Personal Liability Exposures and the Homeowner Policy

PERSONAL LIABILITY EXPOSURES can originate out of an insured's ownership and/or use of insured locations, from their personal conduct, and from legal stature and/or contracts. The liability may be directly imposed on an insured or it may be vicarious in nature. Like other liability insurance, the personal liability coverage found in a homeowner policy will pay up to the policy limit for covered damages that an insured is legally liable. The policy will provide coverage in addition to the policy limits, for claim expenses (including but not limited to defense costs), for first aid expenses, for liability related loss assessments, and for damage to property of others without having to prove a legal obligation to pay.

The greatest majority of homeowner policies offer personal liability coverage that parallels the ISO Homeowners 3 - Special Form coverage. For that reason, this article will identify some of the personal liability exposures that an insured may face that can be addressed by the coverage found in Section II of the ISO Homeowner 3 - Special Form and some of the endorsements that may be attached to that form.

Several definitions in the 2000 Homeowners 3 Policy are associated with liability coverage. The definitions of:

• "Aircraft Liability",
• "Hovercraft Liability",
• "Motor Vehicle Liability", and
• "Watercraft Liability"

clarify that liability coverage applies not only to direct exposures such as ownership, operation, maintenance, use, and loading or unloading, but also to vicarious liability exposures such as the entrustment to any person, the failure to supervise or negligent supervision of any person, and for the actions of a minor or child whether imposed by statue or not. If there is no coverage for direct liability exposures, there is no coverage for vicarious liability exposures. Aircraft, hovercraft, and watercraft are also defined in this definition while "motor vehicle" has its own separate definition.

Aircraft Liability

ISO defines aircraft as any contrivance used or designed for flight except model or hobby aircraft not used or designed to carry people. A contrivance does not have to have a motor to be an aircraft. A hang glider or a parasail or parachutes are aircraft since they are designed to carry people.

The Section II exclusions state that Coverage E (Personal Liability) does not apply to any "aircraft liability". Since model or hobby aircraft are not considered aircraft, unless they are designed or used to carry people or cargo, there is liability coverage for this exposure. There are no size restrictions on model aircraft so "Big Bird" model aircraft liability exposures would be covered. Big Bird model aircraft have a wingspan of 80" or larger or are 1/4 scale aircraft.

Hovercraft Liability

ISO defines hovercraft as a self-propelled motorized ground effect vehicle and includes, but is not limited to, flarecraft and air cushion vehicles. Wikipedia states, "A hovercraft is an air-cushion vehicle (ACV), designed to travel over any sufficiently smooth surface supported by a cushion of slowly moving, high-pressure air, ejected downwards against the surface close below it. Essentially all practical systems use a skirt to follow the terrain and contain the air."

The Section II exclusions state that there is no personal liability coverage for "hovercraft liability". There is no reference to hovercraft being used or designed to carry people or cargo and there is no exception for model or hobby hovercraft, rented or borrowed hovercraft, hence this exclusion would apply to all types of hovercraft. It may be accurate to say a majority of homeowners do not have a hovercraft exposure, but Google has hundreds of listings advertising personal hovercraft raging in price from under $10 to over $50,000. If a policyholder has such an exposure, do they understand that there is no "hovercraft liability "coverage under their homeowner policy?

Watercraft Liability

ISO defines watercraft as principally designed to be propelled on or in water by wind, engine power or electric motor. Row boats, canoes, paddle boats, and kayaks are examples of craft that are not considered watercraft since they are not powered by wind, engine power, or an electric motor.

ISO excludes "watercraft liability" coverage under certain conditions for all watercraft while providing coverage under certain conditions for other watercraft.

There is no "watercraft liability" if the involved watercraft is operated in or practicing for any prearranged or organized race, speed contest or other competition. This exclusion does not apply, thus there is liability coverage, for a sailing vessel (if otherwise covered) or a predicted log cruise. A predicted log cruise is a test of accuracy and not speed. The contest is to predict in advance the time a boat will take to get from point to point on a designated course.

There is no "watercraft liability" if the involved watercraft is rented to others, used to carry personal or cargo for a charge, or used for any "business" purpose, such as entertaining business clients or fishing guide excursions. ISO defines "business" and this definition will be discussed in a future installment of this series. The ISO contract goes on to say that even if any of the previous four exclusions do not apply, there is still no "watercraft liability" provided for in the homeowner policy except under following conditions:

