Relative to other causes of loss , liability losses occur with far less frequency than those resulting in damage to the home . Even though liability claims are very infrequent , the costs to settle the few losses that do occur can be extremely high . Insurers find it challenging to underwrite with great certainty the full scope of all entities that own residential property . Additionally , underwriters know the initial objectives for the entity can shift over time to include activities that present an unacceptable exposure .
Consider , for example , the situation in which an entity that owns a residence is named in a lawsuit alleging damages due to an act that occurred far away from the insured location . In this instance , the broad liability coverage provided by a homeowners policy could obligate the insurer to pay defense costs and related damages for a suit it could not possibly have contemplated . Because an entity owner may present a greater exposure to lawsuits than individuals , many insurers are unwilling to provide a homeowners policy offer that includes liability coverage .
TAILORING COVERAGE
Although precise coverage needs can vary widely based on many different factors ( especially the use of the residence ), the following characteristics outline the risk profile that is most common among residences owned by an entity :
• A trust , LLC , or LLP is formed for the sole purpose of holding title to a family residence .
• The family that is benefiting from the entity which owns the residence occupies the home .
• The family occupants are closely connected to the entity – as grantors , trustees , and beneficiaries , in the case of a trust , or as managers , general partners , members , or limited partners , in the case of a LLC or LLP .
• The family retains personal ownership of the furnishings and other contents at the home .
The following table identifies the insurable interests of each party for this very common risk profile :
Party with an Insurable Interest :
Entity ( Trust , LLC , etc .)
Trustee , LLC Member , or Partner of a LLP / LLC
Beneficiaries ( LLC Member ) and Individuals Who Are Also Occupants of the Residence
Coverage Required for :
Dwelling : Owned by the Entity Other Structures : Owned by the Entity Premises Liability : Entity Can Be Named in a Suit
Premises Liability : Can Be Named in a Lawsuit
Contents – Owned by Occupants Additional Living Expenses ( Loss of Use ) Occupants Would In cur Costs To Reside Elsewhere after a Covered Loss Liability – Occupants ' Negligence May Cause Them To Be Named in a Suit , Coverage Required for This Location and Elsewhere
Thus far , this article has taken a broad approach in describing how the “ insurance industry ” regards this coverage issue . Of course , there is no universal industry approach to address the protection needs of residential properties owned by all entities . Even in the case of the common and innocuous risk profile described above , many insurers do not offer adequate coverage for all parties with insurable interests . The endorsement most commonly used by insurers – Residence Held in Trust HO 05 43 – covers only a residence held in a trust . The select group of insurers serving financially successful consumers who often reside in homes owned by entities formed for their own benefit – including AIG , Chubb , Nationwide Private Client , PURE , and Vault – provide endorsements which can provide coverage for most arrangements that do involve a business-related exposure .
Well-crafted additional insured endorsements such as this serve to protect the property ownership and legal interests of the entity and those serving the entity , while enabling risk advisers to designate the
18 KANSAS INSURANCE AGENT & BROKER