Part 2 - Section I Property Coverages & Additional Coverages

Part 3 - Section I Exclusions & Conditions

Part 4 - Section II Liability Coverages & Exclusions

Part 5 - Section II Additional Coverages, Conditions & Endorsements

Topics covered:

Section II - Liability Coverages

Section II - Exclusions

Section II - Liability Coverages

The liability coverages of the Home Business Insurance Coverage form add to those found on the underlying homeowners forms. It is important to remember that the liability coverages and exclusions of the underlying homeowners policy continue to apply. The coverages and exclusions of the HO 07 01 form are generally in addition to, and not in place of, the underlying homeowners coverages and exclusions.

The coverage E, personal liability, and coverage F, medical payments to others, on the homeowners forms are as follows:

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 an "insured" is legally liable. Damages include prejudgment interest awarded against an "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.

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

Under the base homeowners forms, the insurer promises to pay damages due to bodily injury or property damage up to the limit of liability for which the insured is legally liable. The insurer will provide a defense for a suit, even if the suit is false, groundless, or fraudulent. The insurer’s duty to settle or defend ends with the liability limit for the occurrence has been met.

The insurer also promises to pay necessary medical expenses for bodily injury to others that occurs on the insured location or off the insured location if caused by the activities of an insured. More on that can be found here: Homeowners HO 00 03 03 22 Revisions Section II Liability Coverages Part I

The HO 07 01 form adds to these sections:

A. Coverage E – Personal Liability

1. With respect to the coverage provided by this endorsement, the following is added to Coverage E:

Coverage E applies to "bodily injury" and "property damage" only if the "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory" and during the policy period.

2. Coverage E is extended to include "personal and advertising injury" caused by an offense arising out of your "business", but only if the offense was committed in the "coverage territory" during the policy period.

B. Coverage F – Medical Payments To Others

Coverage F is extended to apply to "bodily injury" caused by an accident because of your "business" activities, but only if the accident takes place in the "coverage territory" during the policy period.

Analysis

For personal liability arising out of the insured’s business, coverage is provided for bodily injury and property damage, but the occurrence that caused the loss must have taken place in the coverage territory. Coverage for personal and advertising injury is added, again with the stipulation that the offense be committed in the coverage territory. This differs from the liability coverage provided in the base homeowners policy, which does not specify a coverage territory, meaning it applies anywhere in the world.

Medical payments to others coverage is extended to include bodily injury arising from the insured’s business activities if the accident was in the coverage territory. The insuring agreements start with broad coverage but are then limited by the coming exclusions.

Section II - Exclusions

E. Coverage E – Personal Liability And Coverage F – Medical Payments To Others

Exclusion E.2. "Business" is replaced by the following:

2. "Business"

a. "Bodily injury", "personal and advertising injury" and "property damage" arising out of or in connection with a trade, profession or occupation or any other activity engaged in for money or other compensation by an "insured”.

This exclusion applies but is not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed, or implied to be provided because of the nature of such trade, profession, occupation or activity.

b. This exclusion does not apply to:

(1) The necessary or incidental use of the "residence premises" to conduct your "business";

(2) "Your product"; or

(3) "Your work".

Analysis

The underlying homeowners exclusion for business is amended in order to provide the coverage intended by the Home Business form. The amended exclusion still excludes damages arising out of a trade, profession, or occupation where an insured collects compensation. The form provides coverage for a home business, so other kinds of business are still excluded.

The exclusion does not apply to the incidental use of the premises to conduct the business, the insured's product, and the insured's work.

Exclusion E.3. Professional Services is replaced by the following:

3. Professional Services

"Bodily injury" and "property damage" arising out of the rendering of or failure to render professional services. This includes but is not limited to:

a. Legal, insurance, accounting or advertising services;

b. Preparing, approving, or failing to prepare or approve maps, drawings, opinions, reports, surveys, change orders, designs or specifications;

c. Supervisory, inspection or engineering services;

d. Medical, surgical, dental, x-ray or nursing services, treatment, advice or instruction;

e. Any health or therapeutic service, treatment, advice or instruction;

f. Any service, treatment, advice or instruction for the purpose of appearance or skin enhancement, hair removal or replacement or personal grooming;

g. Optometry or optical or hearing aid services including the prescribing, preparation, fitting, demonstration or distribution of ophthalmic lenses and similar products or hearing aid devices;

h. Body piercing services; and

i. Services in the practice of pharmacy.

