chapter 2. customizing personal auto coverage

CHAPTER 2. CUSTOMIZING PERSONAL AUTO COVERAGEReference: CPCU 553 Online1st edition / Assignment 2

Unit 8: Common Endorsements to the Personal Auto Policy

Unit 9: Personal Auto Coverage Case

Unit 10: Coverage for Miscellaneous Vehicles

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Chapter 2. Customizing Personal Auto Coverage

Unit 8: Common Endorsements to the Personal Auto PolicyReference: CPCU 553 Online 1st edition / Assignment 2 / Module 1, 2

Topic 12.a. Structure: Common Endorsements to the Personal Auto Policy

1. Miscellaneous Type Vehicle Endorsement

① This endorsement provides coverage for a motor home, a motorcycle or similar type of vehicle, an all-terrain vehicle, a dune buggy, or a golf cart, none of which are included in the PAP's definition of covered auto. ② An optional passenger hazard exclusion, which excludes liability coverage for bodily injury to any person occupying the covered vehicle, can be activated as part of the endorsement.

2. Snowmobile Endorsement

① Available snowmobile coverages include liability, medical payments, uninsured motorists, collision, and other than collision. ② Each covered snowmobile is listed in a schedule. ③ Coverage does not apply if the snowmobile is used in any Business or Race. ④ Coverage is excluded for any person or organization, other than the named insured, while renting or leasing a snowmobile. ⑤ An optional passenger hazard exclusion.

3. Trailer/Camper Body Coverage (Maximum Limit of Liability)

① The endorsement also provides coverage for related facilities or equipment, including, but not limited to, cooking, dining, plumbing, or refrigeration facilities, as well as awnings or cabanas. ② Loss to clothing or luggage, business or office equipment, and sales samples or articles used in exhibitions is excluded.

4. Extended Non-Owned Coverage, Vehicles Furnished or Available for Regular Use

The unendorsed PAP excludes liability and medical payments coverage for vehicles furnished or made available for the regular use of the named insured and family members. This exclusion can be eliminated by adding this endorsement.

5. Named Non-Owner Coverage

People who do not regularly own an auto or who occasionally drive another person's vehicle or a rental vehicle can secure coverage for the loss exposures arising out of their use of a non-owned auto with this endorsement.

6. Auto Loan/Lease Coverage

The endorsement provides coverage for the difference between the outstanding loan amount and the amount that would have been paid based on the limit of liability as stated in the unendorsed policy (actual cash value or the amount necessary to repair or replace the property with like kind and quality).

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Topic 12.b. Extended Non-Owned Coverage, Vehicles Furnished or Available for Regular Use

The endorsement's coverage applies only to the individual(s) named in the endorsement schedule. However, coverage can be extended to the named individual's family members. (Such an extension is indicated by a checkbox on the endorsement)

The liability coverage provided by the endorsement is excess over any other applicable insurance on the nonowned vehicle. The endorsement schedule also indicates separate premiums for liability and for medical payments coverage.

The endorsement provides liability coverage for any vehicle furnished or available for the regular use of the named individual and for family members who are indicated in the schedule. For example, if Alice is furnished with a company car by her employer, this endorsement would provide liability and/or medical payments coverage on an excess basis.

7. Limited Mexico Coverage

This endorsement extends the PAP coverages to an insured who is involved in an accident or loss in Mexico within 25 miles of the United States border on a trip of 10 days or less.

8. Excess Electronic Equipment Coverage

The unendorsed PAP excludes coverage for loss to any electronic equipment that is not permanently installed in the insured vehicle and also excludes coverage for loss to tapes, records, disks, or other media. This exclusion can be eliminated by adding this endorsement.

9. Coverage for Damage to Your Auto (Maximum Limit of Liability)

This endorsement allows owners of high-value antique cars or restored show cars to establish the car's insurable value when the policy is written by inserting a stated amount of insurance in the policy.

10. Optional Limits Transportation Expenses Coverage

This endorsement allows the insured to increase coverage limits, which can be applied to the costs of a substitute vehicle for the period reasonably required to repair or replace the auto.

11. Towing and Labor Costs Coverage

This endorsement provides coverage for the costs of towing the covered auto when it is disabled. The cost of labor performed to repair the auto at the place of disablement is also covered up to the limit.

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Topic 12.c. Named Non-Owner Coverage This coverage applies only to a person who is actually named in the

endorsement. The named insured's spouse or other resident family members are not automatically covered. Coverage for family members can be included by indicating such coverage on the endorsement schedule.

The liability insurance under a PAP with the named nonowner endorsement is excess over any other applicable liability insurance on the nonowned auto. The endorsement provides important protection to the named insured who drives a nonowned auto with inadequate liability limits or perhaps no insurance at all.

The endorsement provides the named insured with liability, medical payments, uninsured motorists, and underinsured motorists coverage on a newly acquired vehicle for up to fourteen days. Coverage automatically terminates when the named insured purchases separate insurance on the vehicle. Unlike the Extended Non-Owned Coverage- Vehicles Furnished or Available for Regular Use Endorsement, named non-owner coverage is designed for individuals who only occasionally use another person's vehicle.

Topic 12.d. Limited Mexico Coverage The coverage provided by this endorsement does not meet Mexico's auto

liability insurance requirements. The endorsement is effective only if primary liability coverage is also purchased from a licensed Mexican insurer. Mexican insurance usually can be purchased from a licensed agent at the border.

