Coverage Corner

PROPERTY DAMAGE TO RENTED PREMISES: Logic & Language and Forms & Facts

By: Bill Wilson

‘Tis the season to … rent premises for a holiday party. So, if one of your personal lines insureds rents premises for a holiday party and asks you if their homeowners’ insurance covers them if they’re sued for something, what do you tell them? Here we’ll focus on the two most common broad categories of losses, bodily injury (BI) and property damage (PD).

Homeowners may occasionally rent premises for some sort of social event at any time during the year. It could be a room at a restaurant or bowling alley for a birthday party, a condo association clubhouse for a

Halloween party, a wedding facility for a, uh, wedding, a mountain chalet for an anniversary weekend, or just a hotel room on a vacation trip.

The issue for the purpose of this column is: What if something happens to damage the rented premises and the premises’ owner or management wants to hold the renter responsible? Will that person’s homeowners’ policy respond to such a claim or suit?

Well, of course, given that insurance is not a commodity and no two homeowners’ policies are identical, it depends on the policy. But, for the sake of discussion, let’s consider the current edition of an ISO HO 00 03 policy.

For this and other policies, always remember to RTFP, for which the clean version is Read The Full Policy. Is there an exclusion that applies? Is there an exception to the exclusion that effectively grants coverage? Is there more than one exclusion (and exception) that might apply?

The bad news is that the ISO HO policy in question indeed does have an exclusion for bodily injury and property damage “arising out of a premises … rented to an ‘insured’ … that is not an ‘insured location.’” But, note that the exclusion doesn’t apply if the premises is an “insured location.” Is it?

The good news is that the definition of “insured location” includes “any part of a premises occasionally rented to an ‘insured’ for other than ‘business’ use.” Presuming the purpose of the rental is not business related and the premises isn’t rented more than occasionally (whatever that means), then the homeowner’s liability for both BI and PD is not excluded by this policy provision.

However, that doesn’t mean there can’t be an issue with another provision in the policy. And, indeed, there is in the form of another PD-specific liability exclusion that says, “‘Property damage’ to property rented to, occupied or used by or in the care of an ‘insured’. This exclusion does not apply to ‘property damage’ caused by fire, smoke or explosion.”

So, while there is not a specific exclusion for liability for bodily injury for most claims, there is clearly an exclusion for property damage to the rented premises. However, the exclusion doesn’t apply if the property damage is caused by fire, smoke, or explosion.

Unfortunately, there are many ways to damage property that don’t involve burning it down or blowing it up. So, unless the insured is willing to take their chances on no damage occurring, the purchase of something like a special events policy might be in order.

Of course, if someone other than the insured in question is legally liable for the loss, perhaps their HO policy would respond. But reliance on someone else’s insurance is not a sound risk management practice.

Happy Holidays!

Bill Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of six books, including “When Words Collide…Resolving Insurance Coverage and Claims Disputes,” the highest rated insurance book on Amazon and, according to Book Authority, the #1 insurance book of all time. He can be reached at Bill@InsuranceCommentary.com.