Is there a duty to defend under HO Section II Additional Coverage for Damage to Property of Others?

ISSUE

An insured borrows an expensive riding mower from a neighbor. While the insured is mowing his own lawn, he accidently destroys the lawnmower blades and engine resulting in $1500 damage to the mower. The owner of the mower files a small claims action against the insured for the damage. The insured demands that his Homeowners insurer provide him with an attorney for the defense of the small claims action.

QUESTION

Under current ISO Homeowners forms, does the duty to defend extend to losses payable under Section II – Additional Coverages – Damage to Property of Others, or is the insurer's total liability limited to $500?

ANALYSIS

We are aware of no instructive case law on this issue. Therefore, we must consider the arguments Pro and Con.

Pro:

The insurer would have to provide defense counsel because of ambiguity. The policy heading in question refers to Section II – Additional Coverages. An average insured Homeowner would interpret this language to mean that the additional coverages were made available in addition to and in conjunction with the basic Section II – Coverage E – Personal Liability Coverage.

Despite the fact that the Section II – Coverage E care, custody, or control exclusion would normally preclude coverage for this type of loss, Homeowners insurers have apparently chosen to allow additional limited bailment coverage for some exposures. Thus, it can be argued that the additional coverage is employed to carve out a limited exception to the care, custody, or control exclusion's normal precluding of coverage for this type of claim. If additional coverages may be viewed as an exception to the care, custody, or control exclusion, then Section II – Coverage E Personal Liability Coverage duties (including the duty to defend) of the insurer apply.

Con:

An insurer would not have to provide defense counsel under Section II – Additional Coverages because there is no ambiguity. Section II – Liability Coverages are not synonymous with Section II – Additional Coverages. The additional coverages are comprised of four separate, additional grants of coverage, under separate heading, which are to be read apart from Coverage E – Personal Liability Coverage and Coverage F – Medical Payments To Others Coverage. The additional coverages address: (1) Claim Expenses, (2) First Aid Expenses, (3) Damage To Property Of Others, and (4) Loss Assessment.

These additional coverages are available in addition to the limits of liability. The duty to defend is not expressly or impliedly carried into the additional coverages from the Coverage E – Personal Liability coverage grant.

At least one court has addressed the distinction between Section II Liability Coverages and Section II Supplementary Coverages. In Mutual of Enumclaw v. Harvey, 772 P.2d 216 (Idaho 1989), the court considered the difference between the basic liability coverage grant and Section II Supplementary Coverage. The court stated:

That language, as well as the placement of Coverage 2. under a heading named, "Supplementary Coverages" implies that the provisions contained therein are separate from and in addition to the basic policy coverage. . .

772 P.2d at 219.

The duty to defend an insured is found only under the insuring agreement for Coverage E – Personal Liability. The duty to defend arises for any claim or suit for damages, "to which this coverage [ Coverage E – Personal Liability ] applies."

The duty to defend does not exist if coverage is precluded by any Section II exclusion. The care, custody, or control exclusion contains specific exceptions only for loss caused by fire, smoke, or explosion. The Additional Coverages cannot be read as exceptions to the Coverage E – Personal Liability Exclusions. While Section II – Coverage E – Personal Liability Coverage may not apply because of certain exclusions, the Section II – Additional Coverages are intended to provide limited "goodwill" coverage for small exposures apart from the Personal Liability Coverage limit of liability and the broad duty to defend.

Thus, since the Additional Coverages stand alone and separate from the Coverage E – Personal Liability Coverage grant, the duty to defend does not apply to the Additional Coverages.