8.4 Homeowners Section II: Liability, Medical Payments & Conditions Applicable to Both Sections
Key Takeaways
- Coverage E pays sums the insured becomes legally obligated to pay as damages for bodily injury or property damage caused by an occurrence, and defense costs are paid in addition to the limit.
- Coverage F pays reasonable medical expenses incurred within three years of an accident on a no-fault basis and never applies to the named insured or regular residents of the household.
- The insurer's duty to defend ends once it has paid the Coverage E limit in settlement or judgment, even if the suit continues.
- Section II excludes intentional acts, business pursuits, professional services, motor vehicles, and most watercraft, subject to narrow exceptions restored by endorsement.
- Section II additional coverages include claim expenses, first aid expenses, damage to property of others up to a modest limit regardless of fault, and loss assessment.
8.4 Homeowners Section II: Liability, Medical Payments & Conditions Applicable to Both Sections
The North Carolina content outline gives Homeowners policies fifteen scored questions — the largest single sub-topic on the examination — and it explicitly enumerates Section II as a required area, alongside Section I. North Carolina homeowners business is written on North Carolina Rate Bureau forms adapted from the ISO HO-2011 program, so the Section II structure below is the one an adjuster will actually see on a North Carolina declarations page.
Section II is a liability contract embedded in a property policy. It responds to claims made against the insured by others, which makes it structurally different from everything in Section I.
1. Coverage E — Personal Liability
The Insuring Agreement
If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence to which the coverage applies, the insurer will:
- Pay up to the limit of liability for the damages for which an insured is legally liable; and
- Provide a defense at the insurer's expense by counsel of the insurer's choice, even if the suit is groundless, false, or fraudulent.
The Two Rules That Decide Most Questions
| Rule | Consequence |
|---|---|
| Defense costs are paid in addition to the limit | A $300,000 Coverage E limit exhausted by judgment does not reduce the defense already provided |
| The duty to defend ends when the limit is paid | Once the insurer pays the limit in settlement or judgment, it may withdraw from the defense even if litigation continues |
The duty to defend is broader than the duty to indemnify. If any allegation in the complaint is potentially covered, the insurer must defend the entire suit, then sort out indemnity afterward.
Principal Section II Exclusions
| Exclusion | Scope and the exception to know |
|---|---|
| Expected or intended injury | Injury the insured expected or intended. Reasonable-force self-defense is generally not excluded |
| Business pursuits | Liability arising from a business. Restored in part by the Business Pursuits endorsement or Permitted Incidental Occupancies |
| Professional services | Rendering or failing to render professional services. Requires a separate professional liability policy |
| Motor vehicles | Most motorized land vehicles. Exceptions exist for vehicles not subject to registration, used solely on the residence premises, or designed to assist the disabled |
| Watercraft | Larger or faster craft are excluded. Small craft below stated length and horsepower thresholds remain covered |
| Aircraft | Excluded without exception in the base form |
| Communicable disease and controlled substances | Excluded |
| Property owned by, or in the care of, the insured | Damage to the insured's own property is a Section I question, not a liability claim |
| Workers' compensation | Obligations under any workers' compensation or similar law |
2. Coverage F — Medical Payments to Others
Coverage F pays necessary medical expenses incurred or medically ascertained within three years of the date of an accident. It is no-fault: legal liability is not required and negligence is not analyzed.
Who Is and Is Not Covered
| Covered | Not covered |
|---|---|
| A person on the insured location with permission | The named insured |
| A person off the insured location if injury arises from a condition on the insured location | Regular residents of the household, except residence employees |
| A person injured by the activities of an insured or a residence employee | Anyone eligible for workers' compensation benefits |
| A person injured by an animal owned by or in the care of an insured | Persons injured in connection with a business on the premises |
Trap: Coverage F never pays the named insured or family members who live in the household. Their medical costs are a health insurance matter. A neighbor's child bitten by the insured's dog is the textbook Coverage F claim — payable without any finding of negligence.
3. Section II Additional Coverages
| Additional coverage | Operation |
|---|---|
| Claim expenses | Defense costs, court costs, premiums on bonds, and reasonable expenses incurred at the insurer's request, including limited loss of earnings for the insured |
| First aid expenses | First aid to others incurred by the insured at the time of a covered bodily injury. Never applies to the insured's own first aid |
| Damage to property of others | Pays for property of others damaged by an insured regardless of legal liability, up to a modest per-occurrence limit, subject to exclusions for intentional damage by an insured age thirteen or older and for property owned by or rented to an insured |
| Loss assessment | Pays the insured's share of a liability assessment charged by a homeowners or condominium association |
Damage to property of others is heavily tested precisely because it ignores fault: a guest's laptop knocked off a table by the insured is payable even though no negligence occurred and even though Coverage E would not respond without legal liability.
4. Section II Conditions and Conditions Applicable to Both Sections
Section II Conditions
- Duties after an occurrence — prompt written notice, cooperation, forwarding of legal papers, no voluntary payment except first aid to others
- Duties of an injured person under Coverage F — written proof of claim, authorization for medical records, submission to physical examination
- Severability of insurance — the coverage applies separately to each insured, though the limit is not increased
- Bankruptcy of an insured — does not relieve the insurer of its obligations
Conditions Applicable to Sections I and II
| Condition | Effect |
|---|---|
| Liberalization clause | If the insurer broadens coverage under the form without additional premium, the broadened coverage applies automatically to policies already in force |
| Waiver or change of policy provisions | Must be in writing to be effective |
| Cancellation and nonrenewal | Governed by the policy and by North Carolina statute and rule |
| Assignment | Not valid without the insurer's written consent |
| Subrogation | The insured may waive recovery rights in writing before a loss; after a loss the insurer's rights attach |
| Death of the named insured | Coverage continues for the legal representative and for household members who were insureds at the time of death |
The liberalization clause is a favourite exam item. It gives the insured the benefit of a broadening form revision automatically, with no endorsement and no additional premium — but only where the revision broadens coverage without charge.
Exam Focus
- Coverage E requires legal liability; Coverage F does not.
- Defense is in addition to the limit, and it ends when the limit is paid.
- Coverage F: three years, and never the named insured or resident family members.
- Damage to property of others pays regardless of fault.
- Severability applies the coverage separately to each insured without increasing the limit.
A guest at an insured's Cary home is bitten by the insured's dog and incurs $1,900 in emergency treatment. The insured argues the guest provoked the animal and that no negligence occurred. How does Coverage F respond?
An insurer defending a homeowners liability suit pays its full $300,000 Coverage E limit to settle with one of three claimants while litigation continues against the insured. What is the effect on the duty to defend?
An insured accidentally knocks a visitor's $1,400 camera off a shelf, destroying it. The insured was not negligent. Which Section II provision most directly responds?
An insurer broadens its homeowners form to extend an additional coverage, charging no extra premium. An insured whose policy was issued before the revision suffers a loss that the broadened language would cover. What provision applies?