insured” at “our” request;
e. pre-judgment interest awarded against the “insured” on that part of the judgment “we” pay. If “we” offer to pay the “limit”, “we” will not pay any prejudgment interest based on that period of time after the offer;
f. the interest which accrues beginning with entry of a judgment and ending when “we” tender, deposit in court, or pay up to “our” “limit”;
g. the cost of appeal bonds or bonds for the release of attachments up to “our” “limit”. “We” are not required to apply for or furnish such bonds; and
h. the cost, up to $500, for bail bonds required of an “insured” because of an accident or traffic violation arising out of the use of a vehicle to which Coverage L applies. “We” are not required to apply for or furnish such bonds.
Analysis
The claims and defense cost incidental liability coverages above are similar to the supplementary payments—coverages A and B in the commercial general liability form (CGL). One notable difference is that actual loss of earnings in the AAIS form is $50 per day; the CGL pays up to $250 per day. However, the CGL will pay up to $250 for the cost of bail bonds required because of an accident or traffic violation arising out of the use of a covered vehicle; the AAIS form will pay up to $500.
The amounts paid under the claims and defense cost are in addition to the limit of liability for coverage L.
3. Incidental Contractual Liability Coverage
a. ”We” cover “bodily injury” or “property damage” liability which is assumed under the following contracts or agreements:
1) a lease of premises;
2) an easement or license agreement (this does not include an agreement in connection with any construction or demolition operation within 50 feet of a railroad);
3) a promise to indemnify a municipality if required by an ordinance (this does not apply in connection with work done for the municipality); or
4) a written contract that directly relates to the ownership, maintenance, or use of an “insured premises”.
b. This coverage does not apply to:
1) that part of any contract or agreement that indemnifies any person or organization for damage by fire to premises rented or loaned to “you”; or
2) a contract made after the loss.
Analysis
This coverage is included within the limit of liability applying to coverage L. Four types of contracts under which the insured assumes the liability of another are covered. First, a lease of a premises. Second, a contract relating to an easement, or to a license agreement. Excluded from this coverage is any agreement in connection with demolition or construction within fifty feet of a railroad.
Third, if the insured must sign a hold-harmless agreement with a local municipality for a business activity other than performing work for the municipality, there is coverage. Finally, a written contract directly relating to the ownership, maintenance, or use of an insured premises is covered. However, other than as provided under the incidental coverage for fire legal liability, coverage for the part of a contract requiring the insured to indemnify or reimburse any person or organization for damage by fire is excluded. Also excluded is coverage for a contract made following a loss.
Expanded contractual liability coverage may be purchased.
4. Incidental Watercraft and Vehicle Liability Coverage
”We” pay for “bodily injury” or “property damage” arising out of:
a. a watercraft that is on shore on premises owned by, rented to, or controlled by “you”;
b. the parking of a “motorized vehicle” on premises owned by, rented to, or controlled by “you” or on the ways immediately adjoining, if the “motorized vehicle” is not owned by, rented to, or loaned to an “insured”; or
c. a “motorized vehicle” not subject to “motor vehicle” registration while used to service the “business” covered by this coverage part. However, this does not apply:
1) if the “business” covered by this coverage part services or maintains the premises of others; or
2) to “bodily injury” or “property damage” which results from a “motorized vehicle” owned by an “insured” while used for recreational purposes on or away from the “insured premises”.
Analysis
A “motorized vehicle” is defined in the underlying homeowners policy as a “self-propelled land or amphibious vehicle regardless of method of surface contact.” Therefore, liability arising from use of a motorized vehicle not subject to registration while used to service the insured business is covered. However, the wording of the exception to the coverage grant—4.c.1)—appears to restrict this coverage if the insured's business is servicing or maintaining the premises of others. There could be a question as to whether there is liability coverage for a motorized vehicle while on the premises or away from the premises, or whether there is no coverage in either location. It would appear the latter is the case.
Use of a “motorized vehicle” for recreational purposes on or away from the insured premises is not covered if the vehicle is owned by an insured.
There is liability coverage for parking an auto on the insured premises or on the ways immediately adjoining the insured premises. But although there is liability coverage for bodily injury or property damage, if the auto being parked is damaged, there is no coverage, since the auto is in the care, custody, and control of an insured. Therefore, coverage is precluded. There is liability coverage arising from a watercraft on shore on the insured premises.
5. Damage to Property of Others
a. Regardless of an “insured's” legal liability, “we” pay to replace the personal property of others damaged by the “insured” if the damage arises out of the “business” covered by this coverage part.
b. Subject to the “limit” shown for Coverage L and the General Aggregate “limit”, the most “we” will pay for this Incidental Coverage is $2,500 for each “occurrence”, unless otherwise shown on the Home-Based Business Supplemental Declarations Page.
c. The liability exclusions that apply to the “business” covered by this coverage part do not apply to this Incidental Coverage. However, “we” do not pay for “property damage” to property:
1) owned by an “insured”;
2) owned by, rented to, or leased to a resident of an “insured's” household or the tenant of an “insured”;
3) which is caused intentionally by an “insured” who has attained the age of 13;
4) resulting in whole or in part from:
a) activities related to a “business” other than the “business covered by this coverage part;
b) the ownership, operation, maintenance, use, occupancy, renting loaning, entrusting, supervision, or “loading or unloading” of “motorized vehicles”, aircraft, or watercraft.
However, if the “business” covered by this coverage part does not service or maintain the premises of others, this exclusion does not apply to “property damage” to a “motorized vehicle” not subject to “motor vehicle” registration and not owned by an “insured” while used to service the “business” covered by this coverage part; or
5) covered under the Property coverages section of this coverage part. However, “we” will pay for “property damage” in excess of the amount recoverable under the Property Coverages.
Analysis
The ML-450 includes $2,500 for damage to property of others. This coverage amount may be increased and is not dependent upon the insured's liability for the damage. Certain property is excluded—property owned by an insured, property rented or leased to a resident of the insured's household or a tenant, and damage intentionally caused by someone over thirteen years of age. Damage arising out of certain activities is not covered, such as that arising from a business other than the insured business, from the ownership, maintenance, or use of a motorized vehicle, aircraft, or watercraft. However, there is coverage for damage to a motorized vehicle not owned by the insured—a borrowed lawn tractor, for example—while used to service the insured business so long as the insured's business is not servicing or maintaining the premises of others.
