Ask Tim

Client Has Two HO Policies -- Will They Both Cover the Same Liability Loss?

Question from an IIABNY member: I am hoping that you can help me with a basic opinion on a complicated HO Liability claim situation.  I will try to keep the details simple as follows:

1.  Insured has a Homeowners policy on Long Island that has Comprehensive Personal Liability attached.

2.  The insured has a separate Homeowners policy with the same carrier on an upstate home.

3.  Two years ago, a neighbor to the upstate home was killed while riding an ATV, not on our insured's premises, but on a neighbors premises--a road that has rights of way to each neighbor's parcel.

4.  The accident involved the ATV hitting a chain and/or post that was across the road to the other neighbor's property.

5.  Our insured is now being sued, along with every other neighbor in the area.  The suit alleges that our insured was responsible for maintenance of the road (which he was not at the time of the accident,)  and should have known that this post and chain created a dangerous condition.

There are two CPL policies involved. The accident did not happen on the insured premises.  The carrier is saying that only one policy will cover this loss.  I am thinking that both CPL polices should be involved.

Answer: Interesting question. I’m starting with the definition of “insured location” in the ISO Homeowners 3 policy, which states:

"Insured location" means:

a. The "residence premises"; (NOTE: The one-family dwelling where the named insured resides; the one, two, three or four family dwelling where the named insured resides in at least one of the units; or the part of any other building where the named insured resides, but only if the premises is shown as the “residence premises” in the policy Declarations. It also includes grounds at that location.)

b. The part of other premises, other structures and grounds used by you as a residence; and

(1) Which is shown in the Declarations; or

(2) Which is acquired by you during the policy period for your use as a residence;

c. Any premises used by you in connection with a premises in a. and b. above;

d. Any part of a premises:

(1) Not owned by an "insured"; and

(2) Where an "insured" is temporarily residing;

e. Vacant land, other than farm land, owned by or rented to an "insured";

f. Land owned by or rented to an "insured" on which a one, two, three or four family dwelling is being built as a residence for an "insured";

g. Individual or family cemetery plots or burial vaults of an "insured"; or

h. Any part of a premises occasionally rented to an "insured" for other than "business" use.

Both a. and b. require the premises to be shown in the policy Declarations unless the named insured acquired them during the policy period. The adjacent roadway sounds as if it fits into c. None of d., e., f., g., or h. seem to apply. Therefore, a home is an “insured location” under both policies only if the Declarations for both policies lists it.

Exclusion 4 in Section II—Liability Coverages states that Personal Liability Coverage and Medical Payments To Others Coverage do not apply to:

"Bodily injury" or "property damage" arising out of a premises:

a. Owned by an "insured";

b. Rented to an "insured"; or

c. Rented to others by an "insured";

that is not an "insured location"

Because of this exclusion, the policy covering the Long Island home will not provide Personal Liability Coverage for an injury arising out of the upstate home unless that home is an insured location under the policy (i.e., is scheduled in the Declarations.) Assuming that the policy covering the Long Island home does not list the upstate home on its Declarations, I agree with the carrier.

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Homeowners Insurance and Coverage for a Trustee

Question from an IIABNY member: If I am trustee for trust on a home in which my parents have lifetime tenancy, can I add the location onto my personal Homeowners policy and umbrella?  In essence, if a claim was filed for trip and fall at this location and the injured person sued my parents and the trust, would my personal HO coverage respond to the claim? Would my policy not respond, since the entity being sued is the trust, not me? 

Answer: A Homeowners policy, under Coverage E – Personal Liability, covers damages for which an insured is legally liable because of bodily injury or property damage caused by an occurrence to which the coverage applies. Exclusion 4 states that the coverage does not apply to bodily injury or property damage arising out of a premises owned by, rented to, or rented to others by an insured if that premises is not an “insured location.” The policy defines “insured location” as:

• The "residence premises" (the premises where the named insured resides)
• The part of other premises, other structures and grounds used by the named insured as a residence; and
  1. Which is shown in the Declarations; or
  2. Which is acquired by the named insured during the policy period for his/her use as a residence;
• Any premises used by the named insured in connection with a premises in a. and b. above;
• Any part of a premises:
  1. Not owned by an "insured"; and
  2. Where an "insured" is temporarily residing;
• Vacant land, other than farm land, owned by or rented to an "insured";
• Land owned by or rented to an "insured" on which a one, two, three or four family dwelling is being built as a residence for an "insured";
• Individual or family cemetery plots or burial vaults of an "insured"; or
• Any part of a premises occasionally rented to an "insured" for other than "business" use.

