Homeowners Section II: Personal Liability and Its Endorsements

A homeowners policy is two policies under one cover. Section I pays for damage to the home and the belongings in it. Section II pays when someone else claims the insured caused them harm. The sections below work through Section II of the Homeowners 3 Special Form, HO 00 03 05 11, the form on which most homeowners policies are modeled.

How Section II Is Built

• Coverage E, Personal Liability. Pays damages an insured is legally liable for and defends the insured.
• Coverage F, Medical Payments to Others. Pays an injured person’s medical bills without any finding of fault.

Both respond only to “bodily injury” or “property damage,” and Coverage E only when an “occurrence” caused it. Each limit is read from the Declarations.

The form defines “bodily injury” as bodily harm, sickness or disease, including required care, loss of services and death that results. “Property damage” is physical injury to, destruction of, or loss of use of tangible property, so a neighbor who cannot use a damaged driveway has a claim. An “occurrence” is 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.

Who Is an Insured

“You” means the named insured and a spouse who lives in the same household. An “insured” is wider: you, residents of your household who are your relatives, and residents of your household under age 21 who are in the care of you or a resident relative.

A full-time student who lived in your household before leaving for school stays an insured while under 24 and your relative, or while under 21 and in the care of you or a resident relative. A daughter, 22, away at a full-time university program is an insured. Her brother, 25, who rents his own apartment is not.

Section II adds two groups.

• Animals and watercraft. An insured includes any person or organization legally responsible for animals or watercraft owned by you or a person described above. The neighbor who walks your dog and is sued after a bite is an insured. A person using or having custody of the animal or watercraft in the course of any business, or without the owner’s consent, is not an insured, so a paid dog-walking company is not.
• Motor vehicles. An insured includes persons while engaged in your employ or that of a person described above, and other persons using the vehicle on an insured location with your consent.

Three Definitions That Decide Claims

Insured location

Coverage F and several exclusions turn on whether the injury happened on an “insured location.” The term covers the residence premises, other premises used as a residence and shown in the Declarations or acquired during the policy period, and premises used in connection with those. It also covers premises where an insured is temporarily residing, vacant land other than farm land, land on which a residence for an insured is being built, and family cemetery plots.

A duplex you own and rent out, away from where you live, is not an insured location, and that fact drives one of the exclusions below.

Business

“Business” means a trade, profession or occupation engaged in full time, part time or occasionally, or any other activity engaged in for money or other compensation. Four exceptions follow:

1. An activity, other than those in exceptions 2 through 4, for which no insured receives more than $2,000 in total compensation for the 12 months before the beginning of the policy period.
2. Volunteer activities for which nothing is received but expense reimbursement.
3. Home day care for which no compensation is received other than the mutual exchange of such services.
4. Home day care for a relative of an insured.

The first exception looks back at the 12 months before the policy period begins, not at the year of the claim. A lawn-mowing job that earned $1,400 in that look-back year is not a business, even if it grows to $6,000 during the policy period.

Residence employee

A “residence employee” is an employee of an insured, or one leased to an insured by a labor leasing firm, whose duties relate to the maintenance or use of the residence premises, including household or domestic services. A temporary substitute or seasonal worker is not one.

Coverage E, Personal Liability

When a claim or suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence to which Coverage E applies, the company pays up to the limit for the damages the insured is legally liable for, with prejudgment interest awarded against the insured counted as damages. It also defends at its own expense, by counsel of its choice, even if the suit is groundless, false or fraudulent.

Two points follow from the wording.

• Legal liability is required. A claimant who cannot establish that the insured is legally liable gets nothing from it, which separates it from Coverage F. Liability need not rest on carelessness: Michigan’s dog bite statute makes an owner liable without proof of fault, and that liability is what Coverage E then pays.
• The duty ends at exhaustion. The duty to settle or defend ends when the limit for the occurrence has been exhausted by payment of a judgment or settlement.