Finally, if the property that may become the subject of this coverage is also covered under the property coverages, as a leased copier, this portion of the policy will apply as excess coverage.
The liability exclusions in the policy are deleted and replaced by the following “terms” with respect to the liability coverages provided by this coverage part.
The references to “personal injury” and “advertising injury” apply only if the option for Personal Injury and Advertising Injury Liability coverage is shown as included on the Home-Based Business Supplemental Declarations Page.
1. ”We” do not pay for “bodily injury”, “property damage”, “personal injury”, or “advertising injury” resulting from an excluded “occurrence” or offense. This applies regardless of other causes, “occurrences”, or offenses that contribute to or aggravate the “bodily injury”, “property damage”, “personal injury”, or “advertising injury” whether such causes, “occurrences”, or offenses act to produce the “bodily injury”, “property damage”, “personal injury”, or “advertising injury” before, at the same time as, or after the excluded “occurrence” or offense.
a. Exclusions That Apply to Bodily Injury, Property Damage, Personal Injury, And/Or Advertising Injury
1) ”We” do not pay for “bodily injury”, “property damage”, “personal injury”, or “advertising injury” liability which is assumed by the “insured” under a contract or an agreement.
This exclusion does not apply to:
a) liability that an “insured” would have had in the absence of the contract or agreement; or
b) ”bodily injury” or “property damage” liability covered under Incidental Contractual Liability Coverage, provided that the “bodily injury” or “property damage” occurs after the effective date of the contract or agreement.
2) ”We” do not pay for “bodily injury”, “property damage”, “personal injury”, or “advertising injury” that arises out of the rendering or the failing to render a professional service.
3) ”We” do not pay for “bodily injury”, “property damage”, “personal injury”, or “advertising injury” that arises out of the use of “motorized vehicles” in, or in the practice or preparation for, racing, speed, pulling or pushing, demolition, or stunt activities or contests.
4) ”We” do not pay for “bodily injury, “property damage”, “personal injury”, or “advertising injury” that arises out of the ownership, operation, maintenance, use, occupancy, renting, loading, entrusting, supervision, of “loading” or unloading of:
a) an aircraft;
b) a “motorized vehicle”, or
c) a watercraft,
except as provided under Incidental Watercraft and Vehicle Coverage or Optional Watercraft Coverage.
Analysis
The concurrent causation language commonly found in property exclusions has been incorporated into the AAIS home-based business coverage form ML-450 exclusions. Therefore, if a claim is made for damages that arise out of two occurrences, one covered and the other not, there is no coverage.
Also, remember that the ML-450 is constructed so that exceptions to exclusions are generally to be found in the incidental liability coverages. For this reason, coverage for bodily injury, property damage, personal injury, or advertising injury arising out of the use of a motorized vehicle is excluded, except where provided in the incidental liability coverages, as, for example, for a vehicle used to service the insured business.
Although there is an exclusion for the rendering or failure to render professional services, optional coverage for cosmetologists liability may be purchased. Many current home-based businesses feature the sale of cosmetics, so the addition of this coverage for such a business would be advisable.
5) ”We” do not pay for “bodily injury”, “property damage”, “personal injury”, or “advertising injury” for which any “insured” may be held liable by reason of:
a) causing or contributing to the intoxication of a person;
b) the furnishing of alcoholic beverages to a person under the influence of alcohol or under the legal drinking age; or
c) a law or regulation relating to the sale, gift, distribution, or use of alcoholic beverages.
This exclusion applies if “you” are in the “business” of manufacturing, distributing, selling, or serving alcoholic beverages. However, if the Home-Based Business Supplemental Declarations Page indicates that the “business” covered by this coverage part is a Bed and Breakfast, then this exclusion applies if “you”:
a) manufacture, sell, or distribute alcoholic beverages;
b) serve or furnish alcoholic beverages for a charge whether or not such activity:
i) requires a license; or
ii) is for the purpose of financial gain or livelihood; or
c) serve or furnish alcoholic beverages without a charge if a license is required for such activity.
Analysis
Although the liquor liability exclusions parallel that found in the CGL, there is a difference. The home-based business coverage form may be used for a bed and breakfast. It would not be uncommon for the insured host to ask guests to join him in a convivial glass of wine or other spirits during the evening. If the liquor is sold to the guests, there is no coverage. If the drinks are given free of charge, there is no coverage if a license is required for such activity. If the local law or ordinance does not require a license for this, then there is coverage.
6) ”We” do not pay for “bodily injury”, “property damage”, “personal injury”, or “advertising injury” which results from war. (This includes undeclared war, civil war, insurrection, rebellion, revolution, warlike act by a military force or military personnel, or destruction, seizure, or use of property for a military purpose. Discharge of a nuclear weapon is deemed a warlike act even if accidental.)
7) ”We” do not pay for “bodily injury” or “property damage”:
a) which is expected by, directed by, or intended by an “insured”;
b) that is the result of a criminal act of an “insured”; or
c) that is the result of an intentional and malicious act by or at the direction of an “insured”.
This exclusion applies even if:
a) the “bodily injury” or “property damage” that occurs is different than what was expected by, or intended by the “insured”; or
b) the “bodily injury” or “property damage” is suffered by someone other than the person or persons expected by, directed by, or intended by the “insured”.
However, this exclusion does not apply to “bodily injury” or “property damage” that arises out of the use of reasonable force to protect people or property.
Analysis
The exclusion for bodily injury or property damage that is expected or intended is common to the home-based business coverage part and to the underlying AAIS homeowners form. The exclusion is more stringent than that found in the CGL. The exclusion is expanded in the ML-450 to clarify that even if the bodily injury or property damage is different from what was intended, or is suffered by someone other than the intended recipient, there is still no coverage. The exception is that there is coverage for the use of reasonable force to protect persons or property. So, for example, if an insured finds someone breaking into the insured business, tackles the burglar and breaks his nose in the resulting melee, there is coverage if the burglar sues for bodily injury.