The liability insurance provided by the endorsement is excess over the Mexican insurance and over any other valid and collectible insurance. The major advantage of the endorsement is that it provides additional liability insurance beyond that provided by the Mexican policy, as well as providing the other standard PAP coverages, such as physical damage coverage.

Topic 12.e. Excess Electronic Equipment Coverage The PAP also includes a $1,000 limit on electronic equipment that reproduces,

receives, or transmits audio, visual, or data signals that are permanently installed in locations not intended for that purpose by the auto manufacturer. The endorsement can be used to increase the limit on such equipment from $1,000 to a limit shown in the endorsement schedule.

The endorsement also provides coverage for direct and accidental loss to tapes, records, disks, or other media owned by the named insured or the named insured's family member. Coverage is provided for the lesser of the actual cash value or the amount necessary to repair or replace the stolen or damaged property, subject to a maximum limit of $200 for all such media. The media must be in or upon the covered auto or any nonowned auto at the time of loss.

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Topic 12.1. Question: Common Endorsements to the Personal Auto Policy

Which of the following statements is not true with regard to P Common Endorsements to the Personal Auto Policy?

I. The Coverage for Damage to Your Auto (Maximum Limit of Liability endorsement) covers each described vehicle for a stated amount of insurance that applies to collision and other than collision losses.

II. The Named Non-Owner Coverage endorsement of the Personal Auto Policy (PAP) automatically covers the named insured and all resident family members.

III. People who do not regularly own an auto or who occasionally drive another person's vehicle or a rental vehicle can secure coverage for the loss exposures arising out of their use of a nonowned auto by purchasing a Personal Auto Policy (PAP) with the named Non-Owner Coverage endorsement.

IV. The Auto Loan/Lease coverage endorsement of the Personal Auto Policy (PAP) amends physical damage coverage for leased vehicles or vehicles with outstanding loan amounts to include an unpaid amount due on the lease or loan.

(A) I and II only

(B) II only

(C) III only

(D) III and IV only

Answer: (B)II. The Named Non-Owner Coverage endorsement of the Personal Auto Policy

(PAP) automatically covers only a person who is named in the endorsement.

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Which of the following statements is not true with regard to Common Endorsements to the Personal Auto Policy?

I. The Snowmobile Endorsement to the Personal Auto Policy (PAP) does not provide coverage for snowmobiles used in business.

II. The major advantage of the Limited Mexico Coverage endorsement to the Personal Auto Policy (PAP) is that it provides primary liability insurance within twenty-five miles of the United States border.

III. Accidental loss to tapes, records, disks, or other media owned by the named insured or the named insured's family member is covered under the Excess Electronic Equipment Coverage endorsement, but the media must be in or upon the covered auto or any nonowned auto at the time of the loss.

IV. Marge and her husband Jack have a Personal Auto Policy (PAP) to cover their two automobiles. Marge also has a company car provided by her employer. The best endorsement that provide Marge with liability and medical payments coverage for her company car is Extended Non-Owned Coverage-Vehicles Furnished or Available for Regular Use endorsement.

(A) I and II only

(B) II only

(C) III only

(D) III and IV only

Answer: (B)II. The major advantage of the Limited Mexico Coverage endorsement to the

Personal Auto Policy (PAP) is that it provides additional liability insurance as well as providing physical damage coverage. The liability insurance provided by the endorsement is excess over the Mexican insurance and over any other valid and collectible insurance.

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Which of the following statements is not true with regard to P Common Endorsements to the Personal Auto Policy?

I. The Snyder family purchased a three wheel all-terrain vehicle (ATV) for their children to use on an open field behind their property. In this case, Miscellaneous Type Vehicle Endorsement should be attached to the Snyder's Personal Auto Policy (PAP) to provide liability coverage for the ATV.

II. Lori has a company car with insurance coverage provided by her employer and does she not own a car. On occasion, Lori helps her elderly grandmother, Nell. Lori occasionally drives Nell's car to pick up prescriptions. Lori knows that Nell has low limits of liability and is afraid that Nell might allow the insurance on her car to lapse. In this case, Lori can purchase Extended Non-Owned Coverage for Named Individual endorsement attached to a PAP to provide insurance for herself when she drives Nell's car.

III. Dirk has a restored 1968 Mustang. Dirk has spent a lot of money and time bringing the car back to a like-new condition. Dirk insures the Mustang under his Personal Auto Policy (PAP) with collision and other than collision coverages. Dirk can best establish the value of the Mustang with his insurer by attaching Coverage for Damage to Your Auto (maximum limit of liability)

(A) I and II only

(B) II only

(C) II and III only

(D) III only

Answer: (B)II. In this case, Lori can purchase Named Non-Owner Coverage endorsement

attached to a PAP to provide insurance for herself when she drives Nell's car.

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Unit 9: Personal Auto Coverage CaseReference: CPCU 553 Online 1st edition / Assignment 2 / Module 3

Topic 13.a. Insuring Agreements of PAP

Part A, Liability Coverage

① Damages Covered: Compensatory and punitive damages for bodily injury or property damage for which an insured is legally responsible ② Defense Costs Covered: In addition to the limit of liability, legal costs incurred to defend the insured in a liability suit, but prejudgment interest is considered to be part of the award for damages

Part B, Medical Payments Coverage

① Damages Covered: Medical surgical, x-ray, dental and funeral expenses incurred by an insured because of bodily injury within three years from the date of the accident, and without regard to fault.

Part C, Uninsured Motorists Coverage

① Damages Covered: Compensatory damages (medical expenses, rehabilitation expenses, lost wages, and pain and suffering, but not punitive damages) that the insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injury.

