Homeowners Section II Insuring Agreements
Summary: Personal liability insurance is liability protection that applies to activities and conditions at the insured premises, and to the personal (non-business) activities of the named insured and members of the insured's household anywhere in the world. Most commonly the coverage is written as mandatory section II of the homeowners policy, but it can also be written as a separate personal liability policy under the Insurance Services Office (ISO) dwellings program. Although the separate policy is considered part of the dwellings program, property coverage on the dwelling is not required, i.e., it can be a stand-alone policy. See Personal Liability Supplement, for a description of the dwellings personal liability policy
This discussion of personal liability insurance is based upon the language of the ISO 2011 homeowners program. Any differences between the liability coverage of the 1991 and 2000 homeowners programs are indicated.
Topics covered:
Insuring agreement—personal liability
Bodily injury and property damage defined
Scope of Coverage
The liability coverage of the homeowners forms consists of two principal elements. Coverage E is personal liability insurance, which protects insureds against liability for negligently caused bodily injury or property damage. Coverage F is medical payments insurance. Both coverages are automatically included; neither one is optional.
Homeowners section II coverage also contains four agreements labeled "additional coverages": (1) claim expenses; (2) first aid expense; (3) damage to property of others; and (4) loss assessment. The first two apply without limit, except for a $250 per day limit on insured's loss of income (changed from $50 per day in the 1991 forms) under claim expenses coverage. A $1000 per occurrence limit applies under damage to property of others ($500 in the 1991 forms). Loss assessment coverage has a limit of $1,000. See Personal Liability—Additional Coverages, for a discussion of the additional coverages.
Compared with most liability insurance contracts in general use, there are certain significant features of personal liability coverage:
1.Bodily injury (including a limited form of employers liability coverage) and property damage liability insurance are combined in one insuring clause.
2.The premium for this insurance is based on a single limit per occurrence, which applies to any combination of one or more claimants and to claims based on either bodily injury or property damage, or both. Information on available limits for section II coverage is found in the state pages of the ISO general rules manual, with the basic coverage E (personal liability) limit generally set at $100,000 and coverage F (medical payments to others) at $1,000. The limits may be increased for additional premium.
3.Relatives of the insured and of the insured's spouse, residing in the same household, and any other person less than 21 years old living in the household in the care of the insured or of a resident relative are covered without additional premium. A full time student under age 24 who was both related to and resident in the named insured's household prior to leaving to attend school is also an insured, as is a full-time student under age 21 in the care of the named insured or a resident relative. (The definition of a full-time student may be amended to eliminate the age restriction. See Standard Homeowners Endorsements.) The 1991 forms defined as "insured" residents of the named insured's household who were related. Therefore, the status of a student who lived away from home much of the time, yet considered the parental home to be his, was often uncertain. For example, in the case of Quincy Mut. Fire Ins. Co. v. Clyman, 910 F.Supp. 230 (E.D. Pennsylvania 1996), the district court held that the insured's son was not an insured, even though all commonly judged criteria indicated otherwise. The son was a full-time student out of state, but spent vacations at his parents' and was financially dependent on them. Nonetheless, the court held that a resident relative was one who had regular personal contact. Since the son did not, he was not an insured.
4.Coverage applies not only at the insured's residence (or residences) described in the declarations of the policy, but with respect to personal activities anywhere and to any premises that qualify as an insured location as defined in the policy. Various restrictions in premises liability coverage are considered later in these pages.
Insuring Agreement—Personal Liability
A.Coverage E—Personal Liability
If a claim is made or a suit is brought against an "insured" for damages because of "bodily injury" or "property damage" caused by an "occurrence" to which this coverage applies, we will:
1.Pay up to our limit of liability for the damages for which the "insured" is legally liable. Damages include prejudgment interest awarded against the "insured"; and
2.Provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent. We may investigate and settle any claim or suit that we decide is appropriate. Our duty to settle or defend ends when our limit of liability for the "occurrence" has been exhausted by payment of a judgment or settlement.
Analysis
The second provision has been changed in the 2000 forms. The 1991 forms state that the insurer's duty to settle or defend ends when the amount paid for damages equals the limit of liability. The slight change in wording from active to passive is significant. In the 2000 form, the duty to defend ends when the limit has been exhausted; in the 1991 form, the duty ends when the insurer pays damages. The implication of the 1991 wording is that the insurer can escape the duty to defend through offering to pay the policy limits before a judgment is reached. In fact, the duty continues until actual payment of a judgment or settlement. There are no changes in the 2011 form.
But once the insurer has paid out the limit of liability (and any claim costs in connection with the claimants receiving payment), it is relieved of further responsibility to defend or pay any claim costs for additional claimants seeking damages as a result of the same occurrence. There may be multiple claimants injured or suffering property damage from the same occurrence, but once the resulting claims paid exceed the limit of liability for the personal liability coverage, the duty to defend against claims arising from that occurrence ceases.
A mandatory endorsement (HO 350 09 87) released in 1987 changed the treatment of prejudgment interest. Before 1987, prejudgment interest was considered a claim expense item under the additional coverages section (where payments are made in addition to the limits of liability). The insuring agreement for coverage E was changed by HO-350 to state that prejudgment interest is treated as part of the legal damages, i.e., within the limit of liability. The 1991 homeowners program incorporated the provisions of endorsement HO-350, and these are carried into the 2000 and 2011 forms.
In order for section II coverage to apply, the injury or damage must be caused by an "occurrence." An "occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period" in bodily injury or property damage.
By including the requirement directly within the insuring agreement, the occurrence provision stipulates the requirement of an accidental event forcefully. For more information, see Occurrence. In the 1991 forms, questions remain as to what acts were considered "expected or intended"—and therefore non-accidental—by the insured. For example, if one young man hit another (an intended act) without intending that he fall into another person and injure him or her (an unintended bodily injury), it was uncertain whether coverage would apply. The question of intended action/unintended results has been extensively litigated, but various jurisdictions have taken contradictory positions on whether all consequences of the original intentional act fall within the intentional category. For a review of court cases on the "expected or intended" exclusion, see "Expected or Intended", Casualty & Surety volume, Public Liability section.
But with the advent of the homeowners 2000 forms, the question may become moot. For information on the change in the exclusionary language, see Homeowners Section II Exclusions.
Bodily Injury and Property Damage Defined
"Bodily injury" is defined as "bodily harm, sickness, or disease, including required care, loss of services, and death that results."
"Property damage" is defined as "physical injury to, destruction of, or loss of use of tangible property." Note that the loss of use coverage does not require actual physical injury to property of others; covered damage can arise if the owner is deprived of the property's use. A common example is negligent blocking of access to property of others, with no actual physical damage. Since the definition includes the words physical injury to tangible property, claims for damages arising from, say economic loss, are not covered. For example, if a homeowner erects a fence so that a neighbor's panoramic view of the ocean is obstructed, the policy will not respond to a claim for damages because there has been no physical injury to the neighbor's property.
B.Coverage F—Medical Payments to Others
We will pay the necessary medical expenses that are incurred or medically ascertained within three years from the date of an accident causing "bodily injury". Medical expenses means reasonable charges for medical, surgical, x-ray, dental, ambulance, hospital, professional nursing, prosthetic devices and funeral services. This coverage does not apply to you or regular residents of your household except "residence employees". As to others, this coverage applies only:
1.To a person on the "insured location" with the permission of an "insured"; or
2.To a person off the "insured location", if the "bodily injury":
a.Arises out of a condition on the "insured location" or the ways immediately adjoining;
b.Is caused by the activities of an "insured";
c.Is caused by a "residence employee" in the course of the "residence employee's" employment by an "insured"; or
d.Is caused by an animal owned by or in the care of an "insured."