I don’t see how a residence of which you are a trustee but in which you do not live would meet any of these definitions. In my opinion, your Homeowners policy will not protect you against losses arising out of the residence. If the trust holds legal title to the residence, the safest course would probably be to buy a Dwelling policy in the name of the trust and have liability coverage endorsed onto it. Also, your parents should purchase an HO-4 to cover them for contents, additional living expense, and liability.

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Which Policy Covers a Truck That Never Leaves the Premises?

Question from an IIABNY member: My insured owns a home on a few acres of land. He has a pickup truck that he has not registered with the Department of Motor Vehicles. He uses it only to do chores on his property, such as plowing out his driveway. The truck does not go out on public roads. I think his Homeowners policy should cover the truck for liability, but the company underwriter is saying that it won't because the truck could be registered, even though it isn't now. He's saying the insured has to buy coverage for the truck under his auto policy. Who is right?

Answer: New York Vehicle and Traffic Law Sect. 401 states, "No motor vehicle shall be operated or driven upon the public highways of this state without first being registered..." Your insured is not driving the pickup truck on New York public highways, so the law does not require him to register it. In the ISO Homeowners 3 -- Special Form, Section II--Liability Coverages, Exclusion A. states:

1. Coverages E and F do not apply to any "motor vehicle liability" if, at the time and place of an "occurrence", the involved "motor vehicle":

a. Is registered for use on public roads or property;

b. Is not registered for use on public roads or property, but such registration is required by a law, or regulation issued by a government agency, for it to be used at the place of the "occurrence";...

If the insured injures someone with the pickup at a place (public highways) were the law requires it to be registered, the policy excludes coverage. However, if he injures someone in a place where the law does not require registration (vacant land he owns,) then this part of the exclusion does not apply.

The exclusion goes on to say:

2. If exclusion A.1. does not apply, there is still no coverage for "motor vehicle liability" unless the "motor vehicle" is:...

b. Used solely to service an "insured's" residence;...

Therefore, coverage applies if the insured uses the pickup solely to service the residence. If he were to use it for other purposes (hunting, for example,) the coverage question becomes murkier. It depends on how strictly the insurer defines the word "solely."

If your insured is using the truck only for errands on the premises, then I agree with you that the Homeowners policy should provide coverage and there is no need to add the vehicle to the Auto policy.

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Can the Mortgage Company Require Full Replacement Cost for Flood?

Question from an IIABNY member: I know that banks cannot require more insurance than the replacement value of a dwelling.  My question is, if a loan is less than the replacement value, can the bank require that the home be insured for full replacement.  I have an account that has flood insurance at $72k while the homeowner’s policy covers it for over $300k.  The loan is for $50k and the bank is requiring that the flood insurance be increased to the $250k maximum available under FEMA.  Can they insist on that?

Answer: The issue is the guidelines the federal government gives to lenders with regard to flood insurance. They encourage lenders to require RC coverage for flood. This document tells lenders that the flood limit must be, but is not limited to, the least of:

• The mortgage balance
• The maximum amount available from the NFIP, or
• The building’s RC.

It goes on to state,

“A sound flood insurance risk management approach follows the insurance industry practice of insuring buildings to full RCV. Such a risk management strategy meets or exceeds the minimal compliance requirements and is the easiest approach for lenders to implement. Security interests in (special flood hazard areas) should be protected with flood insurance to the full insurable value, to the extent possible under the NFIP.”

Essentially, the lender is just doing what it’s being told, and nothing in New York law prohibits it from requiring the higher limit.

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What Should Be the Effective Date for a Binder?

Question from an IIABNY member: Can you clear something up for our agency?  If a customer is purchasing a home and needs a binder for closing, do we issue the binder with the closing date as the effective date?  Or do we date it effective the date we send it?  Would you ever back date it without a closing date?

Answer: I look at it this way. A binder is a temporary substitute for the policy (This is from a 1900 New York court decision: “The object of a binder is to provide temporary insurance pending an inquiry by the company as to the character of the risk, or if that be known, during any delay in issuing the policy.")  It’s legally enforceable, like the policy, so if the insured submits a claim under the binder, the insurer is obligated to honor the claim. However, insurance is not enforceable unless the insured has an insurable interest in the property (N.Y. Insurance Law Sect. 3401 states this specifically.) Therefore, a binder that is effective before the closing date is unenforceable until the closing actually occurs. It makes more sense to make the binder effective on the closing date. If the attorneys or the lender postpone the closing, all the insured need do is comply with the cancellation condition in the HO policy (“You may cancel this policy at any time by returning it to us or by letting us know in writing of the date cancellation is to take effect.”) A simple note stating that the insured wishes to cancel the binder flat because the closing date changed should be sufficient.

