Tag: Homeowners’ Insurance

The Danger Within: Domestic Liability Exposure

Many homeowners employ an employee, whose duties are related to the maintenance or use of the owner’s home, including household or domestic services. Unfortunately, many of these same homeowners do not fully understand the risks associated with employing a domestic employee, or whether such risks are covered under their homeowners’ insurance policy.

What happens if a domestic employee suffers a serious injury while working? Will the homeowners’ insurance policy cover the claim? Will the homeowners be covered if the domestic employee sues for damages? Since the cost of a severe injury could be significant, it is better to know the answers to these questions sooner rather than later. This is done by reviewing the homeowners’ policy to determine whether domestic employees are covered, and, if so, to what extent.

While a particular policy may exclude coverage for domestic employees, there are standard form insurance policies that do provide coverage, though it may be limited by various qualifications and conditions found throughout the policy. Accordingly, when determining the scope of coverage for domestic employees, who are also known as residence employees, it is necessary to read the policy’s “fine print.”

A standard form homeowners’ insurance policy may provide coverage for personal property owned by a domestic employee, provided such property is located in the residence of the insured. If a domestic employee suffers bodily injury in an accident, a policy may cover the domestic employee’s medical expenses in specific instances, provided the bodily injury did not occur away from the residence while the employee was not working. However, since this coverage often comes with relatively low limits, it will only protect a homeowner in instances involving very minor injuries.

A standard homeowners’ policy may also cover a third-party’s medical expenses if the person is injured away from the insured’s home, and the injury is caused by a domestic employee in the course of his or her employment with the homeowner, though the extent to which any injured person is covered may depend on the availability of other insurance. Additionally, various exclusions, such as the motor vehicle liability, watercraft liability, and aircraft liability exclusions, may not apply in some cases involving a domestic employee.

Although the foregoing coverages may prove valuable, the biggest concern is whether a policy would protect a homeowner from personal liability in the event a domestic employee is injured while working. In these instances, the homeowner’s potential liability could be financially devastating.

An insurance company will defend a lawsuit and pay damages up to the coverage limit for which the homeowner is legally liable, unless the claim is excluded under the policy. Thus, the relevant question is whether a claim made by an injured domestic employee is excluded from coverage. The answer typically turns on whether the domestic employee is eligible to receive workers’ compensation benefits.

A standard form homeowners’ insurance policy typically excludes coverage for bodily injury to any person who is eligible to receive any benefits voluntarily provided or required to be provided by the homeowner under any workers’ compensation law. To determine whether a claim filed by an injured domestic employee would be covered by the policy, one or two questions must be answered.

The first question is whether the homeowner is required by law to provide workers’ compensation benefits to the domestic employee. Since workers’ compensation is largely a matter of state law, the answer depends on location.

In New York, a domestic employee working 40 or more hours per week for an employer must be covered by workers’ compensation insurance, as do “live-in” domestic employees regardless of any set hours. Accordingly, any claim brought by an injured domestic employee who is eligible for workers’ compensation insurance under New York law will be excluded under the standard homeowners’ policy, even if the homeowner failed to obtain the requisite workers’ compensation insurance.

In Florida, domestic employees in private homes are generally not entitled to workers’ compensation benefits. Since a Florida homeowner is not typically required to provider workers’ compensation benefits, determining whether a domestic employee’s claim will be excluded leads to a second question: Does the homeowner provide workers’ compensation benefits voluntarily?

Under Florida law, an employer may voluntarily accept to be bound by the provisions of the workers’ compensation laws even though an employee, such as a domestic employee, is exempt from such laws. Why? To invoke workers’ compensation immunity as a defense to being sued by an employee who was injured while working.

Because the security of immunity may outweigh the cost of providing benefits, an employer may provide workers’ compensation benefits despite no legal obligation to do so. If this is the case, a claim brought by a domestic employee will not be covered by the standard homeowners’ policy because the employee is eligible to receive workers’ compensation benefits, albeit voluntarily.

So, a claim will not be covered under a standard homeowners’ policy if the domestic employee is eligible to receive workers’ compensation benefits, regardless of whether such eligibility is required by law or provided voluntarily. As written, the standard exclusion would likely apply even if the employee does not receive any workers’ compensation benefits because eligibility, rather than receipt, is the key.

Before a risk can be managed, it must be understood. Without knowing the probability and degree of potential liability exposures, as well as options for controlling the frequency and severity of such exposures, it is impossible to make an informed decision. For those with domestic employees, the first step is to review their homeowners’ insurance policy to find any gaps in coverage. The next step will depend on the extent to which the homeowner is comfortable assuming the financial risk of any such gaps.

Since reviewing a policy and determining the applicability of various laws can be complicated, it is helpful to consult an experienced and reputable insurance agent. If you would like to learn more about protecting against the risks created by domestic employees, or if you would like to discuss your insurance options, please contact us.

