September 2007

Summary: The liability and medical payments coverages contained in the American Association of Insurance Services (AAIS) homeowners program fit the insurance needs of most insureds. (Coverage may be modified by endorsement to amend coverage where necessary—see AAIS Homeowners Common Endorsements. Although in many ways the coverages and exclusions are similar to those found in the Insurance Services Office (ISO) Common Endorsements—AAIS Program program, there are significant differences.

The AAIS forms have been revised, and have been given a new numbering system. The prior forms were, for example, form 3, edition 2.0. But now, the forms are HO 0001 01 06, HO 0002 01 06, HO 0003 01 06, HO 0004 01 06, HO 0005 01 06, HO 0006 01 06, and HO 0008 01 06.

Following is a discussion of the homeowners liability and medical payments coverages.

Topics covered:

Introduction Definitions applicable to liability coverage Principal coverages—liability and medical payments to others Incidental liability coverages Exclusions applying to liability and medical payments coverages Exclusions applying only to liability coverages Exclusions applying only to medical payments

Introduction

As noted, the coverages and exclusions of the AAIS and ISO programs are similar. There is a difference in the contract format, however. In the ISO form, the insuring agreement provides broad coverage which is narrowed through the use of exclusionary language. In the AAIS form, coverage is provided through the insuring agreement and through the use of incidental liability coverages, which incorporate coverage provisions and which, in the ISO form, include section II additional coverages. Certain other liability coverages are clearly enumerated, whereas in the ISO form they are provided through exceptions to a particular exclusion. The AAIS form concludes the liability section with exclusions applying either to liability coverage, medical payments coverage, or both.

Definitions Applicable to Liability Coverage

The definitions below are those applicable to liability coverages, and are numbered according to the numbers in the form itself. For the definitions applying to property coverage, see AAIS Homeowners Program. For the sake of convenience, many of the definitions that apply to liability as well as to property coverages are repeated here.

1.The words “you” and “your” mean the person or persons named as the insured on the “declarations”. This includes “your” spouse if a resident of “your” household.

2.The words “we”, “us”, and “our” mean the company providing this insurance.

4.Under the Liability Coverages provided by this policy, “aircraft” means an apparatus or a device designed or used for flight, but this does not include:

a.a model aircraft that is not designed or used to carry people or cargo;

b.a “hovercraft”' or

c.a model hovercraft that is not designed or used to carry people or cargo.

5.”Bodily injury” means bodily harm to a person and includes sickness, disease, or death. This also includes required care and loss of services.

  However, “bodily injury” does not mean bodily harm, sickness, disease or death that arises out of: mental or emotional injury, suffering, or distress that does not result from actual physical injury to a person.

6.”Business” means:

a.a trade, a profession, or an occupation, including farming, all whether full time, part time, or occasional. This includes the rental of property to others, but does not include:

1)the occasional rental for residential purposes of the part of the “described location” normally occupied solely by “your” household.

2)the rental or holding for rental of a portion of that part of the described location” normally occupied by “your” household to no more than two roomers of boarders for use as a residence; or

b.any other activity undertaken for money or other compensation, but this does not include:

1)providing care services to a relative of an “insured”;

2)providing services for the care of persons who are not relatives of an “insured” and for which the only compensation is the mutual exchange of services;

3)a volunteer activity for which:

a)an “insured” receives no compensation; or

b)an “insured's” only compensation is the reimbursement of expenses incurred to carry out the activity; or

4)an activity not described in 1) through 3) above for which no “insured's” total compensation for the 12 month period just before the first day of this policy period was more than $2,500.

8. “Described location” means the one-to four-family house, the townhouse, or the row house where “you” reside and which is shown on the “declarations” as the “described location”. It includes related private structures and grounds at that location.

However, if the “described location” is a townhouse or a row house, it includes only related private structures and grounds at that location that are used or occupied solely by “your” household for residential purposes.

9.”Domestic employee” means a person employed by an “insured”, or a person leased to an “insured” under a contract or an agreement with a labor leasing firm, to perform duties that relate to the use or care of the “described location”. This includes a person who performs duties of a similar nature elsewhere for an “insured”, provided such duties are not in connection with an “insured's” “business”.

However, “domestic employee” does not include a person who is furnished to an “insured”:

a.as a temporary substitute for a permanent “domestic employee” who is on leave; or

b.to meet seasonal or short-term workloads.

10.”Employee” means a person employed by an “insured”, or a person leased to an “insured” under a contract or an agreement with a labor leasing firm, to perform duties other than those performed by a “domestic employee”.

Analysis

The definition of “bodily injury” has been altered considerably from the earlier form. The earlier form stated several things that bodily injury was not, such as bodily harm arising out of physical abuse. In the current form, “bodily injury” is briefly defined, while the exclusions (discussed later in this article) bar coverage for, among other things, bodily injury arising out of physical abuse. Note that while in some jurisdictions “bodily injury” does not always include emotional distress, it is clear in this definition that “bodily injury” encompasses emotional distress only so long as the emotional injury arises from “bodily injury.”

The definition of “business” was also discussed in the article on AAIS Property Coverages (see Property Coverages—AAIS Homeowners. The current form makes an exception for providing care services to a relative of an insured, even though the insured might well receive compensation. And, though usually one thinks of caring for young children, it is increasingly common to care for elderly parents. In this instance, one sibling might provide the care, with other siblings paying the insured. The policy makes it clear this is not to be construed as a business.

Although volunteer activities have always been thought of as not being a business activity, the current form clearly states this to be the case. And, while the earlier form stated that a “business” did not include part-time or seasonal activities of minors, the current form does not make any exceptions in the definition. However, there is coverage under the incidental liability coverage for business (see later in this article). The earlier form also contained an exception for activities that were related to a business but were not viewed as business in nature. This exception has been removed from the current form.

The term “described location” was used in the previous form (in the definition for insured premises), but it was not defined until the current form. Thus, when the policy refers to the “insured premises” as including the described location, it is readily apparent as to meaning.

The earlier form defined “domestic employee,” but the current form adds that the employee is one either hired directly by the insured, or can be one that is leased to the insured under contract or agreement. Duties must relate to the use or care of the “described location,” or can be similar duties performed elsewhere for an insured. Temporary substitutes or seasonal or short-term employees are not domestic employees. The current form also adds a definition for an “employee”: one who is employed directly by or leased to an insured to perform duties other than those performed by a domestic employee. There is no equivalent term in the ISO form.