Analysis

The form amends the professional services exclusion found in the homeowners policy to specifically list the types of services that are excluded. The list is not all-encompassing–just because a professional service is not specifically listed, it does not mean there would be coverage for that service.

The Home Business form provides for the needs of many home-based business owners, but some activities require specialized coverage. The professional services excluded here would better be served under professional liability insurance.

Coverage E – Personal Liability

The following exclusions are added:

7. Damage To Impaired Property Or Property Not Physically Injured

"Property damage" to "impaired property" or property that has not been physically injured, arising out of:

a. A defect, deficiency, inadequacy or dangerous condition in "your product" or "your work"; or

b. A delay or failure by you or anyone else acting on your behalf to perform a contract or agreement in accordance with its terms.

This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to "your product" or "your work" after it has been put to its intended use.

Analysis

The base homeowners policy has six exclusions for Coverage E - personal liability; this endorsement adds another nine.

The first, damage to impaired property or property not physically injured, is identical to exclusion m. in the CGL form. “Impaired property” is tangible business property that cannot be used or is less useful because the insured’s product or work is defective, inadequate, or dangerous, or the insured did not fulfill a contract or agreement.

The exclusion is for property damage to impaired property and property that has not been physically injured. If, for example, the insured painted a car the wrong color. While not physically injured, the car’s owner wanted a different color, and the failure to do so is a deficiency or inadequacy in the insured’s work. Coverage would be excluded for any claims arising from this.

There is an exception to this exclusion where if there is sudden and accidental physical damage to the insured's product or work after the product or work has been put to its intended use, and loss of use of other property results, that loss of use is covered.

8. Damage To Particular Property

"Property damage" to:

a. Premises you sell, give away or abandon, if the "property damage" arises out of any part of those premises;

b. That particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the "property damage" arises out of those operations; or

c. That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.

Paragraph a. of this exclusion does not apply if the premises are "your work" and were never occupied, rented or held for rental by you.

Paragraph c. of this exclusion does not apply to "property damage" included in the "products-completed operations hazard".

Analysis

This exclusion eliminates coverage for property damage to premises the insured sells, gives away, or abandons if the property damage arises out of any part of the premises. However, there is an exception if the premises are the insured's work and were never occupied, rented, or held for rental by the insured.

Also excluded is property damage to the particular part of real property on which the insured or a subcontractor working on the insured’s behalf is performing operations, if the property damage arises out of those operations. Since the wording only says the particular part of real property the insured is working on would be excluded, this would mean if damage happens to another part of the property, there should be coverage.

Finally, there is no coverage for the particular part of any property that must be restored, repaired, or replaced because the insured's work was incorrectly performed. Excepted from this exclusion is property damage included in the “products-completed operations hazard”, meaning that the exclusion applies only to damage occurring while the work is in process. However, this does not mean there would be coverage for incorrectly performed work after the work was completed as another exclusion may apply.

9. Damage To Your Product

"Property damage" to "your product" arising out of it or any part of it.

10. Damage To Your Work

"Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard".

This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.

Analysis

The purpose of the damage to your product exclusion is to prevent the insurer from paying for repair or replacement of the insured's product because the insured's product itself was faulty or defective. However, if the product causes bodily injury or property damage that the insured is liable for, that is covered.

Similarly, the exclusion for damage to your work is to prevent the insurer from having to pay for property damage to the insured's work. The exclusion applies to property damage included in the products-completed operations hazard, meaning it applies to work that has been completed. This exclusion does not apply if the faulty work was performed on the insured’s behalf by a subcontractor.

11. Employer's Liability

a. "Bodily injury" to:

(1) An "employee" of the "insured" arising out of and in the course of:

(a) Employment by the "insured"; or

(b) Performing duties related to the conduct of the "insured's" "business"; or

(2) The spouse, child, parent or sibling of that "employee" as a consequence of a.(1) above.

b. This exclusion applies:

(1) Whether the "insured" may be liable as an employer or in any other capacity; and

(2) To any obligation to share damages with or repay someone else who must pay damages because of the injury.