Coverage F, Medical Payments to Others

Coverage F pays necessary medical expenses incurred or medically ascertained within three years from the date of an accident causing bodily injury. Medical expenses means reasonable charges for medical, surgical, dental, ambulance, hospital and nursing care, prosthetics and funeral services. Payment is not an admission of liability by an insured or the company.

It does not apply to you or to regular residents of your household, except residence employees. For others it applies in two situations only.

1. On the insured location with an insured’s permission.
2. Off the insured location, if the injury arises out of a condition on the insured location or the ways immediately adjoining, is caused by the activities of an insured, is caused by a residence employee in the course of employment by an insured, or is caused by an animal owned by or in the care of an insured.

Section II Exclusions

Motor vehicles

Coverages E and F do not apply to motor vehicle liability if, at the time and place of the occurrence, the vehicle is registered for use on public roads or property, is not registered but a law or regulation requires registration for use where the occurrence took place, or is being raced, rented to others, used to carry persons or cargo for a charge, or used for any business purpose.

If that does not apply, the form still denies coverage unless the vehicle falls within a list of exceptions. The exceptions include a vehicle in dead storage on an insured location and one used solely to service a residence. The main one is a vehicle designed for recreational use off public roads, such as a dirt bike or all-terrain vehicle, if an insured does not own it, or if an insured owns it and the occurrence takes place on an insured location (with carve-outs in the form). Small toy vehicles and qualifying golf carts are also excepted.

A visiting cousin hurt on the family’s dirt bike on the residence premises is covered; the same ride in a neighbor’s field is not, because the field is not an insured location.

Watercraft

The form takes the same two steps for watercraft. Coverages E and F do not apply when the craft is being raced (a sailing vessel is excepted), rented to others, used to carry persons or cargo for a charge, or used for any business purpose. If that does not apply, there is still no coverage unless the craft is stored, is a sailing vessel under 26 feet (or 26 feet or more and not owned by or rented to an insured), or meets an engine test. Inboard engines of 50 horsepower or less qualify if an insured does not own them, and larger ones if not owned by or rented to an insured. Outboards qualify at 25 total horsepower or less, and above that if not owned by an insured, if acquired during the policy period, or if acquired earlier and declared at inception or reported in writing within 45 days after acquisition.

Craft owned by the insured	Section II result under the standard form
14-foot rowboat with a 5 horsepower outboard	Covered, within the 25 horsepower limit
18-foot boat with a 90 horsepower outboard, bought three years ago and never declared	Not covered: acquired before the policy period, and neither declared nor reported
Same boat, bought during the policy period	Covered for that policy period
28-foot sailboat owned by the insured	Not covered: a sailing vessel of 26 feet or more is covered only if not owned by or rented to an insured

Aircraft and hovercraft

The policy does not cover aircraft or hovercraft liability, though a hobby aircraft not designed to carry people or cargo is not an aircraft under the form’s definition.

Exclusions for both coverages

Coverages E and F do not apply to:

1. Expected or intended injury, even if the harm differs in kind or degree, or falls on a different person or property, than intended. The exclusion does not apply to injury from reasonable force used to protect persons or property. Pushing an intruder away from a child is within the exception; throwing a punch in a dispute with a neighbor is not.
2. Business. Injury arising out of or in connection with a business conducted from an insured location or engaged in by an insured, whether or not owned by an insured or employing one. Exceptions cover occasional rental of an insured location used only as a residence, rental in part for residence use (but not to more than two roomers or boarders in a single-family unit), rental in part as an office, school, studio or private garage, and a part-time or occasional, self-employed business of an insured under 21 with no employees.
3. Professional services, meaning rendering or failing to render them.
4. A premises that is not an insured location which an insured owns, rents, or rents to others. A fall on the stairs of the rental duplex is not a Section II claim.
5. Other excluded harm: war, communicable disease transmitted by an insured, sexual molestation, corporal punishment or physical or mental abuse, and controlled substances as defined by federal food and drug law (legitimate prescription use is excepted).

