HO-3 Liability Exclusions

Study guide: Exam DISC-IA

HO-3 Liability Exclusions are the Section II exclusions of the ISO Homeowners 3 – Special Form (HO 00 03, 05 11 edition). They remove from personal liability (Coverage E) and medical payments to others (Coverage F) the exposures that belong on other policies or are uninsurable: motor vehicles, watercraft, aircraft and hovercraft (each with carefully drawn exceptions), injury the insured expected or intended, business and professional activities, and a further list that applies to one coverage only.

$\text{E covers } \text{Occ} \setminus (A \cup B \cup C \cup D \cup E \cup F)$

$\text{F covers } \text{Occ} \setminus (A \cup B \cup C \cup D \cup E \cup G)$

Symbols: Occ is the set of occurrences otherwise within the coverage, and the letters are the form's exclusion groups: A motor vehicle liability, B watercraft liability, C aircraft liability, D hovercraft liability, E the exclusions that apply to both coverages, F those for Coverage E only and G those for Coverage F only.
A. Motor vehicle liability: Both coverages exclude liability arising from the ownership, maintenance, use, loading, entrustment or supervision of others' use of a "motor vehicle" (a self-propelled land or amphibious vehicle, or a trailer being towed or carried by one) that is registered for public roads, or required to be registered where the occurrence happens, or that is being raced, rented to others, used to carry people or cargo for a charge, or used in a business (except a golf cart on a golfing facility). Even then the only motor vehicles covered are ones (a) in dead storage on an insured location; (b) used solely to service a residence; (c) designed to assist the handicapped and in that use or parked on an insured location; (d) designed for off-road recreational use and either not owned by an insured, or owned and on an insured location (the residence premises and most other insured locations), or off it only if a battery-powered children's toy that can't exceed 5 mph; or (e) an owned golf cart for up to four people that can't exceed 25 mph, while on a golfing facility or inside a private residential community, including its roads where carts may legally travel.
B. Watercraft liability: Excluded if the watercraft is being raced (except sailing vessels and predicted log cruises), rented to others, used to carry people or cargo for a charge, or used in a business. Otherwise coverage applies only if the watercraft is stored; is a sailboat under 26 feet, or 26 feet or more and not owned by or rented to an insured; has an inboard or inboard-outdrive engine (including a water jet pump) of 50 horsepower or less not owned by an insured, or more than 50 not owned by or rented to an insured; or has outboard motors of 25 total horsepower or less, more than 25 not owned by an insured, more than 25 owned and acquired during the policy period, or more than 25 owned before the period if declared at inception or reported in writing within 45 days of acquisition.
C and D. Aircraft and hovercraft: Aircraft liability and hovercraft liability are not covered at all. Model or hobby aircraft not designed to carry people or cargo are not aircraft.
The residence employee exception: Exclusions A to D, and E.4 below, do not apply to bodily injury to a residence employee arising out of and in the course of employment by an insured.
E. Both coverages: (1) Bodily injury or property damage expected or intended by an insured, even if of a different kind or degree, or to a different person or property, than intended, except injury from reasonable force used to protect persons or property. (2) Business: injury arising from a "business" conducted from an insured location or engaged in by an insured. A business is a trade, profession or occupation, or any other activity for money, except activities for which no insured received more than $2,000 in the 12 months before the policy period, volunteer work, home day care traded without pay, and home day care for a relative. The exclusion does not apply to renting an insured location occasionally as a residence, renting part of it as a residence (unless a single-family unit takes more than two roomers or boarders), or renting part as an office, school, studio or private garage; nor to an insured under 21 in a part-time or occasional self-employed business with no employees. (3) Professional services. (4) Premises an insured owns or rents, or rents to others, that are not an insured location. (5) War. (6) Communicable disease transmitted by an insured. (7) Sexual molestation, corporal punishment, or physical or mental abuse. (8) Use, sale, manufacture, delivery or possession of a controlled substance, except legitimate use of prescribed drugs.
F. Coverage E only: (1) Liability for a loss assessment against the named insured as an association member (other than the loss assessment additional coverage), and liability under a contract, except written contracts that directly relate to the ownership, maintenance or use of an insured location or where the named insured assumed others' liability before the occurrence. (2) Property damage to property owned by an insured, including the cost of repairing it to prevent injury to others. (3) 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. (4) Bodily injury to anyone eligible for benefits an insured provides or must provide under a workers compensation, non-occupational disability or occupational disease law. (5) Injury for which an insured is, or would be but for exhaustion, an insured under a nuclear energy liability policy. (6) Bodily injury to the named insured or a resident relative, ward or student insured, including a claim against an insured to repay or share damages someone else owes for injuring an insured.
G. Coverage F only: Bodily injury (1) to a residence employee that happens off the insured location and not in the course of employment; (2) to anyone eligible for workers compensation, non-occupational disability or occupational disease benefits; (3) from nuclear reaction, radiation or radioactive contamination; or (4) to anyone other than a residence employee who regularly resides on any part of the insured location.