Analysis

This exclusion bars coverage for bodily injury to an employee of an insured arising in the course of employment. It applies regardless of whether the insured is liable as an employer or in another capacity. An example is if the insured makes a dangerous product that injures an employee, the insured is acting in the capacity of a manufacturer as well as an employer. This exclusion would still bar coverage.

As previously discussed, since a temporary worker is not considered an employee, this exclusion would not apply to them.

A home business owner with employees should be aware of the exclusions and consider a workers compensation policy.

12. Personal And Advertising Injury

"Personal and advertising injury":

a. Caused by or at the direction of an "insured" with the knowledge that the act would violate the rights of another and would inflict "personal and advertising injury";

b. Arising out of oral or written publication of material, if done by or at the direction of an "insured" with knowledge of its falsity;

c. Arising out of oral or written publication of material whose first publication took place before the beginning of the policy period;

d. Arising out of a criminal act committed by or at the direction of an "insured";

e. For which an "insured" has assumed liability under a contract or agreement. This exclusion does not apply to liability for damages that the "insured" would have in the absence of the contract or agreement.

f. Arising out of breach of contract, except an implied contract to use an other's advertising idea in your "advertisement";

g. Arising out of the failure of goods, products or services to conform with any statement of quality or performance made in your "advertisement";

h. Arising out of the wrong description of the price of goods, products or services stated in your "advertisement";

i. Committed by an "insured" whose "business" is advertising, broadcasting, publishing or telecasting. However, this exclusion does not apply to Paragraphs j.(1), (2), and (3) of "personal and advertising injury" under 12. Additional Definitions; or

j. Resulting in "bodily injury".

Analysis

This exclusion limits coverage provided for personal and advertising injury under Coverage E. The first voids coverage if the injury is caused by or at the direction of an insured when the perpetrator knows that the act would violate the rights of another and would cause personal and advertising injury.

The next precludes coverage for personal or advertising injury caused by an insured's knowingly publishing false oral or written material. There is also no coverage for injury arising out of oral or written publication of material if the publication was prior to the policy period.

The next exclusion bars coverage for injury arising out of a criminal act committed by an insured. Also excluded is injury an insured has assumed liability for under a contract or agreement, but there is an exception if the insured would have still been liable had no contract existed.

Personal and advertising injury arising out of breach of contract is excluded, with an exception for an implied contract to use someone’s advertising idea in an insured’s “advertisement”. Advertisement was defined earlier in the policy and means a notice broadcast to the public about the insured’s goods or services for the purpose of attracting customers. The next two exclusions preclude coverage for the failure of the insured’s goods to live up to a claim made in an advertisement and for falsely representing the price of goods or services in an advertisement.

Coverage for an offense committed by an insured whose business is advertising, broadcasting, publishing, or telecasting is excluded as those exposures would more properly be covered under advertising liability insurance. This exclusion, however, only applies to advertising injury, meaning that injury due to false arrest, detention, imprisonment, malicious prosecution, invasion of privacy, wrongful eviction, or wrongful entry are still covered.

The final personal and advertising injury exclusion is for bodily injury. However, keep in mind that the “personal and advertising injury” definition includes consequential bodily injury.

13. Pollution

a. "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants":

(1) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any "insured";

(2) At or from any premises, site or location which is or was at any time used by or for any "insured" or others for the handling, storage, disposal, processing or treatment of waste;

(3) Which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for any "insured" or any person or organization for whom you may be legally responsible; or

(4) At or from any premises, site or location on which any "insured" or any contractors or subcontractors working directly or indirectly on any "insured's" behalf are performing operations:

(a) If the "pollutants" are brought on or to the premises, site or location in connection with such operations by such "insured", contractor or subcontractor; or

(b) If the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants".

Paragraphs a.(1) and (4)(a) above do not apply to "bodily injury" or "property damage" arising out of heat, smoke or fumes from a hostile fire.

As used in this exclusion, a hostile fire means one which becomes uncontrollable or breaks out from where it was intended to be.

b. Any loss, cost or expense arising out of any:

(1) Request, demand or order that any "insured" or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of, "pollutants"; or

(2) Claim or "suit" by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of, "pollutants".

