Protecting do-it-yourselfers from personal liability

Rough Notes, May 2001 by Malecki, Donald S

How does the homeowners policy address losses from defects in workmanship?

Across the country, the "do-it-yourself" trend has really caught hold. Many homeowners are opting to tackle the jobs of remodeling, repairing, making additions, or installing fixtures, instead of hiring contractors to do the work. Witness the growth of home improvements stores around the United States and the popularity of shows like PBS's "This Old House." Some people simply like the challenge of doing their own work and take pride in what they can accomplish. For others the motivation is economic: the only way they can afford to make home improvements is by becoming do-it-yourselfers.

Many people who enjoy making home repairs and additions themselves also profit by their "apprenticeships" as carpenters, electricians, plumbers, or jacks-of-all-- trades. After making improvements, this brand of do-it-- yourselfer sells the renovated house and purchases and moves into another house in need of repair, where there are additional opportunities for eventual sale and profit.

In this article we will consider two kinds of exposures: those that arise while a renovated house is in the do-it-- yourselfer's possession, and those that arise after a renovated house has been sold to another party.

Defective workmanship

In do-it-yourself home improvements, the first concern is liability that may arise when defective workmanship is alleged to have resulted in damage or destruction to the property itself or injury to the residents or invitees.

When the do-it-yourselfer's defective workmanship causes injury to persons, damage or destruction to the dwelling/contents, or both, his/her first concern will be whether coverage applies. If the dwelling or structure is considered an insured location and is, for example, damaged by fire, the homeowners policy should cover the loss, subject to policy terms and conditions.

If invitees are injured because of some incident on the premises that allegedly is attributable to the homeowner's defective workmanship, liability insurance under the homeowners policy should respond at least for defense of any suit, and for damages if liability is proved.

Liability from premises sold

The situation gets a little more complicated when the injury or damage occurs after the renovated house has been sold. It undoubtedly comes as a big (and frightening) surprise to be served with a subpoena alleging that the house a do-it-- yourselfer sold has burned to ground because of some latent defect attributed to that former owner's workmanship.

The seminal case on a property seller's liability is Pharm v. Lituchy 9 New York Supp. (2nd) 657, where the new owner of the property was injured by a falling ceiling a day after the title was transferred by a bank. It was first learned at the trial that the new owner was unaware of the defective ceiling, but the bank knew of its condition. The court held the bank liable because the defect was known to the bank and the bank had a duty to keep the ceiling in repair.

At the time of this case, in the 1950s, the prevailing rule appeared to be that a vendor was not liable for injury or damage to the purchaser or a third party caused by a defective condition in the premises existing at the time the new owner took possession. Later, however, the courts began to make exceptions to this immunity.

In the wake of the Pharm case and recognition of the potential for liability on the part of sellers, countless requests were made for liability insurance. To meet this need, an insurance product called "Grantors Protective Liability" coverage was created for commercial risks.

Personal liability coverage

Our concern here, however, is not insurance for sellers of commercial property. The subject of this article is personal liability insurance written for individuals and families or in combination with various dwelling package policies.

The first homeowners package policy was introduced in 1951 by the Insurance Company of North America. It is uncertain what this policy provided in terms of liability for vendors of dwellings. We do know that at that time, the coverages of dwelling packages and separate comprehensive personal liability (CPL) policies were broad in scope.

The issue is more important today for at least two reasons: First, there are more exceptions to the rule of non-liability of property vendors. Second, as was mentioned earlier, more homeowners are involved in do-it-yourself projects to make improvements and repairs to their property.

Many different types of dwelling package policies are available today, and they have some similarities. Let's look at Section II - Liability of the Homeowners 3 - Special Form of the Insurance Services Office, Inc. Unlike commercial liability forms, none of the exclusions under HO-3 specifically precludes coverage for liability arising out of premises the insured had once owned and occupied and has since sold. The reason there is no such exclusion is that coverage is meant to apply to liability (for an otherwise covered injury or damage) arising out of premises once occupied and sold. This intention is made clear in a qualifier to exclusion 1.e., which reads: