Mind the Gap

By Marc McNulty, CIC, CRM

THE HOMEOWNERS POLICY AND MOTORIZED TOYS

Will you save the day or be the grinch this holiday season?

As the holiday season approaches, most of your clients will be worried about what to buy for their friends and loved ones rather than potential insurance ramifications associated with the purchases. Sure, parents will always worry about their children hurting themselves with their new toys (as evidenced by the recurring line “you’ll shoot your eye out” in the holiday classic A Christmas Story), but how many actually think about bodily injury or property damage to others? Or a loss of the actual gift itself?

The answer is: Not many. People have enough to think about during the hectic holiday season, and insurance coverage is typically toward the bottom of their list of priorities.

People have enough to think about during the hectic holiday season, and insurance coverage is typically toward the bottom of their list of priorities.

This is yet another opportunity to prove yourself as a trusted advisor to your clients and prospects and save the day! Or, depending on how the situation plays out, they might think of you as a grinch because you’ll be able to point out limitations and/or exclusions in their personal insurance coverage. Either way, you’ll be doing what is best for your existing clients and could even impress prospects along the way.

While many of these are still around, gone are the days when erector sets, building blocks, toy cars, dolls, and action figures were the primary focus of the holiday season. Technology is now king, and items like tablets, smartphones, hoverboards, motorized scooters, and drones have taken over. The problem is that advances in technology and shifting tastes in consumer products have brought to the forefront a variety of insurance-related issues that were never previously on the radar for personal lines clients.

To make matters worse, the issues aren’t always cut and dried. What if your client’s child is using a drone to send a Bluetooth speaker to a friend and crashes it into a neighbor’s house? What if your client’s child crashes her motorized scooter into a fire hydrant and destroys the scooter? What if your client’s child crashes a battery-operated drivable car into a friend who is standing on the sidewalk down the street from your client’s house?

Numerous scenarios can play out any time you combine children and motorized toys. And the answers aren’t always easy.

How to fix the problem

For starters, don’t make any assumptions! Homeowners policies vary when it comes to these issues. Some clearly include coverage, some exclude it, and others have murky wording that leaves room for interpretation.

Let’s take the drone example. At this point you are well aware that there are property and liability exclusions for aircraft in the homeowners policy. However, there is a carve-back in most policies for “model or hobby aircraft,” and this is why a lot of websites inform people that homeowners or renters policies will cover drones if they are being used recreationally.

In the example I gave, the drone was carrying a Bluetooth speaker. The HO 00 05 (05 11) policy states in the Property Not Covered section that “We do cover model or hobby aircraft not used or designed to carry people or cargo.” Similar language exists in the “aircraft liability” definition in the policy; thus it will apply toward any potential liability claims.

This raises the question: Is a drone that can carry small objects considered a model or hobby aircraft that carries “cargo”? I’ll leave it to your insurance carriers to answer that one.

No matter the answer, all carriers don’t use the same policy language. For example, I have seen policy language from a national carrier that specifically excludes property coverage for aircraft with no carve-backs. However, it does carve back liability coverage for aircraft that “is used or operated for recreational purposes only and weighs less than 10 pounds with or without any accessory, equipment or part attached.”

See what I mean about not making assumptions?

Next, let’s look at the motorized scooter situation, as these can be quite expensive to replace. I think we all agree that such a vehicle would most likely fall into the “motor vehicle” category, as the HO 00 05 (05 11) defines “motor vehicle” as “a self-propelled land or amphibious vehicle.” As expected, the form provides a property coverage carve-back for “motor vehicles not required to be registered for use on public roads or property which are: (a) used solely to service a residence or (b) designed to assist the handicapped.” Under this form, it seems that the scooter wouldn’t be covered if it were crashed.

One super-regional’s form extends this carve-back by also including coverage for golf carts as well as “battery-operated, drivable toy vehicles.” Given that this form is the equivalent of an HO 00 05, a crashed scooter would most likely be covered as personal property under the form.

Finally, let’s look at the battery-operated injury example. While we’ve already established that there most likely isn’t coverage under the HO 00 05form for the vehicle itself, what about liability coverage for the injured child? This is where things get interesting, as the 05 11 edition of the HO 00 05 contains a liability carve-back for motor vehicles that are designed for recreational use off public roads and that either are (1) not owned by an insured or (2) owned by an insured as long as the occurrence takes place on an “insured location” or off an “insured location” as long as the motor vehicle is “designed as a toy vehicle for use by children under seven years of age; powered by one or more batteries; and not built or modified after manufacture to exceed a speed of five miles per hour on level ground.”

The super-regional carrier I mentioned earlier has the same kind of language in the personal liability section of its form. On the other hand, the aforementioned national carrier specifically states that the motor vehicle definition “does not include model, hobby or children’s toy vehicles.” Therefore the national carrier should provide a broader liability carve-back.

Those of you who have read this column before will correctly predict that my overall answer on how to address these kinds of situations is: Read your policy forms and ask your carriers specific coverage questions when the language is murky.

If you aren’t sure whether or not coverage can be purchased for a specific situation, ask your underwriters. When looking for answers pertaining to specific claims scenarios, ask your claims adjusters when possible. (I say when possible because most adjusters don’t like to answer hypotheticals, but in some cases they will.)

Once armed with the knowledge and answers you need, you’ll be ready to either save the day or become the grinch; I’ll leave that decision to you.

The author

Marc McNulty, CIC, CRM, is a principal at The Uhl Agency in Dayton, Ohio, and has been with the agency since 2001.He divides his time among sales, marketing, technology and operational duties. You can reach Marc at marcmcnulty@uhlagency.com