DEFINITIONS
This portion of the Special Form
policy defines the terms that are critical to understanding how the policy
responds to coverage situations. The following is a summary of the defined
terms that, throughout the policy, appear in quotation marks:
A. "You" and
"your"
These are used in the policy to refer
to the "named insured" that appears on the policy’s declarations.
“You” and “your” also extend to the named insured's spouse, but only if he/she lives
in the same household.
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Example: Joe and Tanya have an HO policy effective June
1, 2014 to June 1, 2015. The policy shows Joe on the policy as the named
insured:
Scenario 1: On July 15th, Joe and Tanya both live
at the address that appears on the HO declarations. At this point, both Joe
and Tanya are both named insureds.
Scenario 2: On
September 29th, Joe is still at the address that appears on the HO
declarations. Tanya, fed-up with her marriage, now lives in an apartment on
the opposite side of town. At this point, the term "you" and
"your" no longer apply to Tanya since she doesn’t live at the
described residence.
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"Our,"
"us" and "we"
These
three terms are used as references to the company providing the homeowner
policy.
B. The HO 3 Special form
policy also makes use of the following, defined terms:
1. “Aircraft Liability,”
“Hovercraft Liability,” “Motor Vehicle Liability” and “Watercraft Liability”
“Aircraft Liability,” “Hovercraft
Liability,” “Motor Vehicle Liability” and “Watercraft Liability” refer to legal
liability for “bodily injury” or “property damage” that is related to the use
or ownership of these items. Such liability would also encompass loss involving
the following:
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Unloading or
loading a vehicle or craft
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Vehicle or craft operation
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Maintaining (including repairing) a
vehicle or craft
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Vehicles or
crafts that belong to any person defined as an insured
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An insured's negligent supervision
related to vehicle/craft
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An insured permitting another party
to use a vehicle/ craft (entrustment)
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An insured's
vicarious liability related to vehicle/craft
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The vehicle and craft definitions go
further, describing the following:
Aircraft - refers to devices that are used or
designed for flight. It does not include model or hobby aircraft that is not
intended (designed) to carry people or cargo;
Hovercraft - refers to vehicles that are powered
by force of cushioned air; naturally, such devices have motors. They must also
be designed to travel over the ground, at ground level. This means a
self-propelled motorized ground effect vehicle and includes, but is not limited
to, Flarecraft (brand of air-cushion device) and other air-cushion vehicles;
and
Watercraft - refers to devices that operate on or
in water. Movement can be powered by wind, motors or engines.
Related
Court Case: “Aircraft Definition Held Not to Include a Parachute”
Motor Vehicle – refers to separate definition that
appears later in this section.
2. "Bodily injury"
This term refers to sickness, disease,
or bodily harm, and includes any resultant death.
3. "Business"
In earlier editions of the homeowners
policy, business meant any activity having the goal of generating personal
income. This policy instead defines the term to apply to a variety of
situations. “Business” refers to a trade, occupation or profession, EVEN when
such activity occurs only on a part-time or occasional basis. The policy’s
definition does exclude the following instances from its business definition:
- Activities
that only reimburse volunteers for expenses that are directly related to
the activity
- An
insured who provides home day care to his or her relatives
Related Court Case: Babysitting Activity Held Subject To Liability Exclusion For Business
- Mutual
exchanges of home day care services
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Example: Josie McBakerie volunteered to run her church’s
annual fish fry. The program runs for a month and it is very popular. Josie
was sued by another church member whom Josie recruited to operate a hot oil
fryer. The church member was injured when Josie fell against him and the
person’s hand fell into the hot fryer. The insurance company adjuster told
Josie that she was not covered by her homeowner policy after he discovered
that Josie received over two thousand dollars from the church’s treasurer for
her work on the fish fry. Later, Josie explained that she shops and pays for
all of the food and supplies used in the fish fry herself and then gets
reimbursed by the church’s treasurer. Josie’s total expenses were more than
$2,600. The adjuster then says that, since the money was just for fish fry
expenses, Josie would be covered for the loss.
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The policy’s “business” definition
also makes an exception for activities that involve modest amounts of income.
Specifically, an activity is not considered to be a business if it generates no
more than $2,000 in compensation during the 12-month period before the
homeowner policy period.
Note:
This refers to the value of compensation, NOT merely cash. So the details
surrounding an activity greatly affect how the activity is classified.
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Example: Scenario 1: Jim Surepay has a regular job but he
is a genius with a video camera and he often makes extra money videotaping
weddings, birthday parties and similar events. Jim bought a Special Form
homeowner policy on 10/1/2013. In the 12 months before the policy began, Jim
made $1,950 taping events. The following year, Jim made well over $3,000.
Since the $3,000 was made in the 12 months before the RENEWAL date of
10/1/2014, does it qualify as a “business”? In this case, the activity
changes from a non-business to a business situation from the policy inception
period to the renewal period.
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If an activity exceeds $2,000 in any
12 months before a policy period, does it retain its status as a business
forever?
