When Accidents Happen—to Someone Else’s Stuff

broken lense

By Elizabeth Anne Rise, CIC

HO Coverage: When Your Client Damages Personal Property of Others’

Consider these loss scenarios:

  • Carrie borrows a friend’s camera to take with her on vacation to Yellowstone National Park. While leaning out of her car window to take pictures, she accidentally drops the camera onto the road.
  • Bert is driving his friend’s recreational vehicle when he runs it into a tree while taking a sharp turn.
  • A windstorm damages the outdoor tables and chairs Tim and Deborah rented for the graduation party they’ve planned for their daughter in their backyard.

Are losses such as these covered by the “borrower’s” Homeowners Policy? Let’s take a look. The ISO Homeowners Policy HO 00 03 05 11 will be used in this coverage discussion. Remember, other homeowners policies may treat these exposures differently than discussed in this article.

Section I Coverage C – Personal Property

The natural place to seek coverage for damage to personal property not owned by your client is in Coverage C – Personal Property. After all, the policy very clearly states that it covers personal property owned or used by an insured while it is anywhere in the world. While the policy begins by providing coverage for borrowed personal property, there are other sections of the policy that must be analyzed before we can determine the amount of the loss, if any, that is covered.

The next stop is in the Special Limits Of Liability and Property Not Covered sections of Coverage C. As long as the personal property is not limited or excluded, the policy continues to provide coverage. The final stop is the Perils Insured Against for Coverage C. As the HO 03 policy provides direct physical loss to property on a named peril basis, the cause of the loss— the peril—must be listed in the policy. If the cause of the loss is a named peril (or not excluded in Section I – Exclusions), coverage is provided, subject to the policy’s deductible.

For the losses mentioned previously, Section I – Property coverage is provided only if (1) the type of borrowed property was not limited or excluded AND (2) the damage was caused by a named peril. And, of course, the Section I deductible applies. If the Section I coverage is inadequate for the loss, we may be able to turn to Section II for coverage.

Section II Coverage E – Personal Liability

What about Section II Liability? Is there coverage to pay for damage to personal property of others being used by the client? The good news is that if there is coverage, a liability loss isn’t subject to a deductible.

Unfortunately, unless the loss is caused by fire, smoke or explosion, coverage is not provided due to the exclusion for property rented to or used by or in the care of an insured. If this exclusion applies, there is an often-overlooked Section II Additional Coverage Damage to Property Of Others that may provide a limited amount of coverage.

Damage to Property Of Others

Damage to Property of Others is an Additional Coverage that provides up to $1,000 on a replacement cost basis for damage caused by an insured to property of others. It should be noted that an insured is not required to be legally liable (negligent) for this coverage to respond; an insured only needs to have caused the loss. For those of you that have been around a while, this coverage was previously called Voluntary Property Damage.

There are exclusions that apply, including:

  1. Losses covered under Section I Property (Note, the Section I Deductible is still covered as it is a part of the loss that is not covered under Section I.)
  2. Intentional damage caused by a person age 13 or older
  3. Damage to property owned by an insured
  4. Damage to property owned or rented by a tenant or resident of the household
  5. Losses arising out of:

    • An insured’s business,
    • A premises that is not an insured location, or
    • The ownership, use, etc. of aircraft, hovercraft, watercraft, and motor vehicles with an exception for (therefore coverage for) a non-owned motor vehicle that is
      (1) designed for recreational use off public roads; AND
      (2) at the time of the occurrence was not required to have been registered for it to be used on public roads or property.

Let’s consider those first three loss scenarios again. The following chart provides an overview of the coverage provided by Section I Property and Section II Liability for the losses to personal property of others introduced earlier.

(Click to view larger image.)

We have just examined the coverage provided by the Homeowners Policy for personal property of others rented or used by an insured. What kind of coverage is available should your client damage real property rented or used by them? For instance, what if your clients:

  • rent the ballroom of a hotel for their daughter’s wedding reception
  • rent a vacation home in Spain for two weeks
  • rent a hotel room while on vacation in Florida
  • stay in a friend’s mountain cabin and are legally responsible for damage to the portion they are renting or using?

The Section II exclusion for property rented to or used by or in the care of an insured applies to real property as well. So, there is still no coverage for losses other than those caused by fire, smoke, or explosion. Of course, the Section II Additional Coverage Damage To Property Of Others could also apply to these losses. The problem is these losses are much more costly than $1,000. Your clients may be able to find additional coverage in their umbrella/excess policy, if they have one. If the property is being used for a wedding, anniversary, party, etc., consider making a recommendation that your client purchase a Special Events policy that may provide the coverage needed for this exposure.

Learn More, Earn More

Insurance Essentials

Attend the CIC Personal Lines Institute to learn more about homeowners exposures and coverages. Learn more about the homeowners and dwelling policies in the CISR Insuring Personal Residential Property Course. The National Alliance Research Academy’s Property & Casualty Insurance Essentials book is also a good source of information about the homeowners and dwelling policies, as well as many other personal lines coverages.

Elizabeth Rise, CIC, and her husband, Harlan, owned and managed the Burd and Rise Insurance Agency of Halstad, MN, from 1975 until their retirement at the end of 2008. Elizabeth instructs numerous Dynamics of Service courses, CIC institutes, and CISR courses around the country. She is a CIC National Faculty member, a CISR mentor, and a past CISR Board member.

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