Analysis
Coverage F of the homeowners policies provides medical payments coverage for accidents to persons other than insureds on the insured location with the permission of any insured or, under certain circumstances only, away from the insured location. The insurer agrees to pay the "necessary medical expenses that are incurred or medically ascertained [Webster's Collegiate Dictionary, Tenth Edition: "ascertain—to find out or learn with certainty"] within three years from the date of an accident causing bodily injury." The provision for covering expenses that are "ascertained" within the three-year period addresses the problems associated with claims that involve treatment beyond one year after the time of accident. Dental injuries to children, for example, often cannot be fully treated until the child is older.
Medical expense is defined in the insuring agreement as "reasonable charges for medical, surgical, x-ray, dental, ambulance, hospital, professional nursing, prosthetic devices and funeral services."
Those who are familiar with the medical payments coverage of the personal auto policy will notice an important difference between auto and homeowners medical payments insurance. The auto medical payments insurance covers the insured and family members, and other passengers or users of an insured automobile, but not outsiders. The homeowners medical payments coverage applies to outsiders and residence employees, but not to the insured or other residents of the insured's household. This is emphasized by the name of the coverage—medical payments to others. Although the wording here appears to imply that anyone other than the residents of the insured's household may have medical payments coverage, the exclusion for medical payments coverage to anyone regularly residing on any part of an insured location applies. However, residence employees who reside with the named insured or on an insured location have coverage while on an insured location or off an insured location if the injury arises out of the course of employment.
Another unique feature of this coverage is that it does not apply to persons on the insured premises without permission of an insured; in other words, trespassers. But the permission need not be specific to the occasion for there to be coverage. A neighbor, for instance, making an uninvited but presumably welcome social call, a mail carrier, or other delivery person all have implied permission to be on the premises even though not specifically invited.
Notice that the coverage applies "on the insured location." Insured location is defined in the policy as including the residence premises as described in the declarations, and seven other kinds of premises as well. The seven other insured locations are:
(1)Other premises, other structures, and grounds used as a residence by the named insured or spouse and shown in the declarations (such as a seasonal dwelling), or that are acquired during the policy term for use as a residence.
(2)Any premises used by the named insured or spouse in connection with the residence premises or the premises described in (1)—for example, rented self-storage units.
(3)The part of a premises where an insured is temporarily residing (for example, a hotel room).
(4)Vacant land that an insured owns or rents. For land to be considered "vacant," there can be no man-made structure on the property. If there is, the safest action is to indicate the location of the land in the declarations.
(5)Land owned or rented to an insured on which a one, two, three, or four family home for an insured is being built.
(6)Family cemetery plots or burial vaults.
(7)Any part of a premises rented occasionally to an insured for nonbusiness use (such as banquet facilities for a wedding reception).
There is the same medical payments coverage at each of these premises as the coverage that applies at the insured's residence.
The medical payments coverage applies away from the insured location on a more limited basis. There is coverage only if the injury occurs in any of the following four circumstances:
1.The injury arises "out of a condition in the insured location or the ways immediately adjoining." Coverage applies, for example, to a neighbor injured by flying debris or overcome by smoke from an explosion or fire originating on the insured premises. There is also coverage for anyone who trips or falls on the public street or sidewalk adjacent to the premises because of ice or broken pavement, even though the insured does not own the street or sidewalk. Note again that coverage relates to the "insured location" rather than the residence premises.
2.The injury is "caused by the activities of an insured." This language has been the subject of many arguments. Dodge v. Allstate Ins. Co., 233 N.E.2d 100 (Ill. App. 1967) is illustrative of the intended limitation on coverage. The insured had organized a skating party at a public rink. During the party, three of the guests fell on the ice and required medical attention. Though the insured was not involved in their fall in any way, the guests subsequently claimed that the party was the activity of the insured and, since their injuries arose out of this "activity," they were entitled to coverage under the medical payments insurance agreement of the insured's homeowners policy. The court, upholding the lower court's reasoning, found that the social party given by the insured did not cause the injuries. In other words, where the activity of an insured is incidental to but not directly the cause of an injury, it is not within the scope of the coverage. In order for coverage to apply, some specific act of the insured must cause the injury.
