Topics covered:

Scope of coverage

Contrast to general liability

Insuring agreement—personal liability

Caused by occurrence

Bodily injury and property damage defined

Insuring agreement—medical payments to others

Coverage for injury to residence employees

Scope of Coverage

The liability coverage of the homeowners forms consists of two principal elements. Coverage E is personal liability insurance, which protects insureds against liability for negligently caused bodily injury or property damage. Coverage F is medical payments insurance. Both coverages are automatically included; neither one is optional.

Homeowners section II coverage also contains four agreements labeled "additional coverages": (1) claim expenses; (2) first aid expense; (3) damage to property of others; and (4) loss assessment. The first two apply without limit, except for a $250 per day limit on insured's loss of income (changed from $50 per day in the 1991 forms) under claim expenses coverage. A $1000 per occurrence limit applies under damage to property of others ($500 in the 1991 forms). Loss assessment coverage has a limit of $1,000. See Personal Liability—Additional Coverages, for a discussion of the additional coverages.

 Contrast to General Liability

 Compared with most liability insurance contracts in general use, there are certain significant features of personal liability coverage:

 1.Bodily injury (including a limited form of employers liability coverage) and property damage liability insurance are combined in one insuring clause.

2.The premium for this insurance is based on a single limit per occurrence, which applies to any combination of one or more claimants and to claims based on either bodily injury or property damage, or both. Information on available limits for section II coverage is found in the state pages of the ISO general rules manual, with the basic coverage E (personal liability) limit generally set at $100,000 and coverage F (medical payments to others) at $1,000. The limits may be increased for additional premium.

3.Relatives of the insured and of the insured's spouse, residing in the same household, and any other person less than 21 years old living in the household in the care of the insured or of a resident relative are covered without additional premium. A full time student under age 24 who was both related to and resident in the named insured's household prior to leaving to attend school is also an insured, as is a full-time student under age 21 in the care of the named insured or a resident relative. (The definition of a full-time student may be amended to eliminate the age restriction. See Standard Homeowners Endorsements.) The 1991 forms defined as "insured" residents of the named insured's household who were related. Therefore, the status of a student who lived away from home much of the time, yet considered the parental home to be his, was often uncertain. For example, in the case of Quincy Mut. Fire Ins. Co. v. Clyman, 910 F.Supp. 230 (E.D. Pennsylvania 1996), the district court held that the insured's son was not an insured, even though all commonly judged criteria indicated otherwise. The son was a full-time student out of state, but spent vacations at his parents' and was financially dependent on them. Nonetheless, the court held that a resident relative was one who had regular personal contact. Since the son did not, he was not an insured.

4.Coverage applies not only at the insured's residence (or residences) described in the declarations of the policy, but with respect to personal activities anywhere and to any premises that qualify as an insured location as defined in the policy. Various restrictions in premises liability coverage are considered later in these pages.

Insuring Agreement—Personal Liability

 A.Coverage E—Personal Liability

     If a claim is made or a suit is brought against an "insured" for damages because of "bodily injury" or "property damage" caused by an "occurrence" to which this coverage applies, we will:

1.Pay up to our limit of liability for the damages for which the "insured" is legally liable. Damages include prejudgment interest awarded against the "insured"; and

2.Provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent. We may investigate and settle any claim or suit that we decide is appropriate. Our duty to settle or defend ends when our limit of liability for the "occurrence" has been exhausted by payment of a judgment or settlement.

 Analysis

 The second provision has been changed in the 2000 forms. The 1991 forms state that the insurer's duty to settle or defend ends when the amount paid for damages equals the limit of liability. The slight change in wording from active to passive is significant.  In the 2000 form, the duty to defend ends when the limit has been exhausted; in the 1991 form, the duty ends when the insurer pays damages. The implication of the 1991 wording is that the insurer can escape the duty to defend through offering to pay the policy limits before a judgment is reached. In fact, the duty continues until actual payment of a judgment or settlement. There are no changes in the 2011 form.

But once the insurer has paid out the limit of liability (and any claim costs in connection with the claimants receiving payment), it is relieved of further responsibility to defend or pay any claim costs for additional claimants seeking damages as a result of the same occurrence. There may be multiple claimants injured or suffering property damage from the same occurrence, but once the resulting claims paid exceed the limit of liability for the personal liability coverage, the duty to defend against claims arising from that occurrence ceases.

A mandatory endorsement (HO 350 09 87) released in 1987 changed the treatment of prejudgment interest. Before 1987, prejudgment interest was considered a claim expense item under the additional coverages section (where payments are made in addition to the limits of liability). The insuring agreement for coverage E was changed by HO-350 to state that prejudgment interest is treated as part of the legal damages, i.e., within the limit of liability. The 1991 homeowners program incorporated the provisions of endorsement HO-350, and these are carried into the 2000 and 2011 forms.

 Caused by Occurrence

 In order for section II coverage to apply, the injury or damage must be caused by an "occurrence." An "occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period" in bodily injury or property damage.

By including the requirement directly within the insuring agreement, the occurrence provision stipulates the requirement of an accidental event forcefully. For more information, see Occurrence. In the 1991 forms, questions remain as to what acts were considered "expected or intended"—and therefore non-accidental—by the insured. For example, if one young man hit another (an intended act) without intending that he fall into another person and injure him or her (an unintended bodily injury), it was uncertain whether coverage would apply. The question of intended action/unintended results has been extensively litigated, but various jurisdictions have taken contradictory positions on whether all consequences of the original intentional act fall within the intentional category. For a review of court cases on the "expected or intended" exclusion, see "Expected or Intended", Casualty & Surety volume, Public Liability section.

But with the advent of the homeowners 2000 forms, the question may become moot. For information on the change in the exclusionary language, see Homeowners Section II Exclusions.

 Bodily Injury and Property Damage Defined

 "Bodily injury" is defined as "bodily harm, sickness, or disease, including required care, loss of services, and death that results."

"Property damage" is defined as "physical injury to, destruction of, or loss of use of tangible property." Note that the loss of use coverage does not require actual physical injury to property of others; covered damage can arise if the owner is deprived of the property's use. A common example is negligent blocking of access to property of others, with no actual physical damage. Since the definition includes the words physical injury to tangible property, claims for damages arising from, say economic loss, are not covered. For example, if a homeowner erects a fence so that a neighbor's panoramic view of the ocean is obstructed, the policy will not respond to a claim for damages because there has been no physical injury to the neighbor's property.

 Insuring Agreement—Medical Payments to Others