The Continued Importance of an Insurer’s Financial Strength

If a coin comes up tails 100 times in a row, is it more likely that the next toss of that same coin will be heads? The answer is no. Since, as they say, “a coin has no memory,” the first 100 tosses do not change the fact that the probability on the 101st toss remains at fifty percent. Though significantly more complex, the insignificance of past events when calculating the probabilities of future events also applies to hurricanes.

In a previous article, we discussed the importance of purchasing insurance from a financially secure insurance company. At that time, the devastating hurricane seasons of the mid-2000’s were fresh in our collective memory, and many homeowners were in a rush to get “their house in order.”

Unfortunately, some homeowners did not properly value the financial strength of their insurance company before purchasing their policy. Rather than consider the financial strength of a prospective insurance company, many homeowners focused on the premium. As a result, many of those who suffered hurricane damage were unable to collect on their insurance policies because their insurance company became insolvent.

Unfortunately, the relative tranquility of the past few hurricane seasons has caused many to drop their guard, particularly in the context of purchasing homeowners’ insurance from financially strong companies. However, as mentioned above, the relative calm of the recent past does not guarantee the absence of hurricane risks in the future. Consequently, as with periods of heightened hurricane activity, insuring with financially strong insurance companies remains critically important.

Although there are no guarantees that a particular insurance company will remain solvent, it is commonly understood that financially strong insurance companies are more likely to meet their ongoing obligations to policyholders than financially weak ones. Unfortunately, for the average consumer, determining financial strength may be difficult. However, there are resources available to assist consumers with this task.

A.M. Best*reg;, a company that evaluates and rates the financial health of insurance companies, conducts independent evaluations to form an opinion regarding an insurance company’s financial strength. Based on an evaluation of an insurance company’s balance sheet, operating performance, and business profile, A.M. Best issues its “Financial Strength Ratings,” which have been recognized as a benchmark for assessing an insurance company’s financial strength. The Financial Strength Ratings assign letters to convey A.M. Best’s opinion for a particular insurance company—from Superior (A++) to In Liquidation (F).

While there are other rating agencies, consumers should understand that each agency may use their own standards, processes, and methods to rate insurance companies. So, it is important to understand that not all “A” ratings are necessarily equal. Consumers should investigate not only the methodology used by their rating agency of choice but also its reputation in the insurance and financial industries. As usual, the more information insurance consumers obtain at this stage of the purchasing process, the better off they will likely be.

Regardless of which system is used, it is important to note that a rating is not intended to be a guarantee of an insurance company’s financial strength. Nevertheless, the wisdom of considering a prospective insurance company’s financial strength should never be dismissed, and at least a cursory review of the insurer’s financial rating should be undertaken.

To understand the significance of an insurance company’s financial strength, one need only note the number of insurer insolvencies over the past few years despite the relative lack of hurricane claims. How would a homeowner have fared with such financially weak insurance companies if there had been a hurricane?

Conceptually, an insurance company’s ability to pay the claims of its policyholders is fundamental to the underlying purpose of insurance. The significance of premiums, deductibles, coverage limits, policy terms, and exclusions virtually vanish when the prospect of insurer insolvency surfaces. After all, what difference does the amount of the deductible make if there is no money to pay a claim?

If you would like more information about the opportunity to insure your home and other property with a financially secure insurance company, please contact us.

Making the Case for Personal Property Floaters

Most people believe their standard homeowners’ insurance policy is all they need to protect their property. While this may be true in terms of protecting their dwelling and other structures, the same may not be the case when it comes to protecting their personal property. This is because a standard homeowners’ insurance policy typically limits the amount an insured can recover for specific kinds of personal property.

For example, a standard homeowners’ insurance policy may contain various special coverage limitations, such as:

  • $200 for bank notes, bullion, various kinds of precious metals, such as gold, silver, and platinum;
  • $1,500 for securities, accounts, deeds, and other evidence of debt;
  • $1,500 for loss by theft of jewelry, watches, furs, precious and semi-precious stones;
  • $2,500 for loss by theft of firearms; and
  • $2,500 for loss by theft of silver-, gold-, and platinum-ware.

Although property types and coverage limitations may vary among policies, the result is the same—some property will not be covered by a standard homeowners’ insurance policy. This poses a significant risk for those who own property that would be excluded under their standard insurance policy, especially given the value of such property.

If an insured is not adequately covered against the loss of these kinds of property, it may be necessary to acquire additional coverage for such property beyond that which is available under their standard homeowners’ insurance policy. This is often accomplished by obtaining a Personal Property Floater (PPF), which is sometimes referred to as a Scheduled Personal Property Endorsement.