3.The injury is "caused by a 'residence employee' in the course of the 'residence employee's' employment by an 'insured.'" As with the second item above, the injury must be "caused by" the employee. Note that the injury may be caused "in the course of" the employment, rather than "arising out of" the employment. For example, a residence employee while on his lunch break could accidentally trip a passerby; this is "in the course of." But if the residence employee tripped the passerby while carrying a package for his employer, that would be "arising out of" the employment. Obviously, "in the course of" provides broader coverage. See the discussion of section II coverage for residence employees, below, for a definition of "residence employee."
4.The injury is "caused by an animal owned by or in the care of an 'insured.'" There is no definition of "animal" in the policy. Section I of the policy excludes "animals, birds, or fish" from covered property, but in the medical payments coverage the insured should be allowed the broadest common definition of the term as including all forms of animal life other than humans since there is no limiting definition in the policy. If an insured agrees to walk a neighbor's dog, and the dog bites another neighbor, medical payments coverage is available.
Coverage for Injury to Residence Employees
Residence employees are accorded special status under section II of the homeowners policies. There is limited medical payments coverage for a "residence employee" under coverage F, and limited liability coverage for bodily injury to such employees under coverage E. A "residence employee" is defined as: (1) an insured's employee whose duties involve the maintenance or use of the residence premises, including household or domestic work; or, (2) someone who does similar work elsewhere that is not related to an insured's business activity. The definition has been expanded in the 2000 forms so that a residence employee also includes an employee leased to an insured by a labor leasing firm under agreement, who performs duties related to the maintenance or use of the residence premises. There are no changes in the 2011 forms. Not included within the definition is a temporary employee who is furnished to an insured to substitute for a permanent "residence employee." See [IDL:ISO HOMEOWNERS DEFINITIONS^"ISO Homeowners Definitions," Personal Lines Volume, Dwellings section^ISO Homeowners Definitions], for more information.
Certain exclusions of liability coverage for bodily injury do not apply if injury to the residence employee arises out of and occurs in the course of working for the insured. There is coverage for a residence employee's bodily injury if the injury arises out of a premises owned by, rented by, or rented to others by an insured that is not an "insured location." For example, coverage applies if the employee is injured at a secondary residence that is owned by the insured but is not indicated in the declarations. But if the injury were to a person other than a residence employee, the exclusion (E.4.; see "Homeowners Section II Exclusions," Personal Lines Volume, Dwellings section) would apply. Liability coverage for the insured also applies if a motor vehicle, watercraft, hovercraft, or aircraft for which the insured is responsible, which the insured entrusts to another, or from which vicarious liability for acts by minors arises is involved in causing injury to a residence employee. However, if the residence employee is eligible to receive workers compensation or similar benefits either required by law, or voluntarily provided by the employer insured, then there is no coverage for "bodily injury" to the employee.
In order for medical payments coverage to apply, the bodily injury to the residence employee must occur on an "insured location" and arise out of or in the course of employment by an insured. Thus, the insured has medical payments coverage for a residence employee injured while on personal time (e.g., fixing his own lunch) at an insured location, even though the employee was not working for the insured at the time of injury. Section II of the homeowners policy will not cover a residence employee's medical expenses if the employee is eligible to receive workers compensation or other government benefits related to disability or disease. Therefore, if a residence employee should be covered by workers compensation but the insured has failed to cover the employee, no coverage F payments apply. Likewise, there is no homeowners insurance protection for residence employees who are eligible for workers compensation provided voluntarily by their employers.
Christine G. Barlow, CPCU
Christine G. Barlow, CPCU, is Executive Editor of FC&S Expert Coverage Interpretation, a division of National Underwriter Company and ALM. Christine has over thirty years’ experience in the insurance industry, beginning as a claims adjuster then working as an underwriter and underwriting supervisor handling personal lines. Christine regularly presents and moderates webinars on a variety of topics and is an experienced presenter.