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I should know better than to showcase my shortcomings, but here goes:

On the face of your scenario, we have coverage under C for personal property owned or used by an “insured” while it is anywhere in the world. It is a vehicle used to service the property so it is not excluded.

We have coverage under E “If a claim is made or a suit is brought against an “insured” because of property damage caused by an “occurrence” to which coverage applies we will: Pay…”

"Occurrence" means an acident. Is this an occurrence?

There is an exclusion for intentional loss arising out of any act committed:
1. By or at the direction of an “insured”; and
2. With the intent to cause a loss.

Coverage E personal liability to others does not apply to “property damage” : which is expected or intended by the “insured”;

We might need some kind of medical or professional evaluation to explain why the seven year old “insured” experienced “great surprise” at the loss caused by his throwing the match in the mower’s gas tank.

If he really didn’t expect the loss, then Coverage E would be the best coverage as Mary would probably be liable for replacement of the lawn mower without depreciation involved in settlement via Coverage C. She would only be out the deductible. If the kid was standing in the laundry room just outside the garage as he tossed the match and ducked…then there might not be any coverage at all.

"The insured bears the burden of showing that the claim against him
is potentially within his policy's coverage." N.Y. Life Ins. Co. v. Travelers Ins. Co., 92 F.3d 336, 338
(5th Cir. 1996).

Considering intent vs. expected damage by the stepson resident of "insured", N.C. Farm Bureau Mut. Ins. Co. v. Stox, The Stox court stated:
we are guided by established rules of construction for interpreting provisions of insurance policies. Provisions . . . "which extend coverage must be construed liberally so as to provide coverage, whenever possible by reasonable construction."

So, in my humble view, the question of coverage resides within the substance and detail behind the description “great surprise” as ultimately decided by the carrier.

Randy Cox

Seven year olds are full of "great surprises" so this should not be a shock to anyone except the kid's mother who probably beat him within an inch of his life.

The liability coverage will extend coverage to cover the loss and the deductible does not apply, as it might if this were a commercial policy instead of a homeowner's.

The deductible will apply to the fire damage to the garage caused by the "great explosion".

That's my story and I'm stickin' to it.

There are only 3 ways to look at this, if coverage is afforded under the HO-3, ed 10/2000:

1.  Owner files with his own HO carrier & they subro against Mom for ACV value against her HO liab cov, but she still legally owes neighbor his ded. (unless her name is Mrs. Gump, and says "must be something can be done")

2. Mom files with her HO carrier & they handle loss ACV as "property of others" in her care/custody/control, subject to deductible & ACV according to what Steve told us.  Mom still owes RC value, including ded ("unless something can be done").

3. Sonny boy is under the age of 13, so whether intentional act or not, this can be handled as a liability loss under Section II. No deductilble, but still ACV.   

However, let's add 3b: this is a tractor/mower with RC  $4500 and ACV $4200.  Is the $300 depreciation really applied to the tractor, or to the mower deck and/or bagger attachment?   There is the no fault provision of a $1000 limit for damage to property of others based on RC value, not ACV.  So....if you can justify that the tractor has not depreciated, the ACV is covered under the liab coverage, and then just pay the RC up to $1k for the mower deck & bagger attachment.  Loss covered in full & problem solved.  Happy neighbors, a boy learns a lesson, and Mom saves her dignity.      

Our Husker friend is pretty close. Except he needs to go back to claim school and learn that you need to use the edition of the policy that the person actually has.

Larry and Randy, let me play devil's advocate here: First, the insuring agreement for coverage E (Liability) provides that we will "pay up to our limit of liability for the damages for which the "insured" is legally liable." This is generally interpreted to mean that we would owe to replace what was lost, meaning settlement would be made at ACV.

Second, there is an exclusion for coverage E for "Property damage" to property rented to, occupied or used by or in the care of the "insured"...."

Yes, BUT, doesn't it also say....

This exclusion does not apply to:

(2) A motorized land conveyance designed for recreational use off public roads, not subject

(a) Used to service an "insured's" residence;

(1) A trailer not towed by or carried on a motorized land conveyance.

So close, Meg.

But the exception you quoted is an exception to exclusion 1. f., the exclusion for liability arising out of the use of a motor vehicle.

The exclusion I quoted is exclusion 2. c.  So the exception you quoted does not apply to this exclusion.

Steve, this is a very good example you've given, simple, yet requires reading the whole policy.

Anyway the exception that you are looking for is contained in the exclusion 2.c.  "This exclusion does not apply to "property damage" caused by fire, smoke, or explosion.

As to the settlement RCV/ACV.  Your scenario implies that third party claimant concedes no depreciation.  He demands that Mary buy him a brand new mower just like the one that was damaged.  His position is obviously that there is no depreciation and the condition of the damaged property is just like "brand new".   Your scenario offers $300 in depreciation which is 6.7% of RCV.  This could be 3 months to a year depending on the depreciation schedule we're looking at....7-20 years life span  5-20% first year depreciation.

