Mind the Gap
By Marc McNulty, CIC, CRM
SPECIAL EVENT EXPOSURES—PART TWO
Event coverages and exposures for your personal lines clients
In the May 2019 Mind the Gap column, we examined some situations in which commercial lines clients might need special event liability for events they host. However, at some point in your insurance career, you’ll be approached by a personal lines client who has a special event exposure—be it a wedding reception, graduation party, retirement party, etc. Let’s look at this side of special event liability and determine what coverage—if any—they might already have.
The phone call
Rental facilities that have proper risk management processes in place will ask your client for proof of insurance coverage, and that’s when you’ll receive the phone call. In some cases, they will reach out to you well in advance of the event, as the facility will require the proof of coverage ahead of time as part of wrapping up the final details. In other cases, they might let it slide until a day or two before the event. And that’s when things can get tricky.
During this type of conversation, one of the first exposures you will most likely think of is liquor liability. This makes complete sense, as no one wants to be responsible for an accident that occurs from an over served guest.
While you might think (damage to the venue and guests’ property) are rare occurrences, one wedding insurance specialist notes on its website that 2I% of its claims in 20I7 stemmed from this type of situation.
Along the same lines, most clients are concerned about slip-and-fall situations that occur by pure accident. When people celebrate, people dance and drink. And when people dance and drink, accidents occur.
Finally, as you continue to ask your client questions pertaining to the type of event that will be held, keep in mind an exposure that is often overlooked: damage to the venue and guests’ property. While you might think that this is a rare occurrence, one wedding insurance specialist notes on its website that 21% of its claims in 2017 stemmed from this type of situation.
Inevitably, as the conversation progresses, you will be asked: “Doesn’t my homeowners policy cover this stuff? I thought I had liability coverage.”
The answer is maybe …
Liquor liability claims
Since it’s usually the largest concern, let’s start by examining liquor liability. While the HO 00 03 05 11 and HO 05 05 11 forms do not contain a specific liquor liability exclusion (the terms “liquor” and “alcohol” aren’t in the forms whatsoever), they do contain an important auto liability exclusion that could come into play.
Let’s start by looking at the definition of “motor vehicle liability” that is on page one in the definitions section of both forms:
- In addition, certain words and phrases are defined as follows: “Aircraft Liability”, “Hovercraft Liability”, “Motor Vehicle Liability” and “Watercraft Liability”, subject to the provisions in b. below, mean the following:
Liability for “bodily injury” or “property damage” arising out of the:
Ownership of such vehicle or craft by an “insured”;
Maintenance, occupancy, operation, use, loading or unloading of such vehicle or craft by any person;
Section II of these homeowners insurance forms contains a “motor vehicle liability” exclusion. While most of us can agree on the intention of this exclusion, I’ve read about situations in which courts have found coverage under the homeowners policy for accidents resulting from host liquor liability and the outcomes centered around the phrase “arising out of.” In other words, the courts felt the accidents arose out of the furnishing of alcohol as opposed to the operation of a motor vehicle. Since there isn’t a specific exclusion pertaining to accidents arising from the furnishing of alcohol, the courts ruled that coverage could indeed apply.
That’s a very fine line to walk, so unless you have case law in your state that clearly states that homeowners insurance policies cover motor vehicle accidents arising from over served guests, I would suggest seeking coverage for this exposure under a special event liability policy.
This type of situation isn’t as gray as liquor liability claims, as typically they are paid out under Coverage F (Medical Payments To Others) under a homeowners policy. Let’s assume that’s the situation here and that there aren’t any specific circumstances that lead to negligence one way or the other.
The first part of the Coverage F insuring agreement states that the coverage applies “to a person on the ‘insured location’ with the permission of the insured.” Earlier in the HO 00 03 and HO 00 05 policy forms, “insured location” is defined and includes “any part of a premises occasionally rented to an ‘insured’ for other than ‘business’ use.”
Since we are contemplating the use of a rental facility for a special event, and it isn’t being used for business purposes, homeowners insurance coverage should be afforded for slip-and-fall claims since there aren’t any additional exclusions that would apply. (Yes, there are the expected or intended injury and controlled substance exclusions but let’s keep this simple and not R-rated.)
Property damage claims
Here is where things start to get interesting because this is typically not a focus area for clients as they plan their event. They either assume they have liability for property damage claims or they don’t contemplate the exposure at all.
The Section II Exclusions in both the HO 00 03 and HO 00 05 forms include a personal liability exclusion that reads as follows:
F. Coverage E – Personal Liability
Coverage E does not apply to:
- “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;
Pretty straightforward, right? The good news is that there is some coverage here but the bad news is that if someone breaks a table, chair, mirror, etc., there won’t be coverage under the homeowners policy.
Now that we’ve muddied the waters by reviewing what will be covered, what won’t be covered, and what might be covered. After reviewing everything with your client, you’ll most likely find that they are willing to purchase a separate special event liability policy rather than take a chance with their existing personal insurance program. Let’s look at a few other factors that should be considered:
- Additional insured status. In some cases, the rental facility may ask to be named as an additional insured on whatever liability policy is covering the event. Most homeowners insurance companies will not do this; however, special event liability policies will easily do this.
- Event cancellation costs. The previous Mind the Gap special event piece discussed event cancellation coverage for commercial accounts; personal situations are no different. If a serious illness of a bride or groom causes a wedding postponement or weather causes a reception to be cancelled, your client will need coverage outside of his or her homeowners policy to address this type of exposure. Special event policies can accomplish this.
- Claims against the homeowners policy. Let’s be honest—insurance companies are scrutinizing accounts more than ever, and insureds can find themselves subject to non-renewal over a couple of minor claims within a short time frame. Ask your client if they are willing to risk having a claim filed against their existing homeowners policy, especially if they already have a recent claim or two on the books. For a relatively small amount, they can purchase a separate insurance policy that will provide them with not only proper coverage, but peace of mind that they won’t be cancelled should an unfortunate situation occur.
In short, special event situations are no different than a lot of other situations you might encounter: A client or prospect will present you with a situation and then you as an insurance professional will point out the exposures and ways to address them. While it’s ultimately up to your client to make the final decision, selling them a special event liability policy will provide both of you with serenity as well as a little added revenue in your pocket.
Marc McNulty, CIC, CRM, is a principal at The Uhl Agency in Dayton, Ohio.You can reach Marc at firstname.lastname@example.org