This is especially important for contractors.  Let me explain why… 

You are installing an expensive new kitchen into an existing home. While fastening the cabinets to the wall you accidentally drop an expensive cabinet onto a valuable counter top, causing extensive damage to both the cabinet and the counter top. Maybe, the cabinet then bounces off the tile floor, causing damage to the floor. That’s a lot of damage! Does your standard liability policy provide coverage for the cabinet? The Counter Top? The Tile Floor? 

Suppose you’re the homeowner… Do you want the damaged property repaired or replaced without any cost to you?

As I mentioned above, most liability policies will exclude damage the contractor does to property that is in his/her care, custody or control. By definition, the kitchen cabinet is in the contractor’s control and, therefore, not covered by his standard policy. What about the counter top or the tile floor? 

This scenario could, and probably does, happen. Without the proper coverage the contractor may be left with a large out-of pocket expense. 

Erie Insurance, and other carriers, offers an endorsement that essentially removes this care, custody and contorl exclusion from the policy. Erie calls it “Voluntary Property Damage (VPD).” According to Erie’s policy language, this endorsement “provides coverage for unintentional damage to property of others caused by the insured while the property is in the care, custody or control of the insured.” It includes damage to property you are physically working on. Erie’s endorsement also includes property you have borrowed from others.

What is Care, Custody or Control?  Unfortunately, it is often a gray area.  It could be up to the courts to decide. According to an IA&B article by Jerry Milton, CIC, most courts indicate it means “actual possession or direct physical control of the property.” 

So, it includes property you are actually working on and property of which you are in direct physical control…

Maybe the best way to describe property in your care, custody or control would be to provide some more real-world examples:

1) A Plumber installs a new sink in a homeowner’s bathroom. The plumber accidentally drops the sink, which causes damage to the sink and the bathroom floor. Is damage to the sink and/or floor covered without this VPD endorsement? 

A: The floor is probably covered by the standard liability policy because it is not being worked on by the plumber. (I say “probably” because it really is up to the courts.) The sink is definitely not covered because the plumber was working directly on it. (If the plumber owns the sink he/she would need Installation Coverage, which provides insurance on property, equipment and fixtures that will be installed by the contractor.)

2) A contractor is drilling holes in a hardwood floor to install a new ventilation system. The drill slips and damages the hardwood floor. Is the floor covered without this VPD endorsement?

A: Probably not, as the floor will most likely be considered to be in the contractor’s care.

3) A paint contractor has a ladder against a wall and accidentally bumps the ladder causing damage to the wall. Is this covered without the VPD endorsement?

A: Again, probably not, as the wall will most likely be considered in the contractors care.

Now, if I’m a contractor working on your property and accidentally damage something of significant value, you would want it to be covered with no questions asked. You wouldn’t want to have a conversation with me or with my insurance agent as to whether the property was in my care, custody or control. You would simply want it covered.

Bottom Line, buy the Coverage! It takes away the gray area of care, custody and control. It protects contractors from potential large out of pocket expenses and, most importantly, it can keep your customers happy!

Resources Mentioned during Podcast

Independent Contractor or Employee IRS Test

Pennsylvania Insurance Department

Pennsylvania Compensation Rating Bureau 215-568-2371

This is why it is important to understand the full extent of the protection provided when you purchase a Tenants or Homeowners Insurance policy.  These policies protect not only your home and the things in it, but also protect you and your assets when you are found liable, or legally obligated and responsible, for injury or property damage to someone else.  While a homeowners policy doesn’t cover any business or work related pursuits or, naturally, intentional or criminal acts, it very broadly protects you from many incidents you could be held liable for. 

Here are just a few examples:

- The lights on your Christmas Tree short out, and the resulting fire damages not only your home, but also your neighbor’s home.

- Your dog bites a Christmas Caroler who has come to your door.

- A neighbor child falls from a tree on your property and breaks an arm.

- Your teen is playing Wii Sport at a friend’s house and accidentally throws the controller through the friend’s new plasma TV screen.

- Your 4 year old takes a candle and sets fire to the draperies at your favorite restaurant. Seriously, my nephew was caught doing this at my wedding reception!