Part D, Coverage for Damage to Your Auto

The insurer promises to pay for any direct and accidental loss to your covered auto or a non-owned auto minus a deductible regardless of fault. Direct and accidental losses to an auto fall into two categories: ① Collision losses: the upset of or impact of your covered auto or a non-owned auto with another vehicle or object. ② Other than collision losses (OTC): auto physical damage losses that are not caused by collision and are not specifically excluded in the policy. ③ Non-owned autos are also covered, EXCEPT any regular use vehicle.

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Topic 13.b. Persons and Organizations Insured of PAP


① The named insured and family members, covered for the ownership, maintenance, or use of any auto or trailer, including covered autos, borrowed autos, rented vehicles (autos or trucks), or any other auto, subject to the policy exclusions ② Any person using the named insured's covered auto, as defined in the PAP ③ Any person or organization legally responsible for the acts of a covered person while using a covered auto ④ Any person or organization legally responsible for the named insured's or family member's use of any automobile or trailer, provided that the person or organization does not own or hire the auto or trailer


ⓐ The named insured and family members while occupying a motor vehicle or as pedestrians ⓑ Any other person while occupying a covered auto including passengers in a covered auto.


ⓐ The named insured and family members while occupying a covered auto or a vehicle that they do not own. They are also covered as pedestrians ⓑ Any other person occupying a covered auto ⓒ Any person legally entitled to recover damages because of bodily injury to a person in the two previously described classes.


“You and your” refer to the named insured shown on the PAP Declarations page as well as an unnamed spouse of the named insured provided that the spouse is a resident of the same household. Coverage ceases if the spouse is named on another policy.“Your covered auto” refer to: ① Any vehicle shown in the declarations ② A newly acquired auto ③ Any trailer you own ④ A temporary substitute auto or trailer: These vehicles are covered under all PAP coverages except damage to your auto (physical damage) which treats them the same as other nonowned autos.

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Topic 13.c. Limit of Liabilities of PAP


① $100/$300/$50 mean $100,000 per person / $300,000 for each accident / $50,000 for property damage liability per accident. ② The Single Liability Limit endorsement modifies the policy to provide coverage on a single-limit basis.


This limit, typically between $1,000 and $10,000, is the maximum amount that will be paid to each injured person in a single accident, regardless of the number of insured persons, claims made, vehicles or premiums shown on the policy, or vehicles involved in the auto accident.


The minimum amount of UM coverage available under the PAP is set by the financial responsibility or compulsory insurance law of the state in which the insured auto is principally garaged. Higher limits can be purchased for an additional premium. UM coverage is normally written on a split-limits basis, but coverage on a single-limit basis is available by endorsement.


For a physical damage loss to a covered auto, the insurer's liability is the lower of either the actual cash value (ACV) of the damaged or stolen property or the amount necessary to repair or replace the property with other property of like kind and quality.

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Topic 13.d. Exclusions of PAP


① Public or Livery Conveyance ② Vehicle Used Without Reasonable Belief of Being Entitled ③ Racing ④ Nuclear Energy Liability Losses ⑤ Bodily Injury to an Employee of an Insured ⑥ Other Vehicles Owned by Insured or Available for Insured's Regular Use ⑦ Vehicles Owned by or Available for Family Member's Regular Use ⑧ Vehicles With Fewer Than Four Wheels or Designed for Off-Road Use ⑨ Other Business Use ⑩ Garage Business Use ⑪ Intentional Injury ⑫ Property Owned or Transported by an Insured. ⑬ Property Rented to, Used by, or in the Care of the Insured.


① Public or Livery Conveyance ② Vehicle Occupied Without Reasonable Belief of Being Entitled ③ Racing ④ Bodily Injury From Nuclear Weapons or War ⑤ Injury During the Course of Employment ⑥ Other Vehicles Owned by Insured or Available for Insured's Regular Use ⑦ Vehicles Owned by or Available for Family Member's Regular Use ⑧ Motorized Vehicles With Fewer Than Four Wheels ⑨ Vehicles Used in the Business of an Insured ⑩ Vehicles Used as a Residence or Premises ⑪ Nuclear Radiation


① Public or Livery Conveyance ② Vehicle Used Without Reasonable Belief of Being Entitled ③ Owned But Not Insured Vehicle ④ Owned Vehicle With Primary UM Coverage in Other Policy ⑤ Claim Settlement That Prejudices Insurer's Right of Recovery ⑥ No Benefit to Workers Compensation or Disability Benefits Insurer ⑦ Punitive Damages.


① Public or Livery Conveyance ② Nonowned Auto Used Without Reasonable Belief of Being Entitled ③ Racing ④ Radioactive Contamination or War ⑤ Nonowned Auto Used in Garage Business ⑥ Wear and Tear, Freezing, Breakdown, and Road Damage to Tires ⑦ Electronic Equipment ⑧ Media and Accessories ⑨ Radar and Laser Detection Equipment ⑩ Customizing Equipment ⑪ Trailer, Camper Body, or Motor Home ⑫ Government Destruction or Confiscation ⑬ Rental Vehicles.

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Topic 13.e. Other Insurances of PAP


① If the insured has other applicable liability insurance on an owned vehicle, the insurer pays only its pro rata share of the loss. The insurer's share is the proportion of the loss that the limit of liability bears to the total of all applicable limits. ② If other liability insurance is available on a nonowned vehicle, including any vehicle used as a temporary substitute for a covered auto, the PAP coverage is excess over any other collectible insurance.


① If the medical payments coverage of more than one insurance policy applies to a claim, each insurer pays its pro rata share based on the proportion that its limit of liability bears to the total of applicable limits. ② With respect to a nonowned vehicle or a vehicle while used as a temporary substitute for the insured's covered auto, medical payments coverage under a PAP is excess over any other collectible auto insurance that pays medical or funeral expenses.


① The total amount paid will be no more than the highest limit of any of the policies that provide coverage. ② Coverage for an accident involving a vehicle the named insured does not own is provided on an excess basis over any collectible insurance providing coverage on a primary basis. ③ If more than one policy provides coverage on a primary basis, each insurer's share is equal to the proportion its UM limit bears to the total amount available under all applicable primary coverages. ④ If more than one policy provides coverage on an excess basis, each policy will contribute proportionally to the insured's recovery, based on the excess limits each policy provides.


Any physical damage coverage provided by the PAP for a nonowned auto is excess over any other collectible source of recovery. Other sources of recovery could include coverage provided by the owner of the nonowned auto, any other applicable physical damage insurance, and any other source of recovery that applies to the loss.

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Topic 13.1. Question: Personal Auto Coverage CaseWhich of the following statements is not true with regard to Personal Auto

Coverage Case?Case: Sarah and Ernest Ridley have an unendorsed Personal Auto Policy (PAP)

covering Sarah's sedan and Ernest's SUV with the following coverages and limits: ① Liability $100,000/$300,000/$50,000 ② Medical Payments $5,000 ③ Uninsured Motorists $100,000/$300,000 ④ Other Than Collision Actual Cash Value Less $250 ⑤ Collision Actual Cash Value Less $500. Ernest was running errands in the SUV along with Sarah and their granddaughter, Millie. As a deer ran across the road in front of him, Ernest lost control of the vehicle and struck a parked car. The damages and costs from the accident are as follows: ① Damages to the SUV $15,000 ② Damages to the parked car $8,500 ③ Ernest's medical injuries $10,000 ④ Sarah's medical injuries $7,000 ⑤ Millie's medical injuries $4,000 ⑥ Defense costs $7,500. Sarah and Ernest live in a state without a no-fault insurance law.

I. In this case, Ridley's PAP insurer would pay $16,000 for ② Damages to the parked car $8,500 and ⑥ Defense costs $7,500 under Part A-Liability Coverage.

II. In this case, Ridley's PAP insurer would pay $20,000 for ③ Ernest's medical injuries $10,000, ④ Sarah's medical injuries $7,000, and ⑤ Millie's medical injuries $4,000 under Part B-Medical Payments Coverage.

III. In this case, Ridley's PAP insurer would pay nothing under Part C-Uninsured Motorists Coverage.

IV. In this case, Ridley's PAP insurer would pay $14,500 for ① Damages to the SUV $15,000 less $500 under Part D-Damage to Your Auto.

(A) I and II only

(B) II only

(C) III only

(D) III and IV only

Answer: (B)II. In this case, Ridley's PAP insurer would pay $14,000 for ③ Ernest's medical

injuries $5,000 (up to the limit of medical payments of $5,000), ④ Sarah's medical injuries $5,000 (up to the limit of medical payments of $5,000), and ⑤ Millie's medical injuries $4,000 under Part B-Medical Payments Coverage.

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Coverage Case?Case: Margaret and Tom Churchill have an unendorsed Personal Auto Policy

(PAP) covering Margaret's sedan and Tom's pick-up truck. They have liability limits of $100/$300/$50, medical payments limits of $5,000, uninsured motorists limits of $100/$300, other than collision with a $250 deductible and collision with a $500 deductible. Margaret was driving her daughter Ellie, and Ellie's friend Samantha, to ballet lessons when she lost control of the vehicle and struck another car at an intersection. The damages were as follows: ① Damages to Margaret's sedan $10,000 ② Damages to the other vehicle $8,500 ③ Margaret's medical injuries $3,000 ④ Ellie's injuries $1,000 ⑤ Samantha's injuries $1,500 ⑥ Injuries to the driver of the other car $2,000 ⑦ Defense costs $14,000. Margaret and Tom live in a state without a no-fault insurance law.

I. In this case, the Churchill's PAP insurer would pay $22,500 for ② Damages to the other vehicle $8,500 and ⑦ Defense costs $14,000 under Part A-Liability Coverage.

II. In this case, the Churchill's PAP insurer would pay $5,500 for ③ Margaret's medical injuries $3,000, ④ Ellie's injuries $1,000, and ⑤ Samantha's injuries $1,500 under Part B-Medical Payments Coverage.

(A) I only

(B) II only

(C) All of the above

(D) None of the above

Answer: (A)I. In this case, the Churchill's PAP insurer would pay $24,500 for ② Damages to

the other vehicle $8,500, ⑥ Injuries to the driver of the other car $2,000, ⑦ Defense costs $14,000 under Part A-Liability Coverage.

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Coverage Case?

I. Louise has a Personal Auto Policy (PAP) with liability limits of $100/$300/$50 insuring her SUV and sedan. Louise's daughter, Tina, who lives in another state, borrowed Louise's sedan while Tina's car was in the shop for maintenance work. Tina has a Personal Auto Policy (PAP) with limits of $250/$500/$50. Tina, talking on her cell phone, was distracted while driving the sedan and rear-ended the car in front of her causing minor damage. The liability loss resulting from this accident will be paid by Tina's insurer.

