Homeowners, Auto and Host Liquor Liability

Your insured hosts a New Year’s Eve party and one inebriated guest negligently causes a serious auto accident on the way home. Your insured is sued. Will his homeowners or auto policies respond? The answer may depend on the edition dates—it’s possible that both, either or neither will respond.

A jury in a very conservative community handed the host of a holiday party an adverse judgment in excess of $4 million due to an accident related to consumption of alcohol by guests. In another case, there was a $3.5 million jury verdict against a family serving alcohol to teenagers who then had a horrific accident. In both cases, insurance was inadequate. In the first instance, the insured had adequate assets to respond; in the second case, liquidation and bankruptcy were necessary for wealth accumulated over several decades.

And these examples were situations where there was coverage, just inadequate limits. In the 2000 revision to ISO’s 1991 homeowners forms, the motor vehicle exclusion is more restrictive, but there is debate about whether the exclusion precludes coverage when the “cause” is serving alcohol versus an auto accident. Case law is inconclusive. To examine several claim scenarios and review the opinions of the Big “I” Virtual University faculty, click here.

Analyzing an Additional Insured Coverage Gap

A written construction agreement exists between the insured contractor and a project owner that clearly requires additional insured (AI) status be extended to the owner, architect, construction manager, etc. The AI endorsement provided by the insurer is proprietary but has equivalent wording to the ISO CG 20 33 blanket AI endorsement.

That endorsement says, “…WHOIS AN INSURED is amended to include as an insured any person or organization when you and such person or organization have agreed in writing in a contract, agreement or permit that such person or organization be added as an additional insured on your policy to provide insurance….”

This language can easily be read so that only the party with which the insured is directly contracting is granted insured status. The International Risk Management Institute (www.irmi.com) reports on one trial court decision upholding this interpretation. If this opinion were to be widely held, it could result in a huge unintended coverage gap for contracts that require additional insured status for parties not directly contracting with the insured. The Big “I” national Technical Affairs Committee is pursuing this issue with ISO, although that would not affect proprietary blanket additional insured forms like this one.

To learn more about this issue, including access to the court case cited by IRMI, click here.

When Your House is a Hotel

What are the coverage implications if insureds rent their homes during a special event? This came up in Atlanta in 1996 with the Olympics, in Jacksonville, Fla., in 2005 for the Super Bowl and in Washington in 2009 for the presidential inauguration. For recurring events like the Super Bowl, Indy 500, Kentucky Derby, etc., the question is more common.

For liability coverage, the ISO HO-3 policy responds to claims if rental of the premises is “occasional” or if a part of the premises is rented regularly to no more than two roomers or boarders. So, from a liability standpoint, the ISO forms should provide coverage only if an annual event is considered to be “occasional.” This should be confirmed with each carrier you represent. Under the ISO HO-3, damage to the home itself is generally covered but damage to other structures like a guest house is subject to an exclusion for habitational rental to someone not a tenant of the dwelling. For personal property, the theft peril does not apply to property on the portion of the premises being rented.
For more policy detail, click here.

Bill Wilson (bill.wilson@iiaba.net) is director of the Big “I” Virtual University, an online learning center for agents and brokers. Do you have coverage questions? If so, log in to the Virtual University at www.iiaba.net/VU and click on the “Experts” link near the top of the page.