These and many other minor and major catastrophes happen to regular people every day, and could happen to you, which is why having enough liability insurance is so important.  Most homeowners liability insurance follows you wherever you are in the US and Canada, so if you happen to be a world traveler, you may want to consider purchasing a Personal Catastrophe Liability policy, which gives you world-wide liability protection.

Overall, the liability coverage on your Homeowner and Renter Insurance provides a lot more protection than just at your home. The coverage follows you when you leave your home and it even extends coverage to accidents caused by your children who are residents of your household. So don’t underestimate the importance of good liability insurance and make sure to speak with your insurance agent on what amount of coverage fits your situation and family.

By Jim Rogash, Getty Images

Last week New England Patriots quarterback Tom Brady was involved in an accident after another driver allegedly ran a red light hitting Brady’s vehicle. Luckily, Brady was not injured in the accident because with a contract to make $6.5M per year, an injury affecting his professional career could have cost millions. In addition, Massachusetts has state minimum auto insurance liability coverage of $20,000 and a Brady injury could have left the other driver financially devastated. I realize that millionaire Tom Brady’s are not driving all over Lancaster PA roads but the story teaches 3 important lessons about liability auto insurance.

Lesson 1 – State Minimum Liability is Very Minimal

Pennsylvania has 2 state minimum liability limits that are required for every auto insurance policy. The first is called “Bodily Injury Liability” and it pays when you are liable for injuring someone else in a car accident. The PA state minimum amount of Bodily Injury Liability is only $15,000 for injuries to one person and up to $30,000 for one accident. The other state required liability coverage is called “Property Damage Liability” and it pays when you are liable for damaging someone else’s property, typically their car. The PA state minimum amount of Property Damage Liability is only $5,000 per accident.

Thus, if you are liable for a single injury totaling more than $15,000 or cause damage to a car that costs more than $5,000, the auto insurance coverage will run out and you will be personally accountable for paying the remaining balance. With the high cost of medical treatment and the average new car costing $30,000, you can see it would not take hitting a Tom Brady professional or a Tom Brady car to exhaust these state minimum limits quickly.

Lesson 2 – Reducing Liability Risks A lot for A Little

Everyone is looking for a way to save money right now and one place people are turning to is their auto insurance policy. I think that shopping your car insurance, reviewing your policy to maximize discounts or raising your deductibles are all great ways to reduce costs, however, reducing liability coverage is generally a bad idea.

Bodily Injury and Property Damage Liability are usually one of the cheapest coverages on the auto insurance policy and reductions in these coverages usually will not result in big cost savings. More importantly, liability is what protects your assets and family when you are liable in a car accident. Remember once your auto insurance liability limits run out, you are personally liable for the difference. Liability and your financial future are not worth risking just to save a few dollars.

Lesson 3 – Protect Yourself from Low Liability Insurance Drivers

Even if the person who hit Brady had excellent liability limits, it is still unlikely they would have had enough insurance to cover a serious injury to Brady. In this situation, Brady could have filed an “Underinsured Motorists” claim on his own auto insurance policy to cover his injuries after the other person’s liability ran out. Can you image the potential size of that Underinsured Motorists claim?

Even if you do not make millions like Tom Brady, a serious auto accident injury could still lead to very expense medical bills, lost wages and pain and suffering. In a down economy, many people are driving with state minimum or low liability insurance and Underinsured Motorists coverage gives you a resource to pay for your family’s injury when the other person’s insurance is not adequate. Make sure to find if you have this important optional coverage on your auto policy because you never know how much liability insurance the other driver may have.

Are college students covered on their parents’ Homeowner insurance policy?

The short answer is it depends. Based on the PA Insurance Service Office’s (ISO) homeowner insurance policy, an “insured” on a homeowner insurance policy includes a student enrolled in school who meet all the following:

1. Enrolled as a “full time” student defined by the school

2. Who was a resident of your household before moving out to attend school

3. Under the age of 24 and your relative

Thus, if a student is not enrolled full time or is over the age of 23 attending school, they would not have homeowner insurance coverage from their parents’ policy. The good news for families in this situation is that endorsement HO 05 27 “Student Living Away From the Residence Premises” may be used to extend coverage from the parents’ homeowner insurance for a student who is 24 or older.