Anyway, that would be straight line depreciation, but the courts seem to rule that condition of the property must be considered.  Joe thinks his mower is "brand new".  This has to be negotiated, by the adjuster, Mrs. Mary Gump, or the courts.

The difference between "brand new" and the $300 depreciation must be the spread between the adjuster and the third party.

There is additional matter of, "Damages include prejudgment interest" that might be awarded if the adjuster or Mrs. Gump can't persuade Joe to accept less than replacement value.

Both the  $1000 payable under Section II Additional Coverages C1  of HO-3 10 00 or the $500 payable under the insureds HO-3 4 91  are larger than the $300 depreciation, so Mike's device of applying that to the mower deck should still be possible to find RCV coverage.

Randy Cox

Exactly right, Randy.

The two methods I had in mind to resolve the claim would be:

1.  Apply coverage under coverage C of the policy to pay for the ACV of the lawnmower minus the deductible.  This leaves $300 plus the $100 deductible still on the table.  Then apply Section II additional coverages (which has a $500 limit under the HO3.491) to pay the $400 difference.  You will note that payment of this additional coverage cannot duplicate Section I, but can still be used to make up the difference and pay for what Coverage C cannot pay.  You may also have noticed that Section II additional coverages Property Damage to Property of Others provides for payment at RCV.  In this scenario Mary has no out of pocket and Joe gets $4500.00.

2.  The second scenario involves paying the loss under Section II coverage E Liability, for which no exclusion applies because there is (as you have pointed out) an exception for damage by fire, smoke, or explosion, pays Joe $4,200.00 under the liability coverage.  Then the same Section II additional coverages Property Damage to Property of Others can be applied to make up the difference.  Again, Joe gets paid the entire $4,500.00 and Mary is not out of pocket.

As to which one is better -- Here are the considerations:

1.  Can a seven year old be held legally responsible under the law?  In many states the negligence will be imputed vicarious to the parent under a theory of negligent supervision, but technically a seven year old has little or no responsibility or duty owed under the law.  this lack of intention or responsibility works to mitigate liability under coverage E, but generally would prclude a coverage defense of intentionality under coverage C.

2.  What will be the net effect of both scenarios for Mary?  In scenario one, she is using first party coverage and a third party coverage under which you are paying only $400.  This may or may not involve a raise in her premium and a possible surcharge.  In scenario two, Mary must be found liable for the third party coverage to be used.  This will almost definitely result in a raise of premium and surcharge.  Thinking of the insured first, scenario one is the preferrable way to handle this claim since the net payment is the same for both scenarios.

It is easy for us who work property to forget that the policy does not stop at coverages A, B, C, and D.

Especially in my current position I've been learning not to rely on what I think the policy says, but to actually read it methodically.  The process goes something like this:

1.  Is the policy in effect on the date of loss?

2.  Is the person seeking coverage an insured under the policy?

3.  Does the loss fall within the insuring agreement?

4.  Did the loss occur within the covered territory?

5.  Is it a covered cause of loss?

6.  Do any exclusions apply?

7.  Are there any exceptions to the exclusions?

8.  Were the policy conditions met?

9.  Are there any endorsements that affect any of the above?

10.  Is there any ambiguity in the language such that the insured must be given the benefit of the doubt?

11. Do any special limits apply?

There may be a couple other steps I take without thinking about them, but those are the steps I take consciously.  Since I'm dealing exclusively with commercial policies these days, I am less tempted to think I know what the policy says without reading it again.

See??

I knew I wuz right.

At my Racko School of Claims, I didn't have access to your old '91 version Steve.  So went off the '00 version, which I don't think is much different, other than $1k vs. $500 on "damage to property of others".  Could be wrong though, have been known to be wrong before (more times than I care to be reminded of).

 None of those "motorized vehicle", smoke/fire, etc., limitations apply to this loss.  What we might be missing, though, is an action against the manufacturer.  Was there any warning label on that rider to keep 7-yr old pyromaniacs away from the machine?  And was there a lock on the gas cap to prevent such an incident?    If this loss made the local newspaper, I'm sure some civil minded attorney will be all over it...if not for the property owner, at least for our little fellow whose friends now call him "Baldy", "Red", or "Firefly".

I got my hands on a copy of the ISO form HO3 10 00, so here is what it says under Damage To Property of Others.



"C. Damage To Property Of Others

1. We will pay, at replacement cost, up to $1,000 per "occurrence" for "property damage" to property of others caused by an "insured".

