Property & Casualty Insurance Exam (National Portion)Casualty InsuranceEasy
A client has a homeowner's policy with a personal liability limit of $300,000. A fire originating in their garage spreads to a neighbor's property, causing $100,000 in damage to the neighbor's house and $20,000 in damage to their personal belongings. How would the client's policy respond to the neighbor's property damage claim?
- AThe policy would pay the full $120,000 for the neighbor's damages, subject to the $300,000 liability limit.
- BThe neighbor would have to claim under their own homeowner's policy, and the client's policy would not be involved.
- CThe policy would only cover the damage to the neighbor's house, as personal belongings are excluded from such claims.
- DThe policy would deny the claim, as fire spreading from one property to another is typically excluded.
Show answer & explanationAnswer & explanation
Correct answer: A. The policy would pay the full $120,000 for the neighbor's damages, subject to the $300,000 liability limit.
Personal liability coverage in a homeowner's policy covers property damage to others for which the insured is legally responsible, including damage to both structures and personal belongings caused by a covered peril like fire.
Why the other options are wrong
- B. While the neighbor's policy might cover it, the client's liability policy is designed to pay when the client is legally responsible for damage to others.
- C. Property damage liability typically covers damage to both the structure and contents belonging to a third party.
- D. Fire spreading to a neighbor's property due to the insured's negligence or a covered peril is a common liability claim.
Property Damage Liability (Homeowner's)
Part of a homeowner's policy that covers the insured's legal responsibility for damage to property belonging to others.
- Covers damage to others' real and personal property.
- Applies when the insured is legally liable.
- Subject to the policy's overall liability limits.
- Includes damage caused by covered perils originating on the insured's property.
Memory trick: Homeowner's Damage: Protects Others' Possessions.