II. Tim and Kelly have a Personal Auto Policy (PAP) with liability limits of $100/$300/$50. They were at fault in an accident when they lost control of their vehicle and ran into a van, injuring eight passengers in the van. There was a $600,000 judgment against Tim and Kelly, which was the total of $75,000 for each of the eight passengers in the van. Defense costs totaled $25,000. In this case, Tim and Kelly's PAP insurer would pay $625,000 for this accident.

(A) I only

(B) II only

(C) All of the above

(D) None of the above

Answer: (C)I. The liability loss resulting from this accident will be paid by Louise's insurer.II. In this case, Tim and Kelly's PAP insurer would pay $325,000 for this

accident. The insurer will pay $300,000 for the $600,000 judgment because of limit of liability of $300,000 for each accident.

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Unit 10: Coverage for Miscellaneous VehiclesReference: CPCU 553 Online 1st edition / Assignment 2 / Module 4

Unit 10.a. Coverage for Miscellaneous Vehicles Insurance treatments for the risks that accompany ownership of motor homes,

snowmobiles, motorcycles, and other types of vehicles can come in the form of endorsements to a basic homeowners policy or as standalone policies for the vehicles themselves. They can also provide protection for occasional, recreational use or when the vehicles are rented out to others. Knowing the specifics of each situation and how each vehicle is used is the first step in assessing and addressing the risks presented.

Motor homes and recreational trailers

For motor homes, the Miscellaneous Type Vehicle Endorsement works with the Miscellaneous Type Vehicle Amendment (Motor Homes) to provide liability, medical payments, uninsured motorists, and property damage coverage.

Motorcycles and other two-wheeled vehicles

The PAP Miscellaneous Type Vehicle Endorsement provides insurance coverage for motorcycles and other two-wheeled vehicles. This endorsement revises the liability exclusion relating to vehicles with fewer than four wheels and can amend the medical payments coverage by allowing coverage for bodily injury resulting from the use of a vehicle with fewer than four wheels. If desired, a passenger hazard exclusion can also be activated.

Snowmobiles The PAP Snowmobile Endorsement provides insurance coverage.

Golf carts The ISO Homeowners policies provide liability coverage for motorized golf carts designed to carry up to four people at a speed not to exceed 25 miles per hour on level ground. Coverage for property damage to the golf cart can be added to a homeowners policy through the Owned Motorized Golf Cart Physical Loss Coverage Endorsement. Coverage can also be obtained through the Miscellaneous Type Vehicle Endorsement to the PAP or a non-ISO policy designed for golf carts.

Antique and classic automobiles

PAP coverage for Damage to Your Auto (Maximum Limit of Liability) Endorsement establishes the vehicle’s value.

Other recreational vehicles

An Incidental Low Power Recreational Motor Vehicle Endorsement can be used to extend the homeowners insurance policy’s liability and medical payments coverage to these vehicles except for those capable of traveling more than 15 miles per hour or subject to motor vehicle registration. For vehicles that don't qualify for this endorsement, the Miscellaneous Type Vehicle Endorsement or a custom recreational vehicle policy can provide coverage.

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Unit 10: Coverage for Miscellaneous Vehicles

Unit 10.b. Motor Homes and Recreational Trailers While some loss exposures can be controlled by properly training operators

and maintaining all propane equipment, such as stoves and heaters, owners also should arrange for risk financing through insurance. Because motor homes and travel trailers can be expensive, they usually require both property coverage and liability coverage for proper protection. Insurance can be purchased for these vehicles using endorsements to the Insurance Services Office, Inc. (ISO) Personal Auto Policy (PAP).

Because many motor home owners rent or lend their motor homes to others, the amendment adds two exclusions for an insured motor home rented to a person or an organization: (1) The policy provides no coverage when the motor home is rented to or used by a person other than the named insured except for liability coverage up to the financial responsibility or compulsory limits that apply in the state where the motor home is principally garaged. The excluded coverage can be added for an additional premium. (2) Coverage is eliminated for any person who fraudulently acquires the motor home.

For travel trailers or campers, the Trailer/Camper Body Coverage Endorsement provides coverage for a specified “trailer” or camper body and for attached facilities or equipment, such as cooking facilities and awnings or cabanas. The schedule or declarations must indicate whether coverage is provided for a loss caused by collision and/or by other than collision.

Many insurers specializing in recreational vehicle insurance use independently filed forms (filed by the individual insurer with state governments), which have considerably different coverages from the ISO policies and endorsements.

Unit 10.c. Common Features of Non-ISO Motor Home and Recreational Trailer Policies

Most non-ISO policies designed for owners of motor homes and recreational trailers share some common features:

(1) Limited coverage for personal property and household furnishings (2) Vacation expense coverage to defray additional expenses, such as the cost of

a motel room, incurred if the vehicle or trailer becomes uninhabitable because of damage or destruction while away from home

(3) A lay-up provision that suspends certain coverages on recreational vehicles and watercraft for a specified period during seasons when they are in storage to reduce premiums

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CHAPTER 3. RESIDENTIAL PROPERTYReference: CPCU 553 Online 1st edition / Assignment 3

Unit 11: ISO Homeowners Program

Unit 12: HO-3 Section I, Property Coverages

Unit 13: HO-3 Section I, Insured Perils, Exclusions, and Conditions

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Chapter 3. Residential Property

Unit 11: ISO Homeowners ProgramReference: CPCU 553 Online 1st edition / Assignment 3 / Module 1

Topic 14.a. ISO Homeowners Program The Insurance Services Office (ISO) Homeowners (HO) program provides six

policy forms designed to meet the various risk management needs of individuals and families. All of the ISO HO forms provide property coverage designed for the needs of specific types of insurance buyers. In addition to property coverage, each form also provides loss of use, personal liability, and medical payments coverages.