Vehicles and Boats Decide whether Section II covers each injury: (a) the insured's teenage daughter, driving the family's registered car, hits a cyclist; (b) the insured, mowing his lawn with his riding mower, throws a stone that injures a neighbor; (c) the insured's son crashes the family's own ATV into a hiker on a friend's farm; (d) the insured, driving a borrowed jet ski powered by a 110-horsepower water jet pump, injures a swimmer; (e) the insured's own 22-foot sailboat strikes a dock worker.

Answer

(a) Excluded: a registered motor vehicle. The family's auto policy responds (PAP Liability Coverage).

(b) Covered: an unregistered motor vehicle used solely to service a residence.

(c) Excluded: an owned off-road recreational vehicle is covered only on an insured location, and the friend's farm isn't one.

(d) Covered: an inboard water jet engine over 50 horsepower is covered if it is not owned by or rented to an insured, and this one is borrowed.

(e) Covered: a sailing vessel under 26 feet is covered even when owned.

Business, Intent and Who Was Hurt Decide whether Coverage E covers each claim: (a) the insured runs a paid day care for four neighbors' children, earning $15,000 a year, and a child is injured; (b) the insured's 16-year-old son mows lawns for pay with no employees, and a customer's child is hit by a stone from his mower; (c) the insured punches a party guest in anger; (d) the insured's spouse trips on a toy and sues the insured; (e) a visiting friend is injured by the insured's dog.

Answer

(a) Excluded: paid home day care is a "business" because more than $2,000 was received, and none of the exceptions fits.

(b) Covered: an insured under 21 in a part-time, self-employed business with no employees is an exception to the business exclusion.

(c) Excluded: injury expected or intended by an insured. Had the insured used reasonable force to protect someone, the exclusion would not apply.

(d) Excluded: bodily injury to the named insured or a resident relative is excluded from Coverage E, and Coverage F excludes residents too.

(e) Covered: no exclusion applies to a guest injured by the insured's animal.

Property in the Insured's Care The insured rents a lake cabin for a week (an insured location, as premises occasionally rented for non-business use). He accidentally starts a kitchen fire that does $40,000 of damage to the cabin, and separately spills paint on the owner's $2,000 rug. Coverage E has a $300,000 limit. What does Section II pay?

Answer Coverage E excludes property damage to property rented to or in the care of an insured, except damage caused by fire, smoke or explosion. The $40,000 of fire damage is covered under Coverage E. The rug is excluded from Coverage E because the cause was not fire, smoke or explosion, but the damage to property of others additional coverage pays its replacement cost up to $1,000 per occurrence, so it pays $1,000.

How it appears on the exam

DISC-IA: Section 6.2 covers the HO-3 liability exclusions. Questions describe a claim and ask whether an exclusion removes it, usually with a detail that triggers an exception: the vehicle's registration or where it was used, the boat's length or horsepower, the insured's age in a part-time business, or fire as the cause of damage to rented property.

Placement questions: A stem asks which policy should respond instead: the auto policy for a registered car, a watercraft or business policy, or workers compensation for an employee.

Exam traps

Owned and off-road is not enough: An owned ATV is covered only on an insured location; a non-owned one is covered anywhere it need not be registered.

Inboard versus outboard: An inboard engine over 50 horsepower is covered only if an insured neither owns nor rents the boat, so a borrowed one is covered and a rented one isn't. An outboard over 25 horsepower is covered whenever an insured doesn't own it, rented or not.

Fire, smoke or explosion: Damage to property the insured rents or borrows is excluded except when fire, smoke or explosion caused it.

The $2,000 business test: Occasional paid activity earning an insured no more than $2,000 in the prior 12 months isn't a business.

Coverage F's own list: Coverage F does not have the Coverage E-only exclusions, so contract liability and damage to owned property are irrelevant to it, but it excludes regular residents of the insured location.