The vehicle, craft and non-insured-location exclusions do not apply to injury to a residence employee in the course of employment.

Coverage E only

Coverage E does not apply to:

• Loss assessments charged against you by an association of property owners, except under the additional coverage below.
• Contractual liability under any contract an insured has entered into, except written contracts that directly relate to the ownership, maintenance or use of an insured location, or in which the liability of others is assumed before the occurrence.
• Property damage to property owned by an insured, including the cost of repairing or maintaining it to prevent harm to others.
• Property damage to property rented to, occupied or used by, or in the care of an insured, except damage caused by fire, smoke or explosion. A tenant who spills paint on a rented apartment’s carpet has no Coverage E for it; a kitchen fire falls within the exception.
• Bodily injury to a person eligible for benefits that an insured provides voluntarily or must provide under a workers’ compensation, non-occupational disability or occupational disease law.
• Bodily injury to you or to a resident relative or resident person under 21 in the household’s care. Family liability coverage does not pay one household member for hurting another.

Coverage F only

Coverage F does not apply to a residence employee hurt off the insured location and outside the employment, to any person eligible for workers’ compensation, non-occupational disability or occupational disease benefits, to injury from nuclear reaction, radiation or radioactive contamination, or to anyone other than a residence employee regularly residing on any part of the insured location.

Sidenote

Same subject, different wording

Coverage E’s workers’ compensation exclusion applies when benefits are provided or required to be provided “by an insured.” Coverage F’s applies to anyone eligible for benefits under any such law, with no mention of who provides them. A meter reader employed by a utility and hurt on your porch is eligible for workers’ compensation from the utility, so Coverage F does not pay, but the meter reader’s claim against you under Coverage E is not excluded on that ground.

Section II Additional Coverages

The form pays these in addition to the limits of liability.

• Claim expenses. The company pays expenses it incurs and costs taxed against an insured in a suit it defends, and premiums on bonds required in that suit (not for bond amounts above the Coverage E limit). It also pays an insured’s reasonable expenses at the company’s request, including lost earnings up to $250 per day, and interest accruing on the entire judgment after entry and before the company pays, tenders or deposits the part that does not exceed the limit. Because these are paid in addition, defense costs do not erode Coverage E.
• First aid expenses. The company pays an insured’s expenses for first aid to others for covered bodily injury, but not first aid to an insured.
• Damage to property of others. The company pays, at replacement cost, up to $1,000 per occurrence for property damage to the property of others caused by an insured, with no need to prove liability. It does not pay to the extent Section I pays, for intentional damage by an insured aged 13 or older, for property owned by an insured or by a tenant or household resident, or for damage arising out of a business, a premises other than the insured location, or aircraft, watercraft or motor vehicles.
• Loss assessment. The company pays up to $1,000 for your share of an assessment charged during the policy period by a property owners’ association, when it results from covered bodily injury or property damage, or from the liability of an elected director, officer or trustee who serves without income from those duties. The $1,000 is the most for one accident or one covered act of a director, officer or trustee, however many assessments follow.

A ten-year-old’s baseball breaks a neighbor’s window, and replacement costs $620. The parents may not be negligent, but the coverage pays the $620; had a fifteen-year-old broken it deliberately, nothing would be paid.

If a condominium association levies a special assessment after a covered liability judgment and Dana’s share is $2,300, the policy pays $1,000 and Dana pays $1,300.