HO-2 Broad Form provides named perils coverage for dwellings, other structures, and personal property.

HO-3 Special Form provides special form coverage on dwellings and other structures (rather than the named perils coverage provided by the HO-2).

HO-4 Contents Broad Form provides coverage for a tenant's personal property on a named perils basis. It does not cover dwellings or other structures.

HO-5 Comprehensive Form provides open perils coverage on dwellings, other structures, and personal property. It provides the broadest coverage available among ISO's forms for property.

HO-6 Unit-Owners Form provides coverage for personal property on a named perils basis, with limited dwelling coverage (unit improvements and betterments). The HO-6 is designed to meet the risk management needs of the owners of condominium units and cooperative apartment shares.

HO-8 Modified Coverage Form provides coverage for a dwelling, other structures, and personal property, on a limited, named perils basis. A special valuation clause specifies that damage will be covered on a functional replacement cost basis. The HO-8 is designed to meet the risk management needs of owners-occupants of dwellings who may not meet insurer underwriting standards required for other policy forms (such as when the replacement cost of a dwelling significantly exceeds the dwelling's market value).

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Topic 14.b. Homeowners Policy Rating Factors Insurers charge a premium for the various homeowners insurance policies they

offer that is based on homeowners rating factors and adjustments. To develop rating factors and adjustments, insurers typically use a framework designed by ISO that includes the development of a base premium, base premium adjustments, and final adjustments.

Base Premium Factors

① Dwelling location: a geographical division within a state ② Public protection class: a ranking of the fire protection (including available water and water pressure) provided in the area ③ Construction factors: two broad classifications (frame and masonry) of construction, along with other construction factors ④ Coverage amount: the coverage amount required for a dwelling ⑤ Policy form: the policy form selected, depending on how broad the coverage is.

Base Premium Adjustments

① Endorsements: some endorsements provide credits or charges that affect the premium. ② Unusual construction type: dwellings with construction that varies from the basic frame and masonry classifications may receive a rate adjustment. ③ Deductible changes: the standard deductible for all ISO policies is $250. The deductible can be increased in increments up to $2,500 for a premium credit or decreased to $100 for a premium charge.

Final Adjustments

① Claim history ② Insurance score: in some states, insurers apply an insurance score, a numerical ranking based on many of the factors that comprise an individual's credit history. ③ Package policy credits: some insurers offer package policy credits, or policy discounts, to customers who place more than one line of business with them. These credits reflect the economies realized by the insurer from servicing more than one policy for the same policyholder.

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Topic 14.c. HO-3 Policy Structure The HO-3 policy provides property and liability coverages for owner-

occupants of a one- to four-family dwellings.

Declarations ① The policyholder ② The policyholder's residence ③ The coverage limits ④ The premium ⑤ The Section I deductible ⑥ The effective date of the policy ⑦ Forms and endorsements apply to the policy ⑧ The mortgage holder

Agreement and Definitions

The Agreement (also known as the insuring agreement) establishes the basis for the contract and specifies what the insurer and policyholder will do for each other. The insurer agrees to provide coverage, and the policyholder agrees to pay the premium and comply with the policy conditions.Definitions provide special meanings that some words or phrases have when they are used within the policy. These words or phrases appear in the policy within quotation marks.

Section I, Property Coverages

Coverage A: Dwelling

It applies to the dwelling on the "residence premises" listed on the Declarations page. It also applies to structures attached to the dwelling.

Coverage B: Other Structures

It applies to structures on the residence premises, other than the dwelling building, that are not attached to the dwelling.

Coverage C: Personal Property

It applies to the contents of the insured property and to the insured's personal property anywhere in the world.

Coverage D: Loss of Use

It applies to the insured's exposure to financial loss, apart from the property damage itself, if the residence premises where the insured resides are damaged so badly that they are unfit for residence.

Section II, Liability Coverages

Coverage E: Personal Liability

It applies to third-party coverage for those who are injured or whose property is damaged by an insured.

Coverage F: Medical payments to Others

It covers the necessary medical expenses incurred by others (not an insured) within three years of an injury.

Endorsements Endorsements can increase or decrease limits of an HO-3 policy, add or remove coverages, change definitions, clarify policy intent, or recognize specific characteristics that require a premium increase or decrease.

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Topic 14.1. Question: ISO Homeowners ProgramWhich of the following statements is not true with regard to ISO Homeowners

Program?

I. The HO-5 policy is designed to meet the risk management needs of owner-occupants of dwellings who would like the broadest coverage available among ISO's forms for their property.

II. The HO-8 policy contains a special building valuation clause that specifies that damage will be covered on a replacement cost basis.

III. Jim and Sue, a young married couple, are under contract to purchase a condominium unit. HO-6-Unit-Owners Form would be best designed to meet their homeowners insurance needs.

IV. A young working couple is purchasing their first home. Facing budget pressures, they are content to accept named perils coverage on the dwelling in exchange for a lower premium. Assuming there are no mortgage restrictions, HO-2-Broad Form would be most appropriate for this couple.

V. Sue and Rich are under contract to purchase a historic home in a city where local property values, including the value of the historic home, are far below replacement cost. HO-8-Modified Coverage Form would likely be most suitable for Sue and Rich.