A PPF can either be a separate policy altogether, or it can be added to an existing homeowners’ policy through an endorsement. The purpose of the PPF is to provide insurance coverage that is broader, both in terms of coverage and limits, to a standard homeowners’ policy.

A typical PPF will itemize an insured’s valuable items, along with a description of the property and the amount for which it is insured. As a result, items that would not ordinarily be covered under a standard policy will be covered by the PPF, such as jewelry, furs, fine arts, musical instruments, high-value silverware and flatware, and collectibles, such as firearms, stamps, and coins.

The value of a PPF is quite clear, as is determining whether a homeowner would benefit from the additional security afforded by a PPF. If, after reviewing the coverage limitations in a standard homeowners’ insurance policy it appears that significant property would not be covered in the event of a loss, a PPF should be considered.

If you would like more information about Personal Property Floaters, or if you would like our assistance in determining whether a Personal Property Floater is necessary, please contact us.

Personal Umbrella Insurance Policy: The “Business Pursuits” Exclusion

When it comes to personal insurance, some people are content with their standard automobile and homeowners’ (or renters’) insurance policies. Others, however, believe additional insurance is necessary to adequately protect their interests. Whether these people are naturally more risk averse, or they understand that an auto policy with $10,000/20,000 limits will likely fail to fully cover all but the slightest of occurrences, the solution they seek can be found in a personal umbrella liability insurance policy.

A personal umbrella insurance policy, or an excess liability insurance policy, provides coverage that goes beyond the limits of an insured’s primary home or automobile insurance policies. Such coverage is often described as second-tier or second-layer insurance because the coverage comes into play only after the primary or underlying coverage is exhausted. Depending on the precise policy form, an umbrella policy may simply operate to increase the limits of coverage beyond those of the primary policies, or it may provide broader coverage beyond those of the underlying policies. Either way, a personal umbrella insurance policy creates an additional layer of security against the loss of one’s personal assets and wealth.

To maximize the protection afforded by a personal umbrella policy, it is necessary to understand what the policy covers. Or, more importantly, what the policy excludes from coverage. While every insurance policy contains exclusions, some warrant additional discussion. In the context of personal umbrella insurance policies, one such exclusion is the “business pursuits” exclusion.

Although the precise language of the “business pursuits” exclusion varies among different policies, it typically provides that the personal umbrella policy will not cover bodily injury or property damage arising out of business pursuits of the insured. The underlying purpose of this exclusion is to deny coverage for losses arising out of a business endeavor. Since most of those who purchase personal umbrella insurance policies undertake some form of business endeavor throughout their day, it is important to understand the precise scope of the exclusion.

The first place to start is the policy itself. Unfortunately, the word business is not always defined in the policy. The policies that do provide a definition usually do so by providing a list of synonyms, such as trade, profession, or occupation. As a result, there is little guidance to be found in the policy.

Another way to understand the exclusion is to look at judicial opinions that have considered its meaning. However, working with little more than the sparse policy language, courts have struggled to provide a universal interpretation of the exclusion. Nevertheless, these opinions do provide some general guidance as to the scope of the “business pursuits” exclusion.

According to these judicial decisions, the exclusion applies to conduct that is primarily taken in furtherance of a business interest or that is inextricably entwined with employment. Although many courts refused to define the outer limits of the exclusion, one court rejected the notion that the exclusion automatically applies merely because the conduct occurred in the workplace. According to this court, the applicability of the exclusion must be assessed in light of the relationship of the alleged conduct to the business activity. And, while the applicability of the exclusion may depend on the existence of a profit motive, the alleged act must ordinarily be one that the insured would not normally perform but for the business and must be solely referable to the conduct of the business.

Despite this guidance, insureds are still left without a universal interpretation of the exclusion. And, while it may be easy to predict the applicability of the exclusion in some clear-cut cases, those instances falling somewhere in the middle may defy accurate prediction. Consequently, as is often the case, it is very difficult to state whether coverage will be excluded in a hypothetical situation. Actual facts are needed to make a determination.

However, any difficulty encountered in predicting the applicability of the exclusion before the happening of an occurrence does not diminish the importance of incorporating a personal umbrella policy into a comprehensive insurance portfolio. Knowing about, and understanding, the “business pursuits” exclusion allows insureds to identify potential gaps in their personal insurance coverage and adjust their behavior accordingly.

If you would like to learn more about obtaining a personal umbrella insurance policy, please contact us.

Florida Homeowners Insurance Rates

Homeowner’s insurance rates in Florida already are third highest in the country, behind Texas and Louisiana. The primary factor for Florida rates is our huge hurricane risk. Not only does Florida have more exposed coastline than almost any other state, the concentration of population, high rises and other construction in southeast Florida is unmatched.

Continue reading “Florida Homeowners Insurance Rates”