2. We will not pay for "property damage":

a. To the extent of any amount recoverable under Section I;

b. Caused intentionally by an "insured" who is 13 years of age or older;

c. To property owned by an "insured";

d. To property owned by or rented to a tenant of an "insured" or a resident in your household; or

e. Arising out of:

(1) A "business" engaged in by an "insured";

(2) Any act or omission in connection with a premises owned, rented or controlled by an "insured", other than the "insured location"; or

(3) The ownership, maintenance, occupancy, operation, use, loading or unloading of aircraft, hovercraft, watercraft or "motor vehicles".

This exclusion e.(3) does not apply to a "motor vehicle" that:

(a) Is designed for recreational use off public roads;

(b) Is not owned by an "insured"; and

(c) At the time of the "occurrence", is not required by law, or regulation issued by a government agency, to have been registered for it to be used on public roads or property."

As you can see, the man from Worms, NE, was going the extra mile for insured Mary (if only she had this version of the policy) to apply this extra coverage to prevent her from having out of pocket expense.

1. Up to $1000 can be paid under this coverage if it is property damage caused by an insured to the property of others. The first question to ask here is whether the son lives with Mom or with Dad. If he lives with Mom, he is a resident relative and an insured. He caused the damage (note that there is no neccessity that he be considered legally liable - only that he caused the damage). The coverage allows for payment at replacement cost, which neither coverage C nor coverage E allow.

2. This coverage does not pay any amount that is payable under Section One of the policy, so you must use Section One (coverage C) first. Then you may use this coverage for amounts not payable under Section One.

3. This damage was not caused intentionally by anyone 13 years of age or older. It is not neccessary to ask whether the act or its result were intended by little Johnny because he is only seven.

4. The property is not owned by an insured or owned or rented to a tenant or occupant of the insured's household.

5. It does not arise out of a business engaged in by an insured.

6. Although the exclusion for motor vehicles (see the definitions section at the beginning of the policy) could conceivably exclude coverage, it would be a big stretch to consider this loss as arising out of "The ownership, maintenance, occupancy, operation, use, loading or unloading of aircraft, hovercraft, watercraft or "motor vehicles".

The 04/91 policy allows for the same coverage, but the 10/00 version more specifically allows for this coverage to be used to make up the $400 difference between what can be paid under coverage C after the deductible and what Joe is demanding.   It certainly looks to me like this coverage applies to this loss.  I guess all those cold winter nights out on the prairie listening to the wind howl up the Loup River have made you a coverage guru, Mike.

The correct path IMFO is section II the liability section of the policy. This 7 year olds negligence can be imputed to his parents and all property damage loaned to them has a limit of $1,000 with out reguarding negliance (good will-good neighbor), why is it limited to $1,000. well you know that answer. Just pay the ACV loss to the mower and garage and throw in the $300. to get a final common law release. But keep these questions coming as you will get many answers, just like the real adjusters who must make the final one About 40 or 50 years ago the carrier wanted the adjusters opine in the COVERAGE COMMENTS. Not any more. Its all discoverable. All the manuscript policy underwriters instruct . In no instance is the adjuster to make any coverage comments to the insured......

Thanks, Steve...but those cold prairie winds blowing up the Loup River Valley have contributed to making me anything other than a coverage guru.  That "title" that you have so liberally thrown out there could easily apply to most of the readers here, but some might not like the taste of foot.  I, on the other hand, don't mind sharing opinions and taking my lumps when I make a bonehead response.  Guess I just got lucky this time, huh??  

Mr. Ebner.....

We have a covered loss.

Personal Property - Coverage C is named peril under the HO3 Special form.  Explosion being one of the named perils. I see the loss arising from explosion and not fire in this matter.  The insured can extend coverage to his personal property anywhere in the world providing it arises from a "covered cause of loss."  He could file the claim under his first party coverage although he would be susceptible to his policy deductible and depreciation (unless he is carrying a RC endorsement on personal property.)

To offset the deductible incurred, he can also use his neighbor’s coverage .  Under Section II - Additional Coverage, the neighbor's policy would provides up to $1000 in "property of others" coverage provided that the "insured" is 12 years of age or younger as this was an intentional act and the policy specifically designates that the loss would be excluded if the boy was 13 or older.

Therefore, both policies would provide coverage for this loss.  

Our insured at ACV less deductible.  The neighbor up to $1,000 at RC.

Regards,

Jon Nieman

Of course, fire is also a specified peril.

BTW, in case anyone out there is looking for good independents to assign their claims to, both Jon Nieman and Leland Coontz are currently working claims I assigned to them and doing an excellent job of it.

An explosion is a rapid increase in volume and release of energy in an extreme manner, usually with the generation of high temperatures and the release of gases. An explosion creates a shock wave.

Needless to say, a lawnmower tank could explode. If there is a loud bang and the tank swells or bursts, then it has exploded. If the flames erupt through the filler with no bursting or swelling of the tank, that is a  hostile fire. This is my opinion and I will stick to it.