(A) I and II only

(B) II only

(C) III and IV only

(D) V only

Answer: (B)II. The HO-8 policy contains a special building valuation clause that specifies

that damage will be covered on a functional replacement cost basis.

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Topic 14.2. Question: Homeowners Policy Rating FactorsWhich of the following statements is not true with regard to Homeowners

Policy Rating Factors?

I. Claim history is one of base premium adjustments that are applied to the homeowners premium to reflect variations in the risk management requirements and loss exposures.

II. A homeowners policy premium is determined by first developing the base premium. The base premium is influenced by policy form and dwelling location, and construction factors.

III. One of the main factors used in developing a base premium for a homeowners policy is the public protection class.

IV. The insuring agreement of a homeowners policy specifies that the insurer will provide policy coverage in return for the premium and compliance with policy provisions.

(A) I only

(B) I and II only

(C) III only

(D) III and IV only

Answer: (A)I. Claim history is one of final adjustments, not base premium adjustments.

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Unit 12: HO-3 Section I, Property CoveragesReference: CPCU 553 Online 1st edition / Assignment 3 / Module 2

Topic 15.a. Coverage A: Dwelling and Coverage B: Other Structures Coverage A: Dwelling applies to the dwelling on the "residence premises"

listed on the Declarations page. The Coverage A limit is based on the cost to replace the dwelling; the cost of the land should not be included.

Coverage A also applies to these types of property: ① Structures attached to the dwelling, such as a garage or deck ② Materials and supplies that are located on or next to the covered dwelling that are used to construct or repair the dwelling.

Coverage B: Other Structures applies to other structures on the residence premises that are not attached to the dwelling and are separated from the dwelling by "clear space." Coverage B has a limit that is 10 % of the limit for Coverage A: Dwelling. It applies collectively to all "other structures" at the residence premises.

Coverage B excludes coverage of buildings meeting any of these criteria: ① A structure rented to anyone not a resident (unless rented as a private garage) ② A structure from which any business is conducted ③ A structure used to store business property.

Topic 15.b. Coverage C: Personal Property Coverage C covers these types of property: ① An insured's personal property

not only in the insured's residence, but anywhere in the world ② Personal property owned by others while in the residence premises, if the insured requests such coverage after a loss ③ Personal property owned by a guest or residence employee while the property is in any residence occupied by the insured.

Property not covered: personal property usually insured through policies other than the homeowners policy as follows: ① Animals, birds, or fish ② Aircraft, hovercraft ③ Business data, including drawings, stored either on paper or electronically. ④ Water or steam. (For example, there is no coverage for replacing water in a damaged swimming pool.)

The Coverage C standard limit is 50% of the Coverage A limit. Only 10% of the Coverage C limit, or $1,000 (whichever is greater), is provided for property usually located at a residence other than the residence listed on the Declarations page. The 10% limitation does not apply to personal property that is moved from the residence premises because the house is being repaired, renovated, or rebuilt and is not fit to live or store property in. An insured who is moving from one principal residence to another will have the full limit of Coverage C (without the 10% limit) available at both locations for 30 days.

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Special Sublimits: Some categories of personal property are subject to smaller sublimits, called special limits of liability, within the Coverage C limit of liability. These are the special limits of liability within Coverage C: ① $200 on money and precious metals ② $1,500 on securities, documents, records, and stamps ③ $1,500 on watercraft, including trailers, equipment, and motors ④ $1,500 for theft of jewelry and furs (for other perils there is no sublimit) ⑤ $2,500 for theft of firearms and related items (for other perils there is no sublimit) ⑥ $2,500 for theft of silverware, goldware, and platinumware (for other perils there is no sublimit) ⑦ $2,500 for property on the residence premises used primarily for any business purpose ⑧ $500 for property away from the residence premises used for business purposes ⑨ $1,500 for electronic apparatus and accessories equipped to be operated by power from a motor vehicle, while in or upon a motor vehicle.

Topic 15.c. Coverage D: Loss of Use Coverage D: Loss of Use applies to the insured's exposure to financial loss,

apart from the property damage itself, if the residence premises are damaged so badly that they are not fit to live in.

Coverage D is provided at a limit that is 30% of the Coverage A limit and applies in addition to the Coverage A limit. The Coverage D limit can be increased, for an additional premium, by changing the amount appearing on the Declarations page.

Three coverages are grouped under Coverage D: ① Additional living expense: if the insured individual or family must live elsewhere until their dwelling has been repaired ② Fair rental value: if part of the residence is rented to others and a covered loss makes that part not fit to live in ③ Loss of use due to civil authority: if civil authorities prohibit property owners from using their residence premises because neighboring property is damaged.

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Topic 15.d. Additional Coverages

1. Debris removal If the amount to be paid for the actual damage to the property plus the debris removal expense is more than the limit of liability for the damaged property, an additional 5% of the limit is available for debris removal. Additional limit / Deductible applied.

2. Reasonable repairs Covers reasonable cost of the measures taken to protect the property from further damage. No additional limit / Deductible applied.

3. Trees, shrubs, and other plants

Up to 5 percent of Coverage A limit, with a maximum of $500 for anyone tree, plant, or shrub. Additional limit / Deductible applied.

4. Fire department service charge

Up to $500. Additional limit / No deductible applied.

5. Property removed When property is removed from a home that is endangered by a covered peril, it is covered for up to 30 days. No additional limit / Deductible applied.

