Ask Mike # Subject: Holiday Parties and Insurance

Transcription

1 Subject: Holiday Parties and Insurance Ask Mike # Q. I have a question about some of the insurance exposures that arise when people host parties especially during the Holidays. One of the main issues I am concerned about is how the homeowners policy of the host (our insured) would respond to claims where a guest drinks too much and later causes an auto accident. Would their homeowners policy cover them? Also, I d appreciate any additional comments on other social-host exposures. A. I ve always found it an interesting commentary on insurance that if 100 people were at a party, 99 would be having fun, while the one who was an insurance professional would be freaking out about the insurance exposures he or she saw. But rightly so, as you point out, since really bad things can happen in the most pleasant and benign circumstances. Here are some of the most common social host exposures I run into, starting with your question about alcohol. In the scenarios throughout this article, assume that Jack and Jill Smith are the social hosts for the party. Coverage analysis is based on ISO policies; proprietary forms may be different. Issue #1: Host liquor. An auto accident caused by an intoxicated guest is every social host s worst nightmare. Here are some comments on how Jack and Jill s Homeowners and Personal Auto policies might respond. Homeowners Policy. The language in the 1991 edition differs significantly from the 2000 and 2011 editions, where the use of an auto is involved in a host liquor claim. While none of these editions has a liquor exclusion, the auto exclusion must be examined to see how the policy responds. Below are pertinent excerpts from each. [Emphasis added below.] HO 1991 edition 1. f. Arising out of: (1) The ownership, maintenance, use, loading or unloading of motor vehicles or all other motorized land conveyances, including trailers, owned or operated by or rented or loaned to an "insured"; 1

2 Comments: Where the auto being driven by the intoxicated guest is not owned or operated by or rented or loaned to an "insured" [Jack or Jill], Jack and Jill s Homeowners Section II responds in a suit against them. HO 2000 and HO 2011 editions A. Motor Vehicle Liability 1. Coverages E and F do not apply to any "motor vehicle liability" Definitions 1. "Aircraft Liability", "Hovercraft Liability", "Motor Vehicle Liability" and "Watercraft Liability", subject to the provisions in b. below, mean the following: a. Liability for "bodily injury" or "property damage" arising out of the: (1) Ownership of such vehicle or craft by an "insured"; (2) Maintenance, occupancy, operation, use, loading or unloading of such vehicle or craft by any person; Comments: In these two more recent editions of the Homeowners Policy, the auto exclusion is broadened to include the operation of any auto by any person. In the case of Jack and Jill s Homeowners Policy, the exclusion seems to apply to their liability for an auto accident caused by an intoxicated guest driving his/her own auto. However, there is another dimension to this issue. Jack and Jill might still find coverage under their Homeowners Policy, if a court determined that the serving (or over-serving) of alcohol was a separate tort from the negligent driving of their guest. In that situation, the auto exclusion in their Homeowners Policy would be moot, since there is no separate alcohol exclusion in the ISO policy. The issue of additional torts contributing to an accident, other than just the tort of negligent operation of an auto, is not an infrequent subject of litigation. For example, tort arguments raised to overcome auto exclusions in various policies (Homeowners, CGL, etc.) include negligent supervision, negligent entrustment, negligent hiring, lack of training, poor decisions, and so forth. One Louisiana case that is often cited in the literature involved an injured passenger s suit against the father of the auto s driver, who had served his son alcohol prior to the accident. The father s Homeowners insurer denied the claim, citing the auto exclusion. However, the court ruled that there was merit in the plaintiff s argument, that the father s serving of the alcohol to his son was, in and of itself, a tort, and unrelated to the subsequent negligent operation of the auto by the son. Therefore, this tort was not 2

3 within the scope of the auto exclusion in the father s Homeowners Policy. [572 So.2d, 158.] Personal Auto Policy. Jack and Jill can also look to their PAP for coverage. Here is an excerpt from the Part A Liability insuring agreement [emphasis added]: B. "Insured" as used in this Part means: 1. You or any "family member" for the ownership, maintenance or use of any auto or "trailer". Comments: The insuring agreement under B.1. affords Jack and Jill liability coverage for any auto, even those operated by third parties, such as one of their party guests. If a court finds Jack or Jill legally liable under any theory of tort, statute, or contract, for the guest s auto accident, Jack and Jill s PAP responds on their behalf. For an in-depth discussion of Louisiana s liquor liability law, see IIABL Technical Advisory #206: In addition, the IIABA s Virtual University (VU) has received a number of inquiries from member agents across the country on the social host liquor liability coverage under the various editions of the ISO Homeowners Policy. See the article posted on the VU Personal Lines Host Liquor Liability : Lines/Homeowners/Liability-Coverages/FacultyHostLiquor.aspx Issue #2: Valet parking. If Jack and Jill expect a lot of guests, and parking is an issue, they might make arrangements to have the cars parked by a valet, which frequently means drafting one or more of their kids into valet service. Assume that their daughter Jillette will park guests cars. Here is how Jack and Jill s PAP would respond if Jillette has an accident while parking the Mercedes of Dr. Mindy Bones. The accident damages the Mercedes, and also injures Eureka Ann Chovy, the caterer who was unloading food. Jack and Jill s PAP: Part A Liability covers Jillette under B.1. above, for bodily injury to the caterer. Damage to the Mercedes is excluded under Part A, since Jillette had care, custody or control of the car at the time of the accident. However, Part D Physical Damage provides 3