8) ”We” do not pay for:
a) ”bodily injury” or “personal injury” to an “employee” of the “insured” if it occurs in the course of employment by the “insured”; or
b) consequential injury to a spouse, child, parent, brother, or sister of such injured “employee”.
This exclusion applies where the “insured” is liable either as an employer or in any other capacity; or there is an obligation to fully or partially reimburse a third party for damages arising out of paragraph 8)a) or 8)b) above.
This exclusion does not apply to liability assumed by the “insured” under a contract covered under Incidental Contractual Liability Coverage or Expanded Contractual Liability Coverage.
9) ”We” do not pay for “bodily injury” or “personal injury” if benefits are provided or are required to be provided by the “insured” under a workers compensation, non-occupational disability, occupational disease, unemployment compensation, or like law.
Analysis
This exclusion eliminates coverage for claims more properly covered by workers compensation or by employers liability insurance. The insured employer may be liable either as an employer or in any other capacity and the exclusion still applies. For example, an insured may hire a friend to help cook for the bed and breakfast operation. The friend, thinking to do “a little more” to really help out, decides to clean the bathrooms, and in so doing, is injured. The friend-employee cannot claim that cleaning the bathrooms removed the “employee” status, leaving the “friend” free to sue.
Third party over claims, in which an injured employee sues another person for his injuries, and then the other person sues the employer on the grounds that the employer's negligence contributed to the claim, are not covered.
10) ”We” do not pay for “bodily injury” or “personal injury” that arises out of any: a) refusal to employ;
b) termination of employment;
c) coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination, sexual misconduct, or other employment-related practices, policies, acts, or omissions; or
d) consequential “bodily injury” or “personal injury” as a result of 10)a), 10)b), 10)c), or 10)d) above.
Analysis
This exclusion eliminates coverage for actions more properly covered by employment practices liability insurance. Not only are direct employment-related actions excluded, but consequential actions are excluded as well. So if the spouse of, say, a fired employee brings suit for defamation of character arising from the firing, there is no coverage.
11) We do not pay for “bodily injury”, “property damage”, “personal injury”, or “advertising injury” arising out of a “business” other than the “business” covered by this coverage part.
12) ”We” do not pay for “bodily injury” or “property damage” that results from an “occurrence” for which an “insured” is also an insured under a nuclear energy liability policy or would be an insured but for the exhaustion of its “limits”. (A nuclear energy liability policy is a policy issued by American Nuclear Insurers, Mutual Atomic energy Liability Underwriters, Nuclear Insurance Association of Canada, or their successors.)
13) ”We” do not pay for “bodily injury” or “personal injury” to an “insured”.
14) ”We” do not pay for “bodily injury” or “property damage” arising out of a permanent location, other than the “insured premises”, owned by, rented to, or controlled by an “insured” that is used to conduct operations of the “business” described on the Home-Based Business Supplemental Declarations Page.
Analysis
Presumably this latter exclusion would not apply if an insured had to temporarily rent a storage area—perhaps a fire damages the insured premises and property has to be relocated temporarily. If someone tripped and fell in the storage area and sued the insured, there would be coverage since the location was not of a permanent nature.
15) ”We” do not pay for any loss, cost, or expense arising out of liability for any assessment made by “your” homeowners, condominium, mobile homeowners, or similar residential association.
Analysis
The latter exclusion may appear confusing; but remember that this coverage part ML-450 is intended to be attached to an AAIS homeowners policy. The homeowners policy is where coverage is found for loss assessment arising out of a homeowners association.
16) ”We” do not pay for “property damage”, “personal injury”, or “advertising injury”, resulting from the failure of any electronic data processing equipment, computer program, software, media, or data to correctly recognize, interpret, or process any encoded, abbreviated, or encrypted date or time.
Analysis
Although property damage, personal injury, or advertising injury are excluded if they result from a problem such as the Y2K situation, bodily injury is not. Therefore, if an insured's business was to work on computers, and because of an inability to fix the Y2K problem a customer's computer failed to regulate a freezer and food spoiled, there would be no coverage for the food. However, if the customer's employee walked into a cold storage locker and, because of the insured's failure the door failed to open, the employee's claim for frostbite would be covered.
17) ”We” do not pay for:
a) ”bodily injury”, “property damage”, “personal injury”, or “advertising injury” that results from the actual alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of “pollutants” into or upon land, water, or air.
However, this exclusion does not apply to “bodily injury”, “property damage”, “personal injury”, or “advertising injury” that results from the heat, smoke, or fumes of a fire on the “insured premises” that becomes uncontrollable or breaks out from where it was intended to be.
b) any loss, cost, or expense arising out of any:
i) request, demand, or order that any “insured” or others test for, monitor, clean up, remove, contain, treat, detoxify, neutralize, or in any way respond to or assess the effects of “pollutants; or
ii) claim or suit by or on behalf of any governmental authority relating to testing for, monitoring, cleaning up, removing, containing, treating, detoxifying, neutralizing, or in any way responding to or assessing the effects of “pollutants”.
Analysis
The pollution exclusion excepts, as does the CGL, damage resulting from a hostile fire. However, where the CGL excepts escape of fuels needed for the operation of mobile equipment or for fumes or vapors released from materials brought into a building in connection with the insured's or a contractor's operations, there is no such exception in the home-based business coverage part. The home-based business form is not intended to cover certain types of operations.
18) ”We” do not pay for:
a) actual or alleged “bodily injury” arising out of the ingestion, inhalation, or absorption of lead in any form;
b) actual or alleged “property damage”, “personal injury”, or “advertising injury” arising out of any form of lead;
c) any loss, cost, or expense arising out of any request, demand, or order that any “insured” or others test for, monitor, clean up, remove, contain, treat, detoxify, neutralize, or in any way respond to or assess the effects of lead; or
d) any loss, cost, or expense arising out of any claim or suit by or on behalf of any governmental authority for damages resulting from testing for, monitoring, cleaning up, removing, containing, treating, detoxifying, neutralizing, or in any way responding to or assessing the effects of lead.