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Example: Scenario 2:Let’s revisit Jim Surepay. Remember
that Jim makes extra money videotaping weddings, birthday parties and similar
events and that Jim bought a Special Form homeowner policy on 10/1/2013.
However, his earnings are different. In the 12 months before the policy
began, Jim made $2,450 taping events. Earnings in the following year are very
slim and Jim only makes $1,200. Since the $2,450 was made in the 12 months
before the INCEPTION date of 10/1/2013, does it qualify as a “business” for
renewal periods even when it generates less than $2,000 income in the period
prior to the renewal dates? From the policy wording’s inclusion of the phrase
“for the 12 months before a policy period”, a given activity’s status may
change from one policy period to another based on the volume of compensation.
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Does the reference to total income
include “non-monetary” compensation?
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Example: Scenario 3: This time, in the 12 months before
his homeowner coverage began; Jim made $1,850 in cash for taping events.
However, one client received two video cameras as wedding gifts so he “paid”
Jim by giving him one. The camera had a retail value of $1,395. Does this
combination of payments qualify his taping as a “business” for the following
policy year?
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Does the reference to total
compensation take gross or net receipts into consideration?
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Example: Scenario 4:Let’s look at Jim Surepay again. In
this instance, in the 12 months before the policy began, Jim made $2,250 in
cash for taping events. However, Jim’s regular job puts him in a high tax
bracket and his net income for taping is only $1,790. Since his net income is
less than $2,000 does it qualify as a “business” for the following policy
year?
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Is the reference to total compensation
in the 12 months before the inception date affected by the basis of collecting
income?
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Example: Scenario 5:Let’s look at Jim Surepay once again.
In this instance, in the 12 months before the policy began, Jim earned $2,250
in fees for taping events. However, Jim gives his clients as long as 60 days
to pay and, while he EARNS more than $2,000 in the 12-month period before the
policy, he receives less than $2,000 in cash (collecting another $500 in fees
AFTER the policy inception date). Since his cash income is less than $2,000
does it qualify as a “business” for the following policy year?
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These issues are ones that will likely
only be addressed when a loss occurs and then, the applicable insurer may be as
confused as the insured over what qualifies as a business.
4. “Employee”
This term refers to a person whose
duties involve tasks that are NOT performed by a “residence employee” AND who
either:
- works for
an “insured” on a direct basis, or
- works for
an “insured” through a leasing arrangement between an “insured” and a
company that leases employees.
5.
The Special Form homeowner policy considers all of the following to be insureds
(with notes on any exceptions):
(refer
to separate definition)
- Your
relatives if residents of "your" household
(meaning
relatives who live at the insured location with the named insured)
- Persons
under the age of 21 residing in "your" household and in
"your" care or in the care of "your" resident
relatives
Note: Such persons must BOTH be younger than
21 AND have a named insured, his or her spouse or a relative of the named
insured/spouse as their caregiver.
The
definition of insured includes persons who are residents of the named insured’s
household who are full-time students. In order for a full-time student to
qualify as an insured, he or she must either be younger than 24 years of age
and be related to an insured OR be younger than 21 years of age and be in the
care of someone in the named insured’s household.
The
following persons are insureds, but ONLY regarding section II, the liability
portion of the homeowner policy:
- Any party
having legal responsibility for either animals or watercraft that is
eligible for coverage under the homeowner policy.
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Examples: Nancer Editbee’s home is insured by an ISO
Special Form policy. Let’s look at whether the following are insureds under
her policy:
- Nancer’s
12 year old neighbor who walks Nancer’s dog (yes, an insured)
- Frank, who rented Nancer’s RV for the weekend
(no, not an insured – due both to rental and type of property)
- Jeri, a stranger who stole Nancer’s cat (no, not
an insured)
· Paul, a friend from work who borrowed Nancer’s
canoe (yes, an insured)
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Related
Court Case: Animal Liability Exclusion Stands As Written
However,
anyone in possession of an insured’s watercraft or animal is denied insured
status if any business purpose is involved.
- Any
person working for an
insured while operating a motor vehicle that qualifies for homeowner
coverage,
- Any
person who has the insured’s permission to use an eligible motor vehicle,
but only while on the insured premises.
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Examples: Tom Kinpushion’s large home (on four acres of
land) is insured with a Special Form homeowner policy. Let’s look at whether
the following are insureds under his policy:
- Tom’s
visiting childhood friend who hits Tom’s neighbor while driving Tom’s
car out of his garage (no, not an insured)
- Tom’s
neighbor, Pete, while using Tom’s lawn tractor in his (Pete’s) lawn
cutting service (no, not an insured)
- Tom’s
other neighbor’s daughter Nikki whom Tom hired to cut Tom’s 4 acres
(yes, an insured)
· Tom’s son while using his electric wheelchair at
the nearby grocery store (yes, an insured)
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Related
Court Case: “Automobile Exclusion Held Not Applicable To Liability Arising From
Vehicle In Dead Storage”
The 05 11 edition of the Special Form policy’s
definition of insured continues using a clarification. Whenever the word
“insured” immediately follows the word “an,” the phrase refers to one or more
“insureds.” In other words, an “insured” means one or more persons who have
covered status under the policy.
