Liability Coverage When Part of the Property is Leased to an Oil Company

 

On an ISO HO 00 03 10 00 form, the insured leases land to a gas/oil company for $5,000 on a 5 year contract. The oil company installs an oil well with a pump. The oil well explodes and injures visitors or pollutes the neighbors' property. The insured is then named in a lawsuit.

Question: Does liability coverage apply or will the business exclusion preclude coverage?

Texas Subscriber

In order for liability to apply the insured has to be legally liable for the injuries or damage, and that we cannot determine. However, a defense is certainly warranted and medical payments coverage applies. The policy defines business in part as any activity engaged in for money except an activity for which the insured receives no more than $2,000 in total compensation for the 12 months before the beginning of the policy period. Your insured received $5,000 which makes it a business, but on the other hand it's a 5-year lease so prorated it's less than the required $2,000. Based on that we say it isn't a business, and therefore the business exclusion doesn't apply.

 

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