Analysis
Any loss arising from lead poisoning or contamination is excluded. Remember that many older homes—those that frequently contain lead paint—have been turned into bed and breakfasts. There is no coverage should guests allege that their child ingested lead from a window sill and has become ill as a result.
b. Additional Exclusions That Apply Only to Personal Injury And/Or Advertising Injury
1) ”We” do not pay for “personal injury” or “advertising injury” arising out of willful violation of an ordinance, statute, or regulation by an “insured” or with the “insured's” consent.
2) ”We” do not pay for “personal injury” or “advertising injury” arising out of:
a) oral or written publication of material done by or at the direction of an “insured” who knew it was false; or
b) oral or written publication of the same or similar material by or on behalf of an “insured” that took place prior to the policy period.
3) ”We” do not pay for “advertising injury” arising out of breach of contract, other than misappropriation of advertising ideas under an implied contract.
4) ”We” do not pay for “advertising injury” arising out of the failure of goods, products, or services to conform with advertised quality or performance.
5) ”We” do not pay for “advertising injury” arising from an offense committed by an “insured” whose “business” is advertising, broadcasting, publishing, or telecasting.
6) ”We” do not pay for “advertising injury” arising out of wrong descriptions of the price of an “insured's” goods, products, or services.
Analysis
The prevalence of computers has meant that many home-based businesses consist of desk-top publishing or small advertising concerns. The insured should be aware that there is no coverage for advertising injury in this instance. Other coverage must be arranged.
Also, coverage for personal injury and advertising injury is optional. Coverage is triggered by an indication in the supplemental declarations page.
c. Additional Exclusions That Apply Only to Property Damage
1) ”We” do not pay for “property damage” to property owned by, occupied by, or rented to “you”, except as provided under Fire Legal Liability Coverage
2) ”We” do not pay for “property damage” to premises “you” sell, give away, or abandon, if the “property damage” arises out of any part of those premises. This exclusion does not apply if the premises are “your work” and were not occupied, rented, or held for rental by “you”.
3) ”We” do not pay for “property damage” to property used by or loaned to “you”. This exclusion does not apply with respect to liability assumed under a sidetrack agreement.
4) ”We” do not pay for “property damage” to either “business” or non-”business” personal property in the care, custody, or control of an “insured”, except as provided under Incidental Damage to Property of Others Coverage. This exclusion does not apply with respect to liability assumed under a sidetrack agreement.
Analysis
These exclusions are similar to those found in the CGL; for example, the “abandoned property” exclusion, which precludes coverage for property damage to insured premises that have been sold. Say the insured sells the premises and there is a fire resulting from a condition on the property that the buyer claims the insured knew about, and sues. The ML-450 will not cover the property damage. This could be in conflict with the underlying homeowners policy. If the seller knew about the problem, the homeowners exclusions for concealment or fraud would preclude coverage. In jurisdictions having mandatory disclosure laws in place for real property sales, there would appear to be no coverage. However, in a jurisdiction not having such laws, it is conceivable that the court would hold that such failure was indeed an “accident” (the property damage must have been caused by an “occurrence,” which is defined as an “accident”) and therefore coverage should be triggered.
There is no coverage for property damage to business or nonbusiness personal property in the care, custody or control of an insured except as provided in the incidental damage to property of others coverage. Presumably, though, the insured would find coverage for nonbusiness personal property of others in the underlying homeowners. It is possible, though, that in event of a loss to such property the activity of the insured at the time of the loss would be the indicator as to whether coverage was to be found in the ML-450 or the homeowners policy.
5) ”We” do not pay for “property damage” to that specific part of real property on which work is being performed by:
a) ”you”; or
b) a contractor or subcontractor working directly or indirectly on “your” behalf,
if the “property damage” arises out of such work. This exclusion does not apply with respect to liability assumed under a sidetrack agreement.
Analysis
The exclusion applies only to that part of the real property upon which the work is being performed. If damage to another part of the property arises from the insured's operations, there is coverage.
6) ”We” do not pay for “property damage” to that specific part of any property that must be restored, repaired, or replaced because of faults in “your work”. This exclusion does not apply to:
a) ”property damage” covered under the “products/completed work hazard”; or
b) liability assumed under a sidetrack agreement.
7) ”We” do not pay for “property damage” to “products” if the damage arises out of the “products” or their parts.
8) ”We” do not pay for “property damage” to “your work” if the “property damage” arises out of “your work” and is included in the “products/completed work hazard”. This exclusion does not apply if damage to the work or the part of the work out of which the damage arises is performed by a subcontractor on “your” behalf.
9) ”We” do not pay for “property damage” to property that has not been physically injured or destroyed, or to “impaired property”, that arises out of:
a) a delay or failure to perform a contract by “you” or anyone acting on “your” behalf; or
b) a defect, deficiency, inadequacy, or unsafe condition in “your work” or “products”.
This exclusion does not apply to the loss of use of other property resulting from sudden and accidental physical injury to or destruction of “your work” or “products” after having been put to its intended use.
Analysis
These exclusions are similar to those found in the CGL, although in a different order. Property damage to the specific part of any property that must be repaired or replaced because of the insured's faulty work is not covered unless covered under the “products/completed work hazard.” Damage arising from and occurring to the insured's products is not covered. Property damage to the insured's work arising out of the work itself is not covered unless the work out of which the damage arises has been performed by a subcontractor working on the insured's behalf. The insurance is not intended to make up for deficiencies or inadequacies in the insured's work or operations.
Finally, there is no coverage for property damage to property that has not been physically injured or destroyed, or to impaired property, that arises either out of a delay or failure to perform a contract by the insured (or someone working on the insured's behalf), or a defect, inadequacy, or unsafe condition in the insured's work. So, for example, an insured may contract to supply a store with ceramic products in time for the store's holiday sales. If the insured cannot fulfill the contract in time, the policy will not pay for the store's loss of income. On the other hand, if the insured supplied the store with oil lamps, and one exploded and fire damaged the store, the fire damage would be covered but not the damage to the oil lamps.
