Which of the following watercraft-related losses is NOT excluded by the liability coverage section of a homeowners policy?

The choice regarding the 25-foot sailboat the insured borrows from a friend is indeed the correct answer, as it represents a situation that is typically covered under a homeowners policy.

In general, homeowners policies include liability coverage for personal property owned by the insured, but they often exclude coverage for certain types of watercraft or specific situations involving owned watercraft. Watercraft owned by the policyholder, such as the 40-foot sailboat or the fishing boat rented to others, are usually excluded due to the liability risks associated with larger or rented watercraft. Additionally, when using a yacht for business purposes, such as hosting a meeting, coverage under a standard homeowners policy is often excluded due to the commercial nature of the activity.

However, borrowing a watercraft, like the 25-foot sailboat from a friend, typically does not fall under these exclusions. Insureds are generally covered for liability incurred while using someone else's boat, provided that the boat does not exceed certain size limits or is not used in a commercial context, making this particular situation a notable exception within liability coverage. This is why the borrowed sailboat is not excluded, thus making it the correct choice in this instance.