I expect that an insurer would not be happy about its agent issuing backdated binders. It’s hard to imagine needing to backdate one anyway.  When we bought our houses, the lawyers stopped just short of specifying the font on the binders, let alone letting us close without one.

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Can the Insurer Cancel the Policy Because of a Backyard Shooting Range?

Question from an IIABNY member: Can a carrier cancel a HO policy midterm because the insured has a shooting range out back? The carrier has been on them for 10+years. The company was surprised to see he had a shooting range, even though the insured has 20+ guns listed on his insurance schedule!

IIABNY answer: Of course the guy would own 20 guns just for display. Who’d have thought he might actually want to fire them? ;)

Here’s what the law (N.Y. Insurance Law Sect. 3425) says about midterm cancellation of a homeowners policy:

(c) After a covered policy has been in effect for sixty days, or upon the effective date if the policy is a renewal, no notice of cancellation shall be issued to become effective…unless it is based on one or more of the following:…

(2) With respect to personal lines insurance policies:

(A) nonpayment of premium, provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due;

(B) conviction of a crime arising out of acts increasing the hazard insured against;

(C) discovery of fraud or material misrepresentation in obtaining the policy or in the presentation of a claim thereunder;

(D) discovery of willful or reckless acts or omissions increasing the hazard insured against;

(E) physical changes in the property insured occurring after issuance or last annual anniversary date of the policy which result in the property becoming uninsurable in accordance with the insurer's objective, uniformly applied underwriting standards in effect at the time the policy was issued or last voluntarily renewed; or

(F) a determination by the superintendent that the continuation of the policy would violate or would place the insurer in violation of this chapter.

It sounds like the company is relying on (D), “discovery of willful or reckless acts…increasing the hazard insured against.” However, if the insured has had this range for some length of time, and the company has provided coverage for 10 years, you have to wonder why the company never “discovered” this before. I didn’t find any court cases on what exactly a “willful or reckless act or omission” is, but I found an Insurance Department opinion that discusses it. The attorney said that the addition of a swimming pool or trampoline is not a reckless act because they “are fairly common household additions.” I’m not sure they would have the same opinion of a shooting range, which is far less common. The department might side with the insurer on this one, though I still think the insurer has led the insured to believe that it approved of the risk by writing coverage all these years.

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Episode #14: Personal Injury Coverage

In this episode, my evil twin Skippy and I talk about personal liability coverage, why the ISO Homeowners policy doesn't provide it, and what you can do to fill the coverage gap. If your clients and/or their children are on Facebook, they might want to give this careful consideration. For more information, look at my blog post from June 16.

Download Ask Tim, August 6, 2009

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Homeowners Insurance and an ATV: Is There Medical Payments Coverage?

Question from an IIABNY member: Approximately two weeks ago, my client’s 14 year-old granddaughter and friend were on our insured’s ATV with Grandma behind them, delivering invites to a July 4th party to their neighbor. They crossed their property line by approximately 100 feet, at which point the ATV tipped over and the friend was sent to the hospital. He was checked out and is fine, although he had some cuts and initially they feared a broken bone.

The policy language is quite specific as to what is and isn’t covered, but leaves a few loose ends with medical payments adding the words ("immediately adjoining")  that seem to offer to extend the insured’s premises a wee bit.

Under liability the policy does extend coverage for some motor vehicles while on the insured’s property or if being used to service the insured’s property. Delivering invites is a stretch but I am curious what your thoughts are?

Answer: The wording in your client's policy is pretty similar to what’s in the ISO Homeowners policy. With regard to Medical Payments To Others Coverage, the ISO policy says:

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";

Based on this, I’d say you have a better case for coverage under the “caused by the activities of an insured” language. The ISO definition of “insured” states:

5. "Insured" means:...

c.     Under Section II:...

(2)     With respect to a “motor vehicle” to which this policy applies:…

(b)     Other persons using the vehicle on an “insured location” with your consent.