10) ”We” do not pay for any loss or expense incurred by “you” or anyone else arising out of the loss of use, disposal, withdrawal, recall, inspection, repair, replacement, adjustment, or removal (including any expenses involved in the withdrawal or recall) of “your work”, “products”, or “impaired property”. This applies when the loss of use, disposal, withdrawal, recall, inspection, repair, replacement, adjustment, or removal was because of a known or suspected defect, deficiency, or unsafe condition.
Analysis
If the insured in the above example of the oil lamps sold them either knowing or suspecting that a defect in the wicks could cause serious smoke damage, and was forced to take back all the oil lamps, there would be no coverage either for the insured's expenses or for the expenses of the store owner arising from the recall.
d. Additional Exclusions That Apply Only to Medical Payments
These exclusions apply in addition to the other exclusions that apply to “bodily injury”.
1) ”We” do not pay for medical expenses for “bodily injury” to an “insured”.
2) ”We” do not pay for medical expenses for “bodily injury” to a person hired by or on behalf of any “insured” to do work for an “insured” with respect to the “business” covered by this coverage part.
3) ”We” do not pay for medical expenses for “bodily injury” to a person injured on that part of the premises owned by or rented to “you” that the person normally occupies.
4) ”We” do not pay for medical expenses for “bodily injury” to a person injured while taking part in athletic activities.
5) ”We” do not pay for medical expenses for “bodily injury” included in the “products/completed work hazard”.
6) ”We” do not pay for medical expenses for “bodily injury” to a person if benefits are provided under any workers' compensation, nonoccupational disability, occupational disease, or like law.
Analysis
These exclusions preclude medical payments coverage to the insured, an employee, or to a person hired to do work for the insured—perhaps a subcontractor.
An interesting exclusion applies to a person normally occupying a part of a premises owned by or rented to an insured. This could apply in two ways. First, if the home-based business is located within the insured's home, there is no coverage for a resident relative under this coverage part if they are injured. (This prevents an insured from seeking medical payments coverage that is excluded in the homeowners policy from the home-based business form.) Second, if the insured rents a portion of another structure, there is no coverage for medical payments for any occupant of that structure (the occupant must “normally” occupy the structure; a temporary occupant presumably could be covered).
The insured who runs a bed and breakfast should be aware that there is no medical payments coverage for persons injured while taking part in athletic activities. It is conceivable that a claim for medical expenses arising from a game of volleyball could be denied. Optional coverage may be purchased, however.
2. Punitive Damages Exclusion
This policy does not apply to a claim or indemnification for punitive or exemplary damages. If a suit seeking both compensatory and punitive or exemplary damages is brought against an “insured” for an “occurrence” covered by this coverage part, “we” will provide defense coverage.
”We” will not pay for any costs, interest, or damages attributable to punitive or exemplary damages.
Analysis
Although there is no coverage for punitive damages, if a claim seeking both compensatory and punitive damages is brought, the policy will include defense expenses for the punitive damages within the overall defense coverage. However, any costs directly attributable to the punitive or exemplary damages are not covered.
1. The “limit” shown for Coverage L on the declarations of the policy is extended to pay for “bodily injury”, “property damage”, “personal injury”, and “advertising injury” covered by this coverage part. This “limit” is the most “we will pay for loss for each “occurrence”. This applies regardless of the number of:
a. persons insured under this policy;
b. parties who sustain injury or damage; or
c. claims made or suits brought.
This “limit” is subject to the General Aggregate “limit” and the Products/Completed Work Hazard Aggregate “limit” as they apply to the coverage provided by this coverage part.
Analysis
Two limits of liability apply to this coverage. The first is the per occurrence limit, and the second, the aggregate limits. The per occurrence limit is the limit shown on the homeowners declaration page. The general aggregate limit is twice the per occurrence limit.
No matter how many persons are injured, or property damaged, or suits brought as the result of one occurrence, the coverage L limit on the homeowners declaration page is the most that will be paid. The payment of that claim depletes the annual general aggregate limit.
There is another aggregate limit that applies to losses falling under the products/completed operations hazard. Again, the coverage L limit on the homeowners declarations page is the most that will be paid for any one occurrence arising from the products/completed operations hazard, and payment of a claim arising from that hazard depletes this aggregate.
Payment of losses under the products/completed operations hazard do not, however, deplete the annual general aggregate; these are two distinct aggregates.
2. The policy “terms” that pertain to the Coverage M [medical payments] “limit” are deleted and replaced by the following with respect to the coverage provided by this coverage part:
Subject to the General Aggregate “limit”, the per person “limit” shown for Coverage M on the declarations of the policy is the most that “we” will pay under Coverage M for all medical expenses because of “bodily injury” sustained by any one person as a result of one accident.
Any per accident “limit” shown for Coverage M on the declarations of the policy does not apply with respect to the coverage provided by this coverage part.
Analysis
The annual general aggregate limit also applies to medical payments coverage. The homeowners declarations per person limit applies, but any per accident limit shown on the homeowners declarations does not apply in regards to the home-based business coverage.
3. The following is added with respect to the coverage provided by this coverage part:
The General Aggregate “limit” shown on the Home-Based Business Supplemental Declarations Page is the most “we” will pay during a policy period for the sum of:
a. all damages under Coverage L due to “bodily injury”, “property damage”, “personal injury”, and “advertising injury” arising out of the “business” covered by this coverage part; and
b. all medical expenses under Coverage M arising out of the “business” covered by this coverage part.
However, damages due to “bodily injury” or “property damage” included in the “products/completed work hazard” are not subject to the General Aggregate “limit”.
4. The following is added with respect to the coverage provided by this coverage part:
The Products/Completed Work Hazard Aggregate “limit” shown on the Home-Based Business Supplemental Declarations Page is the most “we” will pay during a policy period for damages due to “bodily injury” or “property damage” included in the “products/completed work hazard”.
The Products/Completed Work Hazard Aggregate “limit” applies only to covered “bodily injury” and “property damage” arising out of the “business” covered by this coverage part.
