Homeowners Coverage for Non-Rented Premises

Your insureds have a daughter who is getting married, and friends with a beautiful lake home have offered their place for the reception. Concerned about personal liability, your insureds check their homeowners policy, but the definition of “insured location” only includes premises where they reside, are building a residence, are vacant or are renting temporarily. Do they have any coverage?

The last part of the definition comes closest to your insured’s situation, but it only applies to a premises which is rented. Since this is only a definition, the only way to determine the role it plays in coverage is to go back to the insuring agreement for Section II and then look at exclusions.

Section II covers insureds for “bodily injury and property damage caused by an occurrence for which an insured is legally liable.” That insuring agreement is certainly broad enough to cover most exposures arising from the wedding reception. Therefore, unless a specific exclusion prohibits coverage, your insured is covered for BI and PD at the reception.

The only premises exclusion applies to “‘bodily injury’ or ‘property damage’ arising out of a premises…owned by an ‘insured’…rented to an ‘insured’…rented to others by an ‘insured’…that is not an ‘insured location’…”

Since the premises are not owned by or rented to the insured, the exclusion doesn’t apply and the “insured location” definition isn’t material. To read the entire article, click here.


Business Income Coverage…What Does “Necessary” Mean?

Loss payment under the CP00 30 business income form includes loss of profits during the “necessary suspension” of operations, plus “operating expenses, including payroll expenses, necessary to resume ‘operations’ with the same quality of service that existed just before the direct physical loss or damage.”

What does “necessary” mean and who determines what is “necessary,” the insured or adjuster? Is the adjuster qualified to make this determination about the conduct of someone’s unique business? It is often difficult to get two business partners to agree, so why would we expect the adjuster to be qualified to make this decision?

There is some reason to believe that ISO intended for the adjuster to make this decision given that they introduced a new endorsement (CP 15 04 – discretionary payroll expense) in their 2007 commercial property filing. However, unless an insurer’s intent is clearly expressed in the policy, any ambiguity should be resolved in favor of the insured.

To read more about this issue, including some faculty comments on why they believe this is the insured’s—not the adjuster’s—call, click here.


The Wear and Tear Exclusion Revisited

One of the most misunderstood policy provisions is the family of exclusions that deal with wear and tear, mechanical breakdown, etc. So far, the Big “I” Virtual University has published articles on mechanical breakdown under the HO and PAP policies and on wear and tear under a commercial property form. Most recently, the VU’s “Ask an Expert” service received a question about a claim denial involving collapse that was allegedly caused by wear and tear.

These types of “gradual deterioration” exclusions apply only when they are the sole cause of a loss in value with no other physical damage. For example, if someone with a 20-year-old roof decides they need a new one because of the wear and tear, that’s not covered. Most insurance policies do not constitute maintenance agreements.

However, barring another exclusion to the contrary, loss arising from concurrent or ensuing causes of loss is covered. In the referenced collapse claim, the fact that the building had been in a poor state of repair yet a policy was still issued on it indicates a failure in underwriting or loss control, not coverage.

For a complete analysis of this claim, including links to three other related articles, click here.

Bill Wilson (bill.wilson@iiaba.net) is Big “I” director of the Virtual University, an online learning center for agents and brokers.