Recently, I received a telephone call from a woman who was involved in an accident in her boyfriend’s garage. Her boyfriend had recently purchased a new home. The girlfriend lived with the boyfriend about 75% of the time. While the boyfriend was hospitalized, the girlfriend went into the garage to put some kitchen appliances in a cabinet that was hung on the wall. As she was doing so the cabinet fell and landed on her foot causing an injury requiring surgery.
Although the girlfriend had health insurance, her personal responsibility on her medical bills is in excess of $50,000.00, and her treatment is ongoing; and, she is still experiencing persistent pain and will require future medical treatment. An inspection made after the girlfriend’s accident showed that the cabinets were improperly secured to the wall. The couple that sold the house to the boyfriend are elderly and now reside in a remote state.
The initial question that had to be answered was whether the boyfriend’s homeowners policy would provide any coverage for the girlfriend? There are two types of coverage on a homeowners policy that could possibly provide coverage for the girlfriend. These two types of coverage are premises med pay and liability coverage. Premises med pay coverage (usually between $1,000.00 and $10,000.00 on a homeowner’s policy) will pay for the medical bills of a visitor that is injured while on your property, regardless of fault. However, this coverage excludes resident relatives and non-relatives who live at the residence on a regular basis. Therefore, the girlfriend was not eligible for premises med pay coverage.
Liability homeowner’s coverage provides recovery for persons who are injured on your property. This coverage is fault-based. So, for this coverage to apply the owner must be negligent in causing an accident. Since the boyfriend did not hang the cabinets and did not know about the defect that caused the cabinet to fall, liability coverage from the boyfriend’s policy was not available to the girlfriend for her accident on the boyfriend’s homeowner’s policy.
The second question that had to be answered was whether or not the sellers’ homeowner’s policy would provide liability coverage for the girlfriend?
Virtually all homeowner’s coverages and automobile coverages are “occurrence policies.” With this type of coverage, the occurrence (negligent act and accident) must occur within the policy coverage period or term of the policy. The girlfriend’s accident occurred the after the house was sold. The seller’s homeowners policy was not in effect at the time of the occurrence and the girlfriend’s accident did not happen within the coverage term. So, the sellers’ homeowner’s carrier will deny liability coverage for the girlfriend’s accident.
If the same negligent act occurred within the coverage period, lets say during the walk-through, prior to the closing of the sale, then the negligent act and the girlfriend’s accident would have occurred within the coverage term or period, and there would have been liability coverage from the seller’s policy for the girlfriend’s loss.
With an occurrence policy, if the occurrence happens within the coverage period, and the policy then terminates, even if the a claim or lawsuit is made years later, the occurrence policy provides coverage. For example, if you are in an injury producing automobile accident today and you don’t like the way that your carrier is handling the accident, and you cancel your policy tomorrow, and the injured party sues you one year later, you will still have liability coverage for this accident. Your liability coverage will cover the costs of your legal defense and damages up to the limits of your liability coverage.
Therefore, occurrence coverage will cover incidents arising during the coverage period, regardless of when those claims are reported, so long as they are made within the applicable statute of limitations, which can range from one year to three years for negligence, depending on which state the accident occurs.
So occurrence coverage has a tail coverage period which makes it more expensive than “claims-made” coverage which has no tail. For that reason, claims-made coverage is cheaper than occurrence coverage. We see claims-made policies on professional liability coverage, such as malpractice policies or business liability policies. Claims-made policies cover incidents arising during the policy period which are also reported during the term of the policy. You can purchase an endorsement on a claims-made policy that responds to incidents which occurred before the policy start date (also known as retroactive date). You can also purchase a tail coverage on a claims-made policy which covers incidents that occur during the policy term, that have not been reported to your carrier during the policy term. So, if there are no prior acts or retroactive endorsements or tail endorsements on a claims-made policy, it will be cheaper than occurrence coverage.
For example, many hospitals will purchase claims-made coverage for their doctors malpractice insurance. On a claims-made basis, if the doctor leaves the hospital to enter private practice, he should purchase tail coverage to cover occurrences that happened while he was working for the hospital that are reported after his employment with the hospital ends.
Getting back to the girlfriend’s accident, her only remedy is to file suit against the uninsured elderly sellers who reside out of state. If she could afford to pay an attorney to obtain a judgment against the sellers, she may never be able to collect on it. So, before a suit is filed against the sellers, an asset check should be done to determine if the sellers are candidates for filing bankruptcy to avoid the judgement. Remember, the sellers can liquidate all their assets and use them pay down their mortgage. If the seller’s state has homestead laws; or, if the sellers file for bankruptcy, the girlfriend may not be able to execute on any judgment against the sellers.