Analysis
These provisions repeat that the coverage L limit as shown on the homeowners declaration page is subject to the General Aggregate shown on the home-based business supplemental declarations page. The General Aggregate does not apply to the products/completed work hazard since this hazard has its own aggregate.
5 The following is added with respect to the coverage provided by this coverage part:
The General Aggregate “limit” and the Products/Completed Work Hazard Aggregate “limit” apply separately to each consecutive annual period and to any remaining period of less than twelve months, beginning with the inception date of the policy shown on the declarations of the policy. If, however, the policy period is extended for an additional period of less than twelve months, this additional period will be considered part of the preceding period for the purpose of determining “limits”.
Analysis
Although the aggregate limits are restored annually, if, for some reason, an underwriter agrees to extend the policy period beyond the usual twelve months, this extended period will be considered part of the preceding period for the purpose of determining limits. For example, an insured wishes to change the policy period from 4/1/11 to 4/1/12 to 4/1/11 to 6/1/12 so as to coincide with some other renewal date (an umbrella policy, perhaps). The period of 4/1/11 to 6/1/12 will be considered to be part of the 4/1/11 to 4/1/12 policy period for liability purposes.
6. Insurance Under More Than One Policy is deleted and replaced by the following with respect to the liability coverages provided by this coverage part:
Insurance Under More Than One Policy—(Applies to all coverages except Coverage M—Medical Payments.)
a. This insurance is primary except as provided under paragraph 6.c. below, or unless otherwise stated. The amount of “our” liability is not reduced because of other insurance which applies to the loss on other than a primary basis.
b. If the other insurance is also primary, “we” will share in the loss as follows:
1) If the other insurance provides for contribution by equal shares, “we” will pay equal amounts with other insurers until:
a) the lowest applicable “limit” under any one policy is reached; or
b) the full amount of the loss is paid.
If part of the loss remains unpaid, “we” will pay an equal share with the other insurers until the full amount of the loss is paid, or until “we” have paid “our” “limit” in full.
2) If the other insurance does not provide for contribution by equal shares, “we” will pay, up to “our” “limit”, no more than that proportion of the loss to which the applicable “limit” under this coverage part for such loss bears to the total applicable “limit” for all insurance against the loss.
c. This insurance is excess over any other insurance:
1) if the other insurance, whether primary, excess, contingent, or on any other basis, provides:
a) fire, extended coverage, builders' risk, installation risk, or similar coverage for “your work”; or
b) fire insurance for premises rented to “you”; or
2) if the other insurance applies to any loss arising out of the maintenance or use of aircraft, “motorized vehicles”, or watercraft which may be covered by this coverage part.
d. when this insurance is excess over any other insurance:
1) ”we” will have no duty to defend any claim or suit that any other insurer has a duty to defend. If no other insurer defends, “we” will do so. However, “we” will be entitled to the “insured's” rights against all those other insurers.
2) ”we” will pay “our” share of the amount of loss, if any, that exceeds the sum of:
a) the total amount that all such other insurance would pay for the loss in the absence of this insurance; and
b) the total of all deductibles and self-insured amounts required by such other insurance.
”We” will share the remaining loss with any other insurance that is not described in this excess insurance provision and was not bought specifically to apply in excess of the “limits” shown on the declarations for this Liability Coverage.
7. Restoration of Limits is deleted with respect to all payments that are subject to the General Aggregate “limit” or the Products/Completed Work Hazard Aggregate “limit”.
Analysis
The insurance provided by the home-based business coverage part ML-450 is primary, except as noted. The provisions lay out the insurer's responsibility for loss when this is the case. In certain situations the insurance is excess—when the other insurance provides fire, extended coverage, builders risk, installation risk, or similar coverage for the insured's work, or if the other insurance applies to any loss arising out of the maintenance or use of aircraft, motorized vehicles, or watercraft that also may be covered by the ML-450. The provisions lay out the insurer's responsibility for loss settlement. When the ML-450 is excess the insurer has no duty to defend any claim or suit that another insurer has a duty to defend. However, if no other insurer defends, the ML-450 insurer will defend.
The restoration of limits provision in the underlying homeowners policy is deleted with regard to the general aggregate limit or the products/completed work hazard aggregate limit.
Each of the following Optional Liability Coverages applies only if shown as included on the Home-Based Business Supplemental Declarations Page. The Optional Liability Coverages are subject to the “terms” of the policy and this coverage part.
PERSONAL INJURY LIABILITY COVERAGE AND ADVERTISING INJURY LIABILITY COVERAGE
With respect to the “business” covered by this coverage part, coverage L is extended to include all sums which an “insured” becomes legally obligated to pay as damages due to “personal injury” or “advertising injury” to which this insurance applies.
2. ”We” pay for:
a. ”personal injury” arising out of an offense committed in the course of operating the “business” covered by this coverage part, excluding advertising, publishing, broadcasting, or telecasting done by “you” or on “your” behalf; and
b. ”advertising injury” arising out of an offense committed in the course of advertising “your” goods, products, or services.
3. The “personal injury” or “advertising injury” offense must be committed:
a. within the “coverage territory”; and
b. during the policy period.
Analysis
Coverage for personal injury and advertising injury are optional. One cannot be purchased without the other. The coverage does not negate the exclusion of coverage for advertising injury arising from an offense committed by an insured whose business is advertising, broadcasting, publishing, or telecasting, however.
EXPANDED CONTRACTUAL LIABILITY COVERAGE
1. Incidental Contractual Liability Coverage is expanded to pay for “bodily injury” or “property damage” liability which is assumed under any part of any contract or agreement relating to the conduct of the “business” covered by this coverage part under which “you” assume tort liability of another to pay damages because of “bodily injury” or “property damage”. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.
2. This coverage does not apply to that part of any contract or agreement that indemnifies any person or organization for damage by fire to premises rented or loaned to “you”.
3. Exclusion 1.a.1) under Exclusions That Apply to Bodily Injury, Property Damage, Personal Injury, And/Or Advertising Injury does not apply if the “bodily injury” or “property damage” occurs after the effective date of the contract or agreement.