4 coverage for non-owned autos, which includes any private passenger auto, pickup, van or trailer while in the custody of or being operated by you or any family member. Jack and Jill s PAP is excess for liability and physical damage claims. Dr. Mindy Bones PAP: The injured caterer could sue Jillette (driver), Dr. Mindy (vehicle owner), and possibly Jack and Jill (Jillette s parents). All are insureds under Part A Liability, as follows: B. "Insured" as used in this Part means: 1. You or any "family member" for the ownership, maintenance or use of any auto or "trailer". 2. Any person using "your covered auto". 3. For "your covered auto", any person or organization but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this Part. Comments: Dr. Mindy is an insured under B.1. Jillette is an insured under B.2. (a permissive user), and Jack and Jill are insureds under B.3. (others made liable). Damage to the Mercedes is covered under Part D Physical Damage. Dr. Mindy s PAP is primary for liability and physical damage claims. Issue #3: Rented premises. If Jack and Jill decide on renting a banquet facility instead of having the party at their home, several issues come up. First and foremost is a premises liability claim, which could be bodily injury to someone, or damage to the facility itself. While the Homeowners Policy has no territorial limits for Section II, there is an exclusion related to certain premises locations, as follows: E.4. "Insured's" Premises Not An "Insured Location" "Bodily injury" or "property damage" arising out of a premises: a. Owned by an "insured"; b. Rented to an "insured"; or c. Rented to others by an "insured"; that is not an "insured location"; Definitions 6. "Insured location" means: h. Any part of a premises occasionally rented to an "insured" for other than "business" use. 4

5 Comments: The banquet facility that is rented for personal use is an insured location, and therefore not excluded under Exclusion E.4. above. However, for damage to the facility itself, for which Jack and Jill could be liable in tort or under contract, there is limited coverage which is provided by an exception to another exclusion in Section II. F.3. 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; Comments: This is often referred to as fire legal coverage, although coverage applies for damage to the banquet facility by fire, smoke or explosion. However, there is no coverage for damage done by another cause, for which Jack and Jill are legally liable. One of the more common losses to rented facilities such as banquet rooms and hotel rooms is accidental damage done to sprinkler heads, which results in substantial water damage. In one case I read about recently, a lady was steaming her business suit while it hung from the sprinkler head, and the heat from the steamer set off the sprinkler system. About 1,000 gallons of water was released, and the damage was over $30,000. There are additional issues which could arise when Jack and Jill rent the banquet facility: (1) the coverage provided under Section II for contractual liability; (2) the requirement by the banquet facility to be provided a Certificate of Insurance; and (3) the requirement to be named as an additional insured in the Homeowners Policy. Section II provides contractual liability as follows [emphasis added]: F. Coverage E does not apply to: 1. Liability: b. Under any contract or agreement entered into by an "insured". However, this exclusion does not apply to written contracts: (1) That directly relate to the ownership, maintenance or use of an "insured location"; or (2) Where the liability of others is assumed by you prior to an "occurrence"; unless excluded in a. above or elsewhere in this policy; Comments: Section II provides broad contractual coverage for Jack and Jill. However, note the last line in the excerpt above: the contractual coverage does not override any other exclusion in Section II. For example, if Jack and Jill (or Jillette and her friends) 5

6 hang party decorations from the sprinkler heads, resulting in major water damage, the contractual coverage does not eliminate or override Exclusion F.3. discussed earlier. Another issue that will almost certainly come up will be the requirement by the banquet facility to receive a Certificate of Insurance from Jack and Jill s insurer. While not an everyday occurrence in Personal Lines, this should be a routine matter. Lastly, a common requirement found in many leases that Jack and Jill might sign for rental of the banquet facility could require that the facility be named as an Additional Insured in their Homeowners Policy. Under ISO rules, there is no way to accomplish this. Under endorsement HO Additional Insured Residence Premises, coverage for the person or entity named in the Schedule only applies for BI/PD which occur at the residence premises of Jack and Jill. Issue #4: The Big Shindig Solution. Many of the limitations which arise from gaps in coverage under Jack and Jill s home and auto insurance can likely be solved with a Special Event Policy. It is becoming more common for insurance professionals to recommend such specialty coverages when an insured hosts a Big Shindig, whether it is a wedding, anniversary, or graduation party, family reunion, or Holiday party. Special Event policies have been a fixture in Commercial Lines for many years, and are becoming more frequently used in Personal Lines situations. It would be a prudent E&O loss control procedure to recommend Special Event policies to insureds like Jack and Jill, and document the communication. 6