What coverage do college students have?

If a student is an “insured” on the parents’ homeowner insurance policy they would have liability coverage for injury or damage caused to another person and coverage for their “stuff” – laptops, books, TVs, Ipods, ect. However, the standard ISO homeowner policy has a limitation of 10% for personal property located off the insured’s “residence premises”. This means if your homeowner insurance policy has $100,000 of personal property coverage, the student(s) at college would only have $10,000 of coverage for their “stuff”.

This may sound like more than enough coverage but $10,000 can go quickly depending whether you have multiple college students or just one student with some really nice “stuff”. Again there is an ISO endorsement to provide extra coverage if needed. It is HO 04 50 “Personal Property at Other Residences” endorsement and it allows you to purchase additional coverage above the 10 percent limitation found on most policies.

Caution that many insurance companies have their homeowner policy forms and their provision may be different than the standard ISO form. Always consult your insurance company to verify their specific requirements for definitions of “insured” and coverages.

Do college students need renters insurance?

Renters Insurance is always a good idea especially when a student lives off campus. As we mentioned in our prior blog post “The Truth About Renting and Insurance” it costs as little as $50 per year and it helps eliminates all the questions related to whether a college student is covered on a parents’ homeowner insurance policy.

Insurance coverage is an important but overlooked issue facing families and college students. Talk with your insurance agent and make sure your family has the appropriately coverage before your child has the car packed for college too.

AVOID: This one is pretty straight forward. If you don’t participate in a particular activity or own a particular property, you eliminate the risk all together. This method is the easiest to execute but it can be the hardest to resist. Here are just a few examples of avoiding a risk:

• Not licensing a teenage driver who is clearly irresponsible

• Not buying a backyard trampoline because it is impossible to prevent neighborhood children from using it and potentially hurting themselves

• Not going skydiving (I’ve always wanted to do this, though!)

REDUCE: Obviously we cannot avoid everything, otherwise, we would never leave the house or cross the street. That’s why the next way to manage risk is to reduce it. Most of the time reducing risk is just a matter of using common sense and actually doing the things you know you should be doing in the first place.

• Having your chimney cleaned every year to reduce the chance of a fire

• Checking the prongs on your diamond engagement ring to reduce the chance of losing the stone

• Not drinking and driving to reduce the risk of a car accident

RETAIN: The third and final non-insurance way to manage risk is to pay the loss out of your own pocket, or retaining it. Most people retain risk when they carry a car insurance deductible or when they don’t buy earthquake coverage for their home in Lancaster County PA. However, retaining risk is only good when it is intentional. Unintentional retention of risk is bad news because you’re not aware the risk exists in the first place and you likely don’t have the money to pay for it. Some examples of unintentional risk include:

• Not having any coverage to repair or replace your finished basement after your sump pump failed and the overflow water damaged it

• Only receiving $1,000 after your $5,000 engagement ring gets stolen

• Not having any coverage to protect against a lawsuit when a customer visits your home-based business and falls on your icy sidewalk

TRANSFER: The final way to manage risk is to transfer the risk from you to another party. Buying insurance is the most common type of risk transfer. With insurance you pay a predetermined premium and in return the insurance carrier absorbs the losses that you otherwise would have to pay. Insurance makes the most sense when the risk is large but the cost to transfer the risk is small. Here are just a few examples when it makes sense to buy insurance:

• Transferring the risk of rebuilding your $200,000 home after a fire for a few hundred dollars

• Getting coverage for your $30,000 SUV if you are at fault for damaging your own car

• Buying liability insurance to protect your assets from a lawsuit

Insurance really is a piece of A.R.R.T. because insurance is the Transfer of risk. However, it is important to understand that risk can also be managed by using non-insurance methods too. That’s why your insurance agent should always explore all options to manage your personal risk and help you identify the unintentional retained risks that you may not even be aware of.

Do you have an ARRT masterpiece to manage risk or do you need to get the paint brush out for some touchup? Please leave a comment below.