Analysis

The ISO base homeowners forms do not contain an exclusion of liability coverage for pollution losses unless added by endorsement. The HO 07 01 does exclude bodily injury or property damage liability due to pollutants related to the insured’s business. The average homeowner typically does not run the risk of loss due to a pollutant, but an insured’s business might.

Bodily injury or property damage arising out of the discharge, dispersal, seepage, migration, release or escape of pollutants is excluded, if at or from the premises owned or occupied by, or rented or loaned to, an insured. Also excluded are pollutants released while being transported, handled, stored, disposed of, or processed as waste by an insured or a person or organization the insured is legally responsible for.

Pollutants released from premises where contractors or subcontractors are working on the insured’s behalf are also excluded if the pollutants were brought onto the premises in connection with the insured’s business, or if the business operations are to test, monitor, clean up, contain, or neutralize pollutants.

There is an exception in cases where pollutants are released: (1) at the premises an insured owns, occupies, or rents if the pollutants arise from heat, smoke, or fumes from a hostile fire, and (2) at a premises or location where the insured or a subcontractor is performing operations if the pollutants are brought onto the site by an insured or the subcontractor in connection with the operations.

Any loss or expense arising from the demand or order that an insured test for, monitor, clean, remove, treat, neutralize, or in any way respond to or assess the effects of pollutants are excluded, as well as any claim or suit brought by a governmental authority for damages because of those activities.

14. Recall Of Products, Work Or Impaired Property

Damages claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of:

a. "Your product";

b. "Your work"; or

c. "Impaired property";

if such product, work or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it.

Analysis

The HO 07 01 excludes coverage for the recall of the insured’s products, work, or impaired property. The recall must be because the product or work has a known or suspected defect, deficiency, inadequacy, or dangerous condition.

A recall is typically ordered by the government, but many times the business itself may deem a recall necessary and order its products recalled. The form will not respond in either scenario.

15. Employment-Related Practices

a. "Bodily injury" or "personal and advertising injury" to:

(1) A person arising out of any:

(a) Refusal to employ that person;

(b) Termination of that person's employment; or

(c) Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed at that person; or

(2) The spouse, child, parent, brother or sister of that person as a consequence of "bodily injury" or "personal injury" to that person at whom any of the employment-related practices described in a.(1) above is directed.

b. This exclusion applies:

(1) Whether an "insured" may be liable as an employer or in any other capacity; and

(2) To any obligation to share damages with or repay someone else who must pay damages because of the injury.

Analysis

Bodily injury or personal and advertising injury to a person arising out of employment-related practices are excluded. Also excluded are consequential injury to the spouse, child, parent, or sibling as a result of an injury to that person.

As with the employer’s liability exclusion, these risks would be better served under a workers compensation or employers liability policy.

Coverage F – Medical Payments To Others

The following exclusions are added:

We will not pay expenses for "bodily injury":

1. To an "insured";

2. To a person hired to do work for or on behalf of any "insured" or a tenant of any "insured";

3. To a person injured while taking part in athletics;

4. Included within the "products-completed operations hazard"; or

5. Excluded under the Coverage E – Personal Liability exclusions of this endorsement.

Analysis

Medical payments coverage on the homeowners forms pays for medical expenses the insured is liable for to a person on the insured location. For a person not on the insured location, there is coverage if the injury came from a condition on the insured location, was caused by the activities of an insured or a residence employee, or was caused by an animal owned by or in the care of an insured. Coverage does not apply to regular residents of the household except for residence employees.

The HO 07 01 adds additional exclusions to this coverage. This is no coverage for bodily injury to any insured or to a person hired to do work for or on behalf of an insured. Also excluded is injury to a person while taking part in athletics.

Athletics is not defined in the policy but Merriam-Webster Dictionary defines it as "exercises, sports, or games engaged in by athletes," and athlete is defined as "a person who is trained or skilled in exercises, sports, or games requiring physical strength, agility, or stamina." The exclusion would likely preclude coverage for athletics in a competitive setting, but would not apply to something like a casual backyard game.

The next exclusion removes medical payments coverage for injury included within the products-completed operations hazard. The final exclusion states that all the exclusions under Coverage E that were added by the HO 07 01 also apply to medical payments to others coverage.

Includes copyrighted material of Insurance Services Office, Inc., with its permission.