Section II Conditions

• Limit of liability. The Coverage E limit is the most payable for all damages from any one occurrence, whatever the number of insureds, claims or persons injured. All injury and damage from one accident, or from continuous or repeated exposure to the same general harmful conditions, is one occurrence, so one collapsing stair that injures three guests is one occurrence and one Coverage E limit.
• Severability. The insurance applies separately to each insured, without increasing the limit for any one occurrence.
• Duties after occurrence. The insured gives written notice as soon as practical, with the policy identity, the reasonably available facts of time, place and circumstances, and the names and addresses of claimants and witnesses. The insured cooperates, forwards every notice, demand and summons, and, for damage to property of others, submits a sworn statement within 60 days. No insured may, except at personal cost, voluntarily make a payment, assume an obligation or incur an expense other than first aid. The company has no duty to provide coverage if the failure to comply is prejudicial to it,.
• Suit against us. No action lies against the company without full compliance with Section II, no one may join the company as a party to an action against an insured, and no Coverage E action can be brought until the insured’s obligation is decided by final judgment or by agreement the company signs.
• Other conditions. Bankruptcy of the insured does not relieve the company. Section II is excess over other valid and collectible insurance, except insurance written specifically as excess over this policy’s limits. It applies only to injury or damage during the policy period. An insured who intentionally conceals or misrepresents a material fact, engages in fraud or makes false statements relating to the insurance loses coverage.

Four Claims Solved

Assume Dana Okafor’s policy shows Coverage E at $300,000 and Coverage F at $5,000. Every figure is an example.

A guest’s fall

Walter Brandt, a dinner guest, slips on an icy back step and breaks a wrist. He is on the insured location with permission, so Coverage F pays his $4,200 of medical bills without regard to fault.

Walter then sues, and the insurer defends. The judgment is $180,000 and the court adds $6,000 of prejudgment interest. That interest counts as damages, so $186,000 counts against the limit and the insurer pays all of it. Defense fees and costs of $35,000, and $1,100 of interest accruing on the judgment before payment, are paid in addition to the limit. The insurer’s total outlay is $4,200 + $186,000 + $35,000 + $1,100, which is $226,300, and Dana pays nothing.

Change one fact: the judgment, interest included, is $348,000. The insurer pays the $300,000 limit, Dana owes the remaining $48,000, and the duty to defend ends once the limit is paid.

A dog bite

Michigan’s dog bite statute fixes the owner’s liability before the policy is read. If a dog bites a person without provocation while the person is on public property, or lawfully on private property including the owner’s, the owner is liable for the damages the person suffers, regardless of the dog’s former viciousness or the owner’s knowledge of it (MCL 287.351(1)). A person is lawfully on private property if there in the performance of a duty imposed by state or federal law or postal regulations, or as an invitee or licensee of the person lawfully in possession, unless the person gained lawful entry for an unlawful or criminal act (MCL 287.351(2)). The statute makes the owner liable, so the policy question is whether Section II pays the owner.

Dana’s dog bites a nine-year-old on a public sidewalk two blocks from home. Nothing suggests the child provoked it, and the dog had never bitten anyone. Under the statute that history does not matter: the bite, the lack of provocation and the public sidewalk are enough for liability.

1. Coverage F. The child is off the insured location, but an animal owned by an insured caused the injury, so Coverage F pays the $3,100 of medical bills without regard to fault.
2. Coverage E. The claim for the child’s other damages is a claim for bodily injury caused by an occurrence, and Dana is legally liable under the statute. The insurer settles it for $45,000, a figure that leaves out the bills Coverage F already paid, and spends $9,000 on the defense, which is paid in addition to the limit.
3. Total. $3,100 + $45,000 + $9,000 is $57,100. Dana pays nothing, and only the $45,000 reduces her $300,000 Coverage E limit.

Had the dog bitten a burglar who entered the yard to commit a theft, the statute’s owner liability would not reach that person, because the entry was for an unlawful act. Had it bitten a letter carrier delivering mail to the porch, the carrier would be on the property in the performance of a duty under postal regulations, so the owner would be liable under the statute and Coverage E would answer the claim.

A day care child

Three households come out differently under the business definition.

Household	Facts	Business under the definition?	Section II
Nora	Cares for a neighbor’s child while the neighbor cares for Nora’s on other days; no money changes hands	No: mutual exchange is excepted	Responds if the child is hurt
Luis	Cares for two unrelated children for $600 a month for 10 months, or $6,000, in the 12 months before the policy period	Yes: $6,000 is more than $2,000	Business exclusion applies; no E or F
Mei	Cares for her sister’s child for $400 a month	No: day care for a relative is excepted	Responds

Luis gets no Coverage F payment and no defense; his protection is a home day care endorsement or a separate policy.

A business pursuit

Priya sells flooring and brings samples to a customer’s home. A heavy display rack she carries in falls and injures the customer’s husband. The injury arose out of Priya’s business, so the business exclusion removes the claim: no payment under E or F, and no defense, because the claim is not one to which the coverage applies. The result changes only if a business pursuits endorsement fits her occupation.

Endorsements That Change Section II

Each answers a gap in the standard form. The descriptions state how such endorsements generally work; the attached wording controls.

Gap in the standard form	Endorsement	What it generally does
Business exclusion removes liability from work away from home	Business pursuits	Restores liability for an insured’s activities in the occupation shown, usually not for business at the home or professional services
Business exclusion reaches a business run from the home	Home business	Covers a described small business at the residence premises, under its own limits and conditions
An office, studio or school in part of the home	Permitted incidental occupancies	Allows a business use in part of the residence premises or other structures there and extends coverage for it
Child care for pay	Home day care	Covers liability from a day care operated at home, with its own conditions
Insuring agreement covers bodily injury and property damage only	Personal injury	Adds offenses such as libel, slander, false arrest and invasion of privacy
Watercraft thresholds leave out larger boats and engines	Watercraft	Extends Coverage E and F to listed craft beyond the form’s limits, for added premium
Mold, rot and bacteria	Limited fungi, wet or dry rot, or bacteria	Addresses such claims, generally with a stated sublimit

An endorsement usually restores coverage only for a defined activity or object, often under its own limit. A home business endorsement with a $25,000 limit, an example figure, leaves a $60,000 judgment $35,000 short.

Michigan

A Michigan homeowners policy may carry a special provisions endorsement that changes the standard form, so read the endorsements attached before answering a coverage question.

Property protection insurance pays for damage to tangible property arising out of a motor vehicle’s ownership or use (MCL 500.3121), and tort liability that remains after no-fault is the residual liability an auto policy covers (MCL 500.3135).

The Essential Insurance Act treats nonbusiness coverage included in or endorsed to a fire policy as home insurance (MCL 500.2103(3)), and its termination rule requires written notice at least 30 days before the effective date, stating the date and each specific reason, and allows 20 days when notice is given within the first 55 days after initial issuance (MCL 500.2123(1), (2)). Nonpayment is effective as the policy provides (MCL 500.2123(3)). Michigan’s periods govern where the form’s differ.

Lesson summary

• Coverage E pays damages an insured is legally liable for and defends the suit. In Michigan a dog owner is liable for an unprovoked bite without proof of fault or knowledge of viciousness (MCL 287.351), and Coverage E responds to that liability. Coverage F pays necessary medical expenses of others within three years, without regard to fault.
• “Insured” includes resident relatives, resident persons under 21 in the household’s care and qualifying students, and in Section II it reaches people responsible for the insured’s animals and watercraft.
• “Insured location,” “business” and “residence employee” are defined terms that decide many claims. Business has a $2,000 look-back exception and exceptions for volunteer work and certain day care.
• Exclusions for motor vehicles, watercraft, aircraft, business, professional services and premises that are not an insured location remove the largest exposures. Owned off-road vehicles and small boats are the main exceptions.
• Claim expenses, first aid, damage to property of others up to $1,000 and loss assessment up to $1,000 are paid in addition to the limits, and claim expenses do not erode Coverage E.
• Conditions require prompt notice and cooperation, bar voluntary payments, make Section II excess over other insurance and allow suit against the company only after judgment or a signed agreement.
• Endorsements restore coverage for defined activities such as business pursuits, home business, home day care, personal injury and larger watercraft, each with its own wording and limit.