1. There is "watercraft liability" for watercraft in storage; however, ISO does not define storage. International Risk Management Institute's (IRMI's) discussion of "storage" includes the phrases "stored and not utilized", "permanently stored and covered", and "stored on dry land". IRMI also differentiates between "stored" and "berthed". Since ISO does use the same limiting phrases included in IRMI's discussion and does not clarify if watercraft that are berthed, docked, trailered, kept in a boat house, or lifted off the water by a hoist are (or are not) considered stored, the interpretation of this exception, in all likelihood, will vary and may be subject to court cases.
2. There is "watercraft liability" coverage for watercraft that are sailing vessels and under 26 feet in length. If the sailing vessel is 26 feet or longer there is coverage if it is borrowed or rented by an insured but no coverage if it is owned by an insued. ISO states that the presence or absence of any auxiliary power on the sailing vessel does not affect this exception.
3. ISO identifies two classifications of non-sailing vessels with each having their own exception. The first classification includes watercraft with inboard or inboard-outdrive (inboard-outboard) engines or motors, including a jet pump. The second type of non-sailing vessel is one powered by an outboard engine or motor.There is "watercraft liability" coverage for a watercraft that is powered by inboard or inboard-outdrive engines. If the watercraft has 50 horsepower or less and is rented to or borrowed by an insured, there is coverage. If the watercraft has greater than 50 horsepower there is coverage only if it is borrowed by an insured. There is no "watercraft liability" for an inboard or inboard-outdrive that is owned by an insured.
4. One of the most common excluded exposures faced by policyholders from this classification arises from personal watercraft, jet skis, and wave runners. These are considered inboard or inboard-outdrive, so there is no "watercraft liability" for any owned vessel. Since the greatest majority (if not all of them) are in excess of 50 horsepower, there is no "watercraft liability" for any rented vessel. An individual's homeowner policy will provide "watercraft liability" only for borrowed personal watercraft or jet skis. There is "watercraft liability" coverage for a watercraft that is powered by one or more outboard engines/ motors with 25 total horsepower or less. It does not matter if the outboard engines/motors are owned by, rented to, or borrowed by an insured. "Total" is a key word, since the watercraft may have two or more engines/motors, each being less than 25 horsepower, but when combined exceed that limit. An example would be a small boat with a 20 horsepower outboard engine and an 8 horsepower electric trolling motor.

There is "watercraft liability" if the watercraft is powered by one or more outboard engines/motors with more than 25 total horsepower if the insured rents or borrows the engines/motors.

There is "watercraft liability" for engines/motors owned by an insured, if the total horsepower of the outboard engines/motors is greater than 25 total horsepower and acquired during the policy period. This coverage applies only for the policy period.

There is "watercraft liability" for engines/motors owned by an insured if the total horsepower of the outboard engines/motors is greater than 25 total horsepower and acquired before the policy inception, if the named insured (or resident spouse) declares them at policy inception or notifies the company in writing of their intent to insure them within 45 days of acquisition.

ISO defines horsepower as the maximum power rating assigned to the engine or motor by the manufacturer. An engine or motor whose horsepower is increased through modification or enhancement is not affected since the horsepower established by the original manufacturer is the one that applies.

WATERCRAFT LIABILITY COVERAGE UNDER A HOMEOWNER POLICY

ANY STORED WATERCRAFT HAS LIABILITY COVERAGE

TYPE OF WATERCRAFT	OWNED: Is there coverage?	RENTED: Coverage?	BORROWED: Is there coverage?
INBOARD INBOARD/OUTDRIVE	YES	YES, if 50 HP or Less	YES, Not Excluded
OUTBOARD	YES, if 25 total HP or Less or if Newly Acquired; No HP Restriction	YES, No HP Restriction	YES No HP Restriction
SAILBOAT	YES, If less than 26’	YES, If less than 26’	YES, No Length Restriction

Subject to company approval, ISO provides the Watercraft HO 24 75 endorsement, that expands "watercraft liability" coverage to scheduled watercraft. Since the covered watercraft must be scheduled, its practical use for rented watercraft may very well be limited. The schedule requires a description of the boat/vessel and description of the outboard engine/motor, the size of the engine/motor (including auxiliary power on a sailing vessel), the dates of the navigation period, and identification of the owner of the outboard engine/motor if not the named insured. The exclusions for racing, renting to others, carrying people or cargo for a charge, or any "business" purpose found in the standard homeowner language also apply to the scheduled watercraft. In addition, there is an exclusion for bodily injury pertaining to any employee of an insured, arising out of that employee's job as it relates to the scheduled watercraft.

Motor Vehicle Liability

ISO defines "motor vehicle" as a self-propelled land or amphibious vehicle; or any trailer or semitrailer which is being carried on, towed by or hitched for towing by a vehicle described above. Self-propelled vehicles include but are not limited to automobiles, motorcycles, lawn tractors, riding mowers, golf carts, all-terrain vehicles, snow mobiles, go carts, power wheelchairs, Light Electric Vehicles (Barbie cars, GI Joe jeeps, scooters, skateboards, bikes), and even self-propelled land or amphibious hobby or model vehicles.

The second part of the definition states that any trailer or semitrailer is also a motor vehicle if it is being carried on, towed by, or hitched for towing by a self-propelled land or amphibious vehicle. This implies that the trailer or semitrailer is not a motor vehicle if it is not being carried on, towed by, or hitched for towing by a motor vehicle. If an owned trailer meets this definition, an insured might find liability coverage under their homeowner policy as well as their Personal Auto Policy (PAP), since the PAP defines "your covered auto" as any owned trailer.

