Coverage Corner

HOLIDAY PARTIES … ARE YOU COVERED?

By Bill Wilson, CPCU, ARM, AIM, AAM

You’re probably familiar with this line from the holiday classic Deck the Halls: “‘Tis the season to be jolly … and adequately insured.” Or something like that. Well, the reality is that few people are thinking about insurance during the holidays (or just about any other time). That’s why we have to do the thinking and the reminding for them, at least when it comes to less obvious loss exposures.

For example, from a property loss standpoint, it’s estimated that over a billion dollars in gift cards will be gifted during the holidays. ISO and most insurer homeowners’ policies view gift cards (what ISO calls “stored value cards”) like money and impose a $200 or similarly low sublimit to covered losses involving these cards. This limit can usually be increased by endorsement and perils can be broadened by using, for example, an ISO HO 00 05 rather than HO 00 03 form. But few insureds know this unless told.

Needless to say, there are many other property loss exposures that increase during the holidays. Christmas tree fires occur primarily in December and January and, perhaps surprisingly, losses are greater in the latter month. While most homeowners’ policies cover fire, from a risk-management standpoint (including life safety), we can prevent the need to use our homeowners’ policies by using artificial trees, properly watering real trees, using proper extension cords, taking trees down promptly after the holidays, etc.

But, one area that is probably most often overlooked involves liability exposures that occur as a result of holiday parties or family gatherings during the holidays. So, while I’m quoting holiday classics, how about this one from my favorite movie of all time, It’s a Wonderful Life: “I was just thinking of a flaming rum punch. No, it’s not cold enough for that. Not nearly cold enough…. Wait a minute … wait a minute … myrrh wine, heavy on the cinnamon and light on the cloves. Now off with you, my lad, and be lively.”

Given our limited column space, let’s focus on one serious exposure illustrated by that holiday movie line – host liquor liability. In addition, let’s limit our discussion to claims that can arise from guests who leave the party or gathering in an inebriated state and injure someone in an auto accident. Are most homeowners hosting these events covered by their personal lines insurance?

In ISO’s 2000 homeowners’ filing, they attempted to tighten the exclusion for the use of motor vehicles, explaining, “We are revising the subject exclusions in response to an increasing number of judicial decisions that have found coverage for vehicle-related incidents.” Homeowners’ policies largely do not cover the use of vehicles designed for use on public roads.

So, if a homeowner is sued following an accident involving the use of an auto by an inebriated guest, there is probably no coverage under their homeowners’ policy. However, some courts have found that, if the serving, or failure to monitor the consumption, of alcohol was a separate tort from the negligent operation of an auto, there might be coverage under a homeowners’ policy, despite the more rigorous language in current ISO homeowners’ forms. For this reason, it’s best to file such claims under both homeowners’ and auto policies, and this illustrates why placing both policies with the same insurer is advisable to prevent finger pointing between carriers.

But where the coverage most likely comes from is the homeowners’ personal auto policy … assuming they have one. Under the ISO personal auto policy, “insureds” include “You or a ‘family member’ for the ownership, maintenance or use of any auto or ‘trailer’….” Note the use of the word “any” – the insured does not have to be the party that owns, maintains, or uses the vehicle involved in the accident. This language provides very broad vicarious liability coverage, but keep in mind that not all auto policies provide coverage as broad as the ISO form.

Finally, while coverage may be found under either or both homeowners’ and auto policies, the limits under those forms are often entirely inadequate for serious auto accidents. This is just one of many reasons why most individuals and families have a significant need for an umbrella policy.

Hopefully your holiday gift to your personal lines customers is an offer to sell them an umbrella policy. Best wishes for a wonderful holiday season and a prosperous new year!

Bill Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of seven books, including “When Words Collide…Resolving Insurance Coverage and Claims Disputes.” He can be reached at Bill@InsuranceCommentary.com.