6.
“Insured location”
This
term refers to a variety of circumstances that includes the following:
- The
residence premises (please refer to the discussion of this defined term
below).
- Parts of
other premises or structures that are used by an insured as long as these
locations are shown on the policy declarations page OR have been acquired
by the insured as a residence during the policy period.
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Example: Annie’s home is covered by a Special Form
policy. Annie also owns the lot that is next to her home. That adjacent lot
contains a large garage. The garage was added to Annie’s homeowner policy by
a separate endorsement. This garage is an insured location.
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- Any
premises that is related to a property that is covered by a Special Form
policy AND which is used by an insured.
- A premise
that IS NOT owned by an insured but is an insured location while it’s used
by an insured as a residence.
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Example: A hotel room while reserved and used by an insured.
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- Vacant
land that is owned by or rented to an insured EXCEPT farm land.
- Land that
contains a structure that will eventually be an insured’s (1 through 4)
family residence.
Note: The building has to be for the
insured’s residence. Land where an insured is building a residence that he
plans to rent to another party would not be an insured location.
Other
situations that qualify as an insured location include:
- An insured’s individual or family cemetery
plots or burial vaults.
- Part of a premises which is rented and used by an insured but only if for
non-business purposes
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Example:
Scenario
1:Carson Prairie has a home insured by a Special Form policy. Carson is an
alumnus of GardenView College. Every August, Carson rents his old
dormitory room. He uses the time to recharge his batteries from his full-time
job as an owner of a Pet Repo Service. The old dorm room is an insured
location.
Scenario
2:Let’s change something in the above situation. Again, Carson Prairie, the GardenView College alum, rents his old dormitory room every August.
However, instead of for vacation and relaxation, he uses the room as a
location to publish an online sports newsletter about GardenView to which he
sells subscriptions to other sports-minded alumni. Besides the furniture from
the college, Carson rents computers, copier and postal equipment to
assist in his summer work. In this instance, his old dorm room is NOT an
insured location.
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Related
Court Case: “Defamation Suit Denied - Unrelated To Insured Location” – Illustrates how an insurer’s
obligation to provide coverage is affected by the relationship between a loss
and the location of its occurrence.
7.
“Motor vehicle”
A
motor vehicle is a vehicle that is self-propelled, runs on land or on water,
and includes any trailer that is towed or carried by such a vehicle. All of the
following would qualify as motor vehicles:
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cars
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trucks
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vans
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recreational
vehicles
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certain golf
carts
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motorcycles
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mopeds
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all terrain
cycles
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all terrain
vehicles
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snowmobiles
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sports utility vehicles
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motorized carts
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self-propelled mowers
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lawn tractors
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motorized bikes, scooters and
similar vehicles
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Any
vehicle that is motorized and self-propelled is considered to be a motor
vehicle. Both of these elements must be present.
Related
Court Case: “ATV Injury Not Covered By Homeowners Policy”
Items
such as sleds, non-motorized carts, bikes and similar property do not qualify
as motor vehicles.
8.
“Occurrence”
This
term refers to an accident that causes "bodily injury" or
"property damage" during the policy period. A repeated exposure to
similar conditions (that creates either BI or PD) is also considered an
“occurrence” IF the BI or PD takes place within the policy period.
Related
Court Case: Does Policy Cover Host Who Served Minors?
9.
"Property damage"
This
term refers to direct damage to tangible property (including its destruction)
or the direct or indirect damage caused by the loss of use of tangible
property.
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Example: Marty owns a home that is insured under a
Special Form policy. Marty’s friend, Lisa, lets Marty use her condo for his
vacation. Marty causes a lot of fire and smoke damage when he leaves a small
grill unattended on the balcony. A gust of wind tips it over, sending hot
charcoals onto the condo’s carpeting. Lisa sues Marty for reimbursement of
the damage as well as the cost of renting another condo as it was unavailable
for her own vacation. Lisa’s loss of use claim would qualify as property
damage under Marty’s policy.
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10.
"Residence employee”
Refers
to a person hired directly by a person who, by definition, is considered to be
an insured. It also applies to a person an insured hires to work for him or her
via a contract with a firm that leases workers. In either case, the worker’s
duties have to be related to maintaining or using the insured premises.
Note: A person, who performs such duties for
an insured, but at a different location, also qualifies as a residence employee
as long as that work is not connected to an insured’s business.
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Example: Jim does Penelope a favor, sending his gardener
to work around Penelope’s home for a week to help her get prepared for a
wedding that will be held there. During that week, the gardener is still
considered a residence employee under Jim’s policy.
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11.
“Residence Premises"
Refers
to any of the following that are used mainly for family residential purposes:
- One-,
two-, three- or four-family house, (the insured MUST live in one of the
units)
- The part
of ANY other building where an insured lives as well as any other
structures and grounds that exist at that location.
HOWEVER,
any of the above must be listed on the policy declarations of the residence
premises.