ISO excludes "motor vehicle liability" for any "motor vehicle" that is registered to use on public roads or property. Any motor vehicle with a license plate would fit this definition. The policy also excludes "motor vehicle liability" for "motor vehicles" not registered for use on public roads or property, but where such registration is required by a law or regulation issued by a government agency for the "motor vehicle" to be used at the place where the liability exposure exists. Examples would be state or federal regulations requiring special stickers or restrictions on all terrain vehicles (ATV) or snow vehicles while used off road.

ISO also excludes "motor vehicle liability" if a "motor vehicle" is being used in prearranged or organized race or speed contest, being rented to others, used to carry persons or cargo for a fee, or used for any "business" purposes except for a motorized golf cart while on a golfing facility. The ISO PAP can provide liability coverage for a non-owed golf cart, so an insured could get liability coverage under both their homeowner and auto policy. ISO goes on to say that even if these exclusions do not apply, there is still no "motor vehicle liability" except under the following conditions:

1. There is "motor vehicle liability" coverage if the "motor vehicle" is in dead storage on an "insured location". The insured does not have to own the vehicle that is in dead storage. ISO does not define dead storage. IRMI states that dead storage generally means the vehicle's electrical system is dead, the battery has been removed, the vehicle is on blocks, or the plates have been removed and registration turned in. However various court cases have stated, "Unlicensed car which had been inoperable for over a month was in dead storage, notwithstanding that, fire occurred while insured was attempting to start car."; "Car kept by insured as collectible rather than for transportation was in dead storage despite fact that car was occasionally driven on property where it was stored and accident occurred while repairing gas gauge."; "Old, unlicensed vehicles that were not driven on highway but were occasionally driven on insured's property were in dead storage." These court decisions indicate this term is ambiguous at best and open to a broad interpretation. However defined, the dead storage must be on an "insured location". This defined term will be discussed in a future installment of this series.
2. There is "motor vehicle liability" coverage if the "motor vehicle" is used solely to service an insured's residence. The insured does not have to own the vehicle being used solely to service their residence. Key words here are solely and residence. If an insured ever uses a riding lawn mower to cut grass at a location away from their residence, have they negated liability coverage for any use of that mower, even while being used at their residence? It does seem clear there is no "motor vehicle liability" coverage if the "motor vehicle" is being used away from the insured's residence.
3. There is "motor vehicle liability" coverage if the "motor vehicle" is designed to assist the handicapped and at the time of exposure is being used to assist a handicapped person or is parked on an "insured location". Since the insured does not have to own the "motor vehicle" and since coverage applies at any location if being used to assist a handicapped person there would be "motor vehicle liability" coverage while a handicapped insured was using a motorized chair owned by a retail store to assist them in their shopping. There is no "motor vehicle liability" if a young grandson is taking a "joy-ride" on grandpa's motorized wheelchair.
4. There is "motor vehicle liability" coverage if the "motor vehicle" is designed for recreational use off public roads and not owned by an "insured". If an insured rents or borrows such recreational vehicle, they have "motor vehicle liability" coverage. However, if such a vehicle is owned by an insured there is "motor vehicle liability" coverage only if the exposure occurs at one of five "insured locations" (residence premise, other covered premises used as a residence, temporary residence not owned by an insured, vacant land other than farm land, or any part of a premises occasionally rented to an insured for other than business). A young girl driving her Barbie car down the sidewalk, or a young boy riding his electric scooter in the street, or a man taking his 4-wheel ATV for a ride on the beach are examples of places where "motor vehicle liability" is excluded for owned recreational vehicles.
5. There is "motor vehicle liability" for a golf cart that is owned by an insured under certain conditions. The golf cart must be designed to carry 4 or fewer persons and not built or modified after manufacture to exceed a speed of 25 miles per hour on level ground. If these two conditions are met then there is "motor vehicle liability" if at the time of the exposure the golf cart is parked or stored inside the legal boundaries of a golfing facility or being used by an "insured" to play the game of golf or other recreational activity allowed by the facility, being used by an "insured" to travel to or from an area where carts are parked or stored, or being used by an "insured" to cross public roads at designated points to access other parts of the golfing facility. There is also "motor vehicle liability" if the golf cart is being used by an "insured" inside a private residential community subject to the authority of a property owners association that contains an "insured's" residence.

ISO had designed two endorsements that expand "motor vehicle liability" provided under a homeowner policy. The Owned Snowmobile (HO 24 64) endorsement provides "motor vehicle liability" coverage for owned scheduled snowmobiles at any location, not just the 5 identified "insured locations". The Incidental Low Power Recreational Motor Vehicle (HO 24 13) endorsement provides "motor vehicle liability" coverage for owned vehicles that were not built or modified after manufacture to exceed a speed of 15 miles per hour on level ground and are not motorized bicycles, mopeds, or golf carts, regardless of its speed capability. This is where an insured can get coverage for the Barbie car or the electric scooter.

Jerry Montgomery, CIC, CRM, LUTCF
Jerry is an Academic Director in the Curricula and Faculty Development department of The National Alliance, and a national faculty member for CIC and CISR classes. Jerry worked as an agent for Farmers Insurance Group from 1979 to 1998. His teaching experience includes nine years in the public school system.

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