Analysis
The expanded contractual liability coverage broadens the four types of contracts covered in the incidental contractual liability coverage to apply to all contracts or agreements under which the insured agrees to assume the liability of another. The exclusion of coverage for bodily injury, property damage, personal injury and/or advertising injury assumed by the insured under contract is deleted as long as the injury or damage occurs after the effective date of the contract. A contract indemnifying anyone for fire, though, is excluded. Coverage is afforded for this under the incidental coverage for fire legal liability (unless the insured is not legally liable for the damage).
NON-OWNED AUTO LIABILITY COVERAGE AND HIRED AUTO LIABILITY COVERAGE
1. With respect to the “business” covered by this coverage part, Coverage L is extended to apply to “bodily injury” or “property damage” arising out of the use of a:
a. ”non-owned auto” for the “business” covered by this coverage part by a person other than “you”; and
b. ”hired auto” by “you” or “your” “employees” or volunteer workers in the course of the “business” covered by this coverage part.
2. With respect to the Non-owned Auto Liability Coverage and Hired Auto Liability Coverage, the definition of “insured” shown in this coverage part is deleted and replaced by the following:
a. ”insured” means:
1) ”you”;
2) any other person using a “hired auto” with “your” permission;
3) with respect to a “non-owned auto”, “your” partners, or “your” executive officers, or “your” managers (if “you” are a limited liability company), but only while the “non-owned auto” is used in the conduct of the “business” covered by this coverage part; and
4) any other person or organization, but only with respect to their liability because of acts or omissions of an “insured” under 2.a.1), 2.a.2), or 2.a.3) above.
b. None of the following is an “insured”:
1) any person engaged in the business of his or her employer for “bodily injury” to any fellow “employee” of such person or volunteer worker injured in the course of employment, or consequential injury to a spouse, child, parent, brother, or sister of such fellow “employee”, or for an obligation to fully or partially reimburse a third party for damages because of the injury;
2) any partner, executive officer, or manager (if “you” are a limited liability company), with respect to an “auto” owned by such partner, officer, or manager or a member of his or her household;
3) any person while employed in or otherwise engaged in duties in connection with an “auto business”, other than an “auto business” operated by “you”; and
4) the owner or lessee (of whom “you” are a sublessee) of a “hired auto” or the owner of a “non-owned auto” or any agent or “employee” of any such owner or lessee.
3. With respect to the Non-Owned Auto Liability Coverage and Hired Auto Liability Coverage, the following definitions are added:
a. ”Auto” means a land motor vehicle, a trailer, or a semi-trailer which is designed for use on public roads.
”Auto” includes attached machinery and equipment.
b. ”Auto business” means the “business” or occupation of selling, repairing, servicing, storing or parking “autos”.
c. ”Hired auto” means an “auto” “you” lease, hire, or borrow on an occasional or infrequent basis. It does not include an “auto” “you” lease, hire or borrow from:
1) any of “your” “employees” or volunteer workers or members of their households; or
2) any of “your” partners, executive officers, or managers (if “you” are a limited liability company) or members of their households.
d. ”Non-owned auto” means any “auto” “you” do not own, lease, hire or borrow which is used in connection with the “business” covered by this coverage part. If “you” are a partnership, a “non-owned auto” does not include any “auto” owned by or leased by any partner.
4. With respect to the Non-Owned Auto Liability Coverage and Hired Auto Liability Coverage, exclusion 1.a.4) under Exclusions That Apply to Bodily Injury, Property Damage, Personal Injury, And/Or Advertising Injury does not apply.
5. With respect to the Non-Owned Auto Liability Coverage and Hired Auto Liability Coverage, exclusion 1.a.8) under Exclusions That Apply to Bodily Injury, Property Damage, Personal Injury, And/Or Advertising Injury of this coverage part is deleted an replaced by the following:
”We” do not pay for:
a. ”bodily injury” or “personal injury” to an “employee” of the “insured” if it occurs in the course of employment by the “insured”; or
b. consequential injury to a spouse, child, parent, brother, or sister of such injured “employee”.
This exclusion applies where the “insured” is liable either as an employer or in any other capacity; or there is an obligation to fully or partially reimburse a third person for damages arising out of paragraph 5.a. or 5.b. above.
This exclusion does not apply to:
a. liability assumed by the “insured” under a contract covered under Incidental Contractual Liability Coverage or Expanded Contractual Liability Coverage; or
b. ”bodily injury” or “personal injury” arising out of and in the course of domestic employment by the “insured” unless benefits for such injury are in whole or in part either payable or required to be provided under any workers compensation, non-occupational disability, occupational disease, or like law.
6. With respect to the Non-Owned Auto Liability Coverage and Hired Auto Liability Coverage, the exclusions under Additional Exclusions That Apply Only To Property Damage of this coverage part are deleted and replaced by the following:
a. ”We” do not pay for “property damage” to property owned or being transported by, or rented, or leased to the “insured”.
b. ”We” do not pay for “property damage” to property in the care, custody, or control of the “insured”.
Analysis
A distinct feature of the AAIS home-based business coverage program is the optional inclusion of nonowned auto and hired auto liability coverage. A person other than the named insured is covered for the use of a nonowned auto (that is, not owned by the named insured or by the business) in connection with the business. (Coverage should probably be arranged under an appropriate auto form.) The named insured, employees, and volunteer workers are covered for the use of a hired auto in connection with the insured business.
Certain exclusions apply—among them coverage for injury in the course of employment to fellow employees or volunteer workers; coverage for partners with respect to autos owned by them; coverage for persons engaged in the auto business (other than an auto business operated by the named insured); and coverage for the owner of hired or non-owned auto. This is not an all-inclusive list. Consult the form.
COSMETOLOGISTS' LIABILITY COVERAGE
The following apply with respect to an “insured” operating the “business” covered by this coverage part as a cosmetologist:
1. Exclusion 1.a.2) under Exclusions That Apply To Bodily Injury, Property Damage, Personal Injury, And/Or Advertising Injury of this coverage part does not apply to the rendering or failing to render a professional service as a cosmetologist.
