Liability coverage definitions

May 18th, 2007 - Still no word from the insurance adjuster. I was supposed to meet a contractor to looks at the property but I violated the first rule of Real Estate: Don't forget the keys! I caught him in time and saved both of us a wasted trip.

Since there's not much going on and I haven't got my notes on replacement cost, I'll outline some definitions of covered injuries or damage in liability coverage.

Some helpful definitions:

1. Insurer - the insurance company issuing a policy.


2. Insured - the named person(s) covered by the policy.


3. Tortfeasor - the person in a claim getting his booty sued.


4. Claimant - the wronged person doing the suing.

An insurer is obligated to cover liability damages under an insurance policy if the nature of the damages are covered by the policy (you can tell I never went to law school). Liability coverage commonly covers:

1. Bodily Injury - liability stemming from injury, sickness, or disease sustained by a person including death. Some courts have included emotional distress even when it does not cause physical harm.


2. Personal Injury - liability stemming from libel, slander, defamation, wrongful entry or eviction, false arrest, wrongful detention or malicious prosecution. These fall under the category of intentional torts. Insurance policies will only cover listed intentional torts.


3. Advertising Injury - liability stemming from libel or slander; publishing material that constitutes an invasion of privacy; misappropriation of advertising ideas; infringement of copyright, title or slogan.


4. Property Damage - liability stemming from physical damage to tangible property. Includes loss of use and loss of use of undamaged property.


5. Professional Liability - liability stemming from injury or losses caused by improper rendering of professional services including errors in judgement or omissions.


6. Wrongful Acts - liability stemming from harmful acts or omissions, allegedly committed or attempted by an insured.

Liability coverage on an insurance policy is expressed one of three ways:

1. Single limits - contains a single dollar amount that applies to all damages done in one occurrence. Sometime called a combined single limit (CSL).


2. Split limits - Separate limits for bodily injury claims and property damage claims. Common in auto insurance, expressed as say 100/300/100 limits: $100,000 bodily injury per each injured person, limited to $300,000 total bodily injury for two or more injured persons and $100,000 property damage per occurrence.


3. Aggregate limits - the maximum amount an insurer will pay per coverage period from all occurrences.

In addition, insurers will pay for defence costs associated with the defence of the insured. This cost will stop if/when the policy limits have been paid out. However, if a claimant does not accept the full policy limit as settlement, the insurer is obligated to continue defending the insured until a final court judgement has been rendered.

Feel free to post comments or join in on any discussion

Ernesto TIG

Definitions of Rental Property Coverage

May 14th 2007 Called Kym the adjuster to touch base and find out where we were in the claims settlement. No word yet, she's waiting on input from the GC to get her numbers together. I ask if she's received copies of the leases (hint hint I want my loss of rent coverage) she has received them; she says the company will pay out based on how long they estimate the renovation will take and an advance is possible if needed. We'll see how that goes. I'm hoping this doesn't require the services of an attorney.

Since there's nothing going on on my claim I'll cover the basics of Dwelling coverage on rental property (property that's not owner occupied). This applies to residential property with 1 - 4 units and no commercial exposure (no apartments on top of stores or houses used for a public access business). This does not apply to commercial coverage.

A standard policy has four parts:

1. Declarations - Insurance company name, name of insured, address of property, amount of coverage, premium, and policy period.
2. Insuring Agreement - Contains consideration clause, effective time & location, policy limits, ACV limitations, company options, direct vs indirect losses, insurable interests and perils covered.
3. Conditions - Conditions that apply to insurer and insured; an example would be insured requirements to notify insurer of loss.
4. Exclusions - What's not covered. Flood, war, nuclear, earthquakes and wear & tear (including insect & animal damage) are general exclusions that apply to all policies.

The policy is broken into the base policy (called a standard fire policy or SFP) and a Dwelling Form endorsement (Def. an endorsement is an addition to a Property & Casualty policy that adds more coverage; called a rider if it's Life & Health related). The SFP covers basics like fire & lightning. Additional loss coverage depends on which endorsement you buy:

1. DP-1 endorsement - Basic Form or DP-1 - Pays ACV (replacement cost minus depreciation) coverage (replacement cost may be available for extra $$) Named coverages are: Wind, Hail, Aircraft, Riot & Civil commotion, Vehicle, Volcano, Explosion & Smoke. DP-1 policies are generally only sold on vacant property (under renovation or for sale) SO another important endorsement is vandalism and malicious mischief (VMM). May not cover trees and scrubs.
2. DP-2 endorsement - Broad form, Includes all coverages on DP-1 plus replacement cost on structure, burglary damage, falling objects, weight of snow & ice, water leakage, freezing pipes, power surge and glass. VMM is included without an endorsement. Usually includes trees and scrubs.
3. DP-3 endorsement - All risks -includes all coverages in DP-2 and generally covers anything not excluded. Theft only applies to build in items.

To determine what your coverage is, read your policy (it's a thumping good read..for an insurance geek) or look at your declarations page. If it's still not clear, discuss with your insurance agent or call customer service at your insurance company. Be sure to press for details, since your agent may not know what he's selling.

The policy will pay up to a certain amount of money for the above mentioned losses based on your declarations page:

Deductible - Usually $500 to $1000, amount property owner is to pay before losses are paid.

Coverage A: Dwelling- the building itself including all structures and fixtures attached to the property. May be replacement cost or ACV. Usually contains an inflation provision so coverage (and premium) go up a certain percentage every year on the policy anniversary date. Determining proper replacement cost is a discussion for another day.

Coverage B - Other structures - Outbuildings or unattached items (like fences). Usually 10% of Coverage A. Pays in addition to Coverage A, so on a total loss, if you have $100,000 of Coverage A you would receive up to an additional $10,000 under coverage B.

Coverage C - Personal property - Again a percentage of Coverage A: This tends to vary by insurance company. This is limited to the owners personal property at a rental house, not the tenants things.

Coverage D - Loss of Rents. Usually 10% of Coverage A. Covers fair market rent for up to a year or whatever period the insurer thinks is needed to repair property.

Liability Coverage Sometimes called Coverage E - Usually between $100,000 to $500,000 of coverage. Coverage for owners to pay $$ for negligent acts that caused bodily injury or property damage related to owning the property.

Med Pay - Sometimes called Coverage F -Provides small amounts of medical coverage so injured parties don't need to sue for liability coverage to get minor injuries paid for.

Other coverage included (read your policy to see if they're included):

Board up and securing property after loss.

Debris removal - certain limits may apply, such as removal of fallen trees.

Fire department service charges -typically around $500 is covered.

Coverages for code compliance - extra $$ paid to bring older properties up to current code. For example the asbestos shingles on my rental.

Later I'll discuss how properties are valued and how insurance companies pay claims.

Ernesto TIG