Since they had ventured off the insured’s premises, the insurer might argue that the granddaughter was not using the vehicle on an insured location. On the other hand, it sounds like the trip started there, so you could argue the other way, too. This is key, because if the granddaughter was not considered to be on an insured location, then she is not an insured and therefore the medical payments coverage does not apply.

If the accident occurred on the street adjacent to your client’s home ("ways immediately adjoining") and she can show that the accident occurred because of some condition in the street (a pothole or something in the road that the granddaughter had to swerve to avoid,) then she can make an argument for coverage under the first paragraph.

It’ll be interesting to see how the insurer decides this one. It’s not at all clear-cut one way or the other.

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Oops! Did I Say That? Personal Injury Coverage and Homeowners Insurance

A few weeks ago, we looked at a soured marriage from the perspective of auto insurance. This time, we look at the same subject but from the homeowners insurance side of the coin...

Question from an IIABNY member: Here's the scenerio: Person A sends an e-mail to Person B about Person C. Both Person A and C know Person B as they used to be married. Person B is their son's baseball coach. In the e-mail, Person A basically bashes Person C to Person B and also tells Person B a lot of personal details about Person C's life that B has no reason to know. This embarrases and upsets Person C very much. Does Person C have a case for personal injury for slander and damage to reputation against Person A's homeowners policy? There also have been phone conversations between Persons A and B where A has been badmouthing C as well.

Answer: So, if I understand correctly, A and C are former spouses; B is the baseball coach who is officially sorry he gave out his e-mail address. A (to be non-sexist, I’ll say that A is the ex-husband) writes to B, spilling his ex-wife’s intimate secrets and badmouthing her. In addition, he has called B (who is now looking into changing cell phone numbers) with lots more in the TMI department. 

I’ll assume Mr. A has the equivalent of an ISO HO-3 policy. Coverage E — Personal Liability covers the insured for his liability for bodily injury or property damage; since C has suffered emotional distress but no apparent bodily injury, there’s no coverage in the unendorsed policy. The countrywide ISO endorsement for personal injury liability is HO 24 82, but New York has a state-specific version, HO 24 86 10 02, Personal Injury – New York. It provides indemnity and defense if a claim is made or suit brought against an insured for damages resulting from an offense defined under “personal injury.” That definition has five parts; parts 4 and 5 are relevant: 

“Personal injury” means injury arising out of one or more of the following offenses, but only if the offense was committed during the policy period:… 

4. Oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services; or

5. Oral or written publication of material that violates a person’s right of privacy.

Mr. A’s actions appear to meet both of these definitions – his oral and written statements allegedly slandered and libeled his ex-wife and violated her privacy. However, the exclusions take away coverage:

a. If he knew that his statements would violate her rights and inflict personal injury 
b. If he knew what he was saying was false 
c. If he made the statements before the policy took effect

These exclusions go to his state of mind: Did he make this stuff up entirely or just distort something that was true? Did he intend to air her dirty laundry and get under her skin, or did he think he was blowing off steam to someone who would not relay it back to her? I expect that, if he has this endorsement, his insurer will provide him with at least an initial defense until they can conclusively prove that one or more of the exclusions apply.

Interestingly, according to the IRMI Personal Risk Management and Insurance manual, most personal umbrellas automatically include coverage for personal injury, so even if he doesn’t have the endorsement on his Homeowners policy, he might be covered (after application of the deductible) if he has an umbrella. You probably have no way of knowing whether or not he has the coverage unless he shows her his policies (seems unlikely given their high regard for each other) or she sues him. Since they are no longer married, she has no legal right to this information from his insurance agent. New York Insurance Regulation 169 requires the agent to share his information with unaffiliated third parties only in compliance with the agent’s privacy policy; I doubt that the policy says the agency will share information with estranged spouses.

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Episode #13: Insurance Myths

I enjoy reading and writing fiction, especially science fiction, fantasy and horror stories. Made up worlds and monsters can be a lot of fun and a welcome diversion from reality, especially after I read the news these days. I'm a sucker for the Harry Potter books and movies. However, there are a lot of "stories" out there about insurance coverage that are not so harmless. In fact, if your clients believe some of these tales, they could be exposing themselves to some large losses. Enter episode #13 of Ask Tim, where I look at some of these myths. Based on a recent article in USAA Magazine, this episode looks at flood coverage, auto coverage for personal belongings, dwelling wear and tear, and others, finishing up with an assist from Prince.

This episode is brought to you by IIABNY and the RLI Personal Umbrella program.

Download Ask Tim Episode #13