2. The following exclusion is added:
”We” do not pay for “bodily injury” or “property damage” that arises out of the willful violation by, or with the knowledge or consent of, the “insured” of a statute, ordinance, or regulation relating to the rendering of professional services as a cosmetologist.
3. For this optional coverage, any act of omission and all related acts or omissions in the furnishing of professional services to any one person is considered one “occurrence”.
Analysis
Many states have laws governing a cosmetologist's services. The optional liability coverage does not apply to any damages that may result from the insured's willful violation of such a law or ordinance.
WATERCRAFT COVERAGE
1. With respect to the “business” covered by this coverage part, Coverage L is extended to apply to “bodily injury” or “property damage” which results from the ownership, maintenance, use, or “loading, or unloading” of:
a. a watercraft not principally designed to be powered by an engine or electric motor;
b. a watercraft which is powered by outboard engines or motors which total twenty-five horsepower or less;
c. a sailing vessel with or without auxiliary power which is less than twenty-six feet in overall length; and
d. the watercraft described in the Home-Based Business Supplemental Declarations Page.
2. This coverage does not apply:
a. to “bodily injury” or “property damage” which results from the use of watercraft in, or in the practice or preparation for, any prearranged or organized racing, speed, or stunt activities or contests. However, this exclusion does not apply to sailing vessels or to predicted log cruises;
b. to “bodily injury” to an “employee” of an “insured” arising out of and in the course of employment by the “insured”, if the “employee's” principal duties are in connection with the maintenance or use of watercraft; or
c. while the watercraft is used to carry persons for a charge or is rented to others.
3. Exclusion 1.d.4) under Additional Exclusions That Apply Only To Medical Payments of this coverage part does not apply with respect to the watercraft described under 1.a., 1.b., 1.c., or 1.d. in this optional coverage.
Analysis
Although at first glance this optional coverage appears identical to the incidental liability coverage for watercraft in the homeowners forms, it is not the same. This optional coverage distinguishes watercraft powered by outboard motors or engines from watercraft principally designed to be powered by an engine or electric motor. For example, a small rowboat fitted with a 25 HP motor is covered, but a 25-foot runabout with an inboard-outdrive 25 HP engine is not. The bed and breakfast insured who has an establishment on a body of water and offers the use of small boats for, say, fishing, would find this coverage valuable. However, the bodily injury to an employee is not covered if the employee's principal duties are in connection with the watercraft.
ATHLETIC ACTIVITIES
Exclusion 1.d.4) under Additional Exclusions That Apply Only To Medical Payments does not apply.
Analysis
This optional coverage removes the exclusion of medical payments coverage for anyone participating in athletic activities.
With respect to the “business” covered by this coverage part, the definition of “insured” is extended to include the following if shown as included on the Home-Based Business Supplemental Declarations Page:
NEWLY ACQUIRED ORGANIZATIONS
1. ”Insured” includes any organization (other than a joint venture, partnership, or limited liability company) newly acquired or formed by “you”, and in which “you” have a majority interest.
Such an organization is not an “insured”:
a. if there is other similar insurance available to it;
b. after ninety days immediately following the acquisition or formation or the end of the policy period, whichever is earlier;
c. for “bodily injury” or “property damage” that occurred prior to the acquisition or formation; or
d. for “personal injury” or advertising injury” arising out of an offense committed prior to the acquisition or formation.
2. The definition of “products” is amended to include goods or products manufactured, sold, handled, distributed, or disposed of by a person or organization whose “business” or assets “you” have acquired.
3. Exclusion 1.a.11) under Exclusions That Apply To Bodily Injury, Property Damage, Personal Injury, And/Or Advertising Injury of this coverage part does not apply to newly acquired organizations covered by this provision.
Analysis
If the insured forms or acquires a new organization, the insured has up to ninety days to obtain coverage or to show the new business on a new supplemental declarations. The coverage does not apply to occurrences or offenses committed prior to the acquisition.
LANDLORDS
“Insured” includes the landlord designated in the Home-Based Business Supplemental Declarations Page as an additional “insured”, but only with respect to liability arising out of the ownership, maintenance, or use of that part of the premises shown in the Home-Based Business Supplemental Declarations Page that is leased to “you”.
No landlord is an “insured” for:
1. any “occurrence” which takes place after the expiration date of “your” lease; or
2. any structural alteration, new construction, or demolition operations performed by or on behalf of the landlord.
Analysis
Liability coverage for a landlord arising out of ownership, maintenance, or use of the part of a premises leased to the insured may be added.
CONTROLLING INTERESTS
“Insured” includes the person or organization designated in the Home-Based Business Supplemental Declarations Page as an additional “insured”, but only with respect to liability arising out of:
1. the financial control that they have over “you” as described on the Home-Based Business Supplemental Declarations Page; or
2. the premises shown on the Home-Based Business Supplemental Declarations Page, but only while “you” lease or occupy those premises.
No controlling interest is an “insured” for any structural alteration, new construction, or demolition operations performed by or on behalf of that person or organization.
Analysis
A person or organization having financial control over the home-based business or its premises may be added as an additional insured. The interest must be shown on the supplemental declarations page.
LESSOR OF LEASED EQUIPMENT
“Insured” includes the person or organization designated in the Home-Based Business Supplemental Declarations Page as an additional “insured”, but only with respect to liability arising out of the maintenance, operation, or use by “you” of equipment leased to “you” by the person or organization.
No lessor or leased equipment is an insured for:
1. any “occurrence” which takes place after the expiration date of the equipment “you” lease; or
2. ”bodily injury”, “property damage”, “personal injury”, or “advertising injury” arising solely out of the negligence of the additional “insured” shown in the Home-Based Business Supplemental Declarations Page.
Analysis
If an insured leases a piece of equipment, the lessor may be added to the insured's home-based business coverage part as an additional insured. Therefore, if the piece of equipment caused injury to someone and a claim for damages was made, the lessor could seek coverage under the insured's policy. Obviously, if the incident occurred after termination of the lease, or if it occurred solely because of the lessor's own negligence, there is no coverage.