6. Credit card, electronic fund transfer card or access device, forgery, and counterfeit money

Up to $500 for legal obligations. Additional limit / No deductible applied.

7. Loss assessment Up to $1,000 for the insured's share. Additional limit / Deductible applied.

8. Collapse Covered when it results from covered perils, but not from defective materials or methods of construction. No additional limit / Deductible applied.

9. Glass or safety glazing material

Coverage is excluded if the dwelling has been vacant for more than sixty days before the loss. No additional limit / Deductible applied.

10. Landlord's furnishings

Covered up to $2,500. Theft is excluded. No additional limit / Deductible applied.

11. Ordinance or law Coverage of up to 10% of the Coverage A limit is provided for the increased cost incurred due to the enforcement of any law or ordinance. Additional limit / Deductible applied.

12. Grave markers Grave markers and mausoleums are covered up to $5,000. No additional limit / Deductible applied.

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Topic 15.1. Question: HO-3 Section I, Property CoveragesWhich of the following statements is not true with regard to HO-3 Section I,

Property Coverages?

I. The HO-3 could cover the entire building for a policyholder who owns a four-family home, lives in one unit, and rents the other units to tenants.

II. Under an HO-3 policy, an insured who is moving from one principal residence to another will have the full limit of Coverage C available at both locations for 30 days.

III. Under an HO-3 policy, Coverage C-Personal Property applies to the insured's personal property not only in the insured's residence, but anywhere in the world.

IV. The standard limit for Coverage C of the HO-3 policy is 50 percent of the Coverage A limit.

V. Landlord's furnishings, Debris removal, Fire department service charge, and Loss assessment are homeowners policy additional coverages that are subject to a deductible.

(A) I and II only

(B) II only

(C) III and IV only

(D) V only

Answer: (D)V. Fire department service charge is NOT subject to a deductible.

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Property Coverages?

I. Theft of firearms has special limits of liability within Coverage C of the HO-3 policy.

II. Coverage for other structures is automatically provided under the HO-3 policy with a limit that is 10 percent of the Coverage A limit.

III. Coverage under Coverage B-Other Structures of an HO-3 policy applies to a detached garage rented to the named insured's neighbor who uses it to store one of his vehicles

IV. Sally has an unendorsed HO-3 policy. Sally's swimming pool was drained by vandals who opened a drain valve. The water was replaced at a cost of $2,500 to Sally, including labor to deliver and pump the water. The HO-3 policy covers the cost of the water up to a $1,000 sublimit.

(A) I only

(B) I and II only

(C) III and IV only

(D) IV only

Answer: (D)IV. The HO-3 policy does not cover the cost of the replaced water.

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Property Coverages?

I. Dane has an unendorsed HO-3 policy to insure his single-family home. He started a small Internet business. Dane publicizes stamp and coin dealers and their inventories over the Internet and keeps the web site inventories and values current for his customers. As a storm passed over, lightning struck Dane's house. Dane's computer was damaged, destroying half the records of his customers' inventories. He estimates that it will cost $2,000 to reestablish his inventory records. Disregarding any deductible that may apply, Dane's insurer would pay $2,000 for these losses.

II. Renee is an insured under an unendorsed HO-3 policy with a Coverage C-Personal Property limit of $100,000. She owns a secondary residence that contains $15,000 of personal property. Only her primary residence is listed on the declarations page of the HO-3 policy. A fire destroys all of Renee's personal property at her secondary residence. Renee's HO-3 policy would pay $15,000 for this loss.

III. Josh has just built a large kennel in his backyard for his pet dogs. The kennel includes a heated shed and access to a large fenced area. Josh wants to make sure he has adequate insurance limits under his homeowners policy so that he can replace the kennel if it is damaged. To determine whether his coverage on the kennel is adequate, Josh should check on the coverage limits of Coverage B: Other Structures to determine whether his coverage on the kennel is adequate.

(A) I and II only

(B) II only

(C) II and III only

(D) III only

Answer: (A)I. Disregarding any deductible that may apply, Dane's insurer would pay

nothing for these losses. Because business data, including drawings, stored either on paper or electronically are the property not covered.

II. Renee's HO-3 policy would pay $10,000 for this loss. Because, only 10% of the Coverage C limit, or $1,000 (whichever is greater), is provided for property usually located at a residence other than the residence listed on the Declarations page.

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Property Coverages?

I. Mike and Leona own a single-family home insured to value under an HO-3 policy with a limit of $350,000 for the Coverage A-Dwelling. While they were out to dinner one evening, an electrical fire started in the kitchen, destroying the kitchen and part of their bedroom on the second floor. The fire destroyed the contents of the bedroom and the clothing in their closets, as well as Leona's jewelry valued at $5,000 and a fur coat valued at $2,000. Ignoring any deductible that may apply, $1,500 is provided for the jewelry and fur coat.

II. Russ and Roberta own a single-family home insured to value under an unendorsed HO-3 policy with a limit of $350,000 for the Coverage A-Dwelling with a $500 deductible. They also have a two-car detached garage on the premises with a second floor apartment. The garage apartment is rented to a local college student. Lightning strikes the garage and it burns to the ground. The replacement cost of the garage is $45,000. This loss to the detached garage is not covered since a Coverage B exclusion applies.

III. Sally insures her house with an unendorsed HO-3 policy with a Coverage A-Dwelling limit of $275,000, which is the replacement cost of the house. A fire destroys the house including a collection of blueprints belonging to Sally's employer, valued at $10,000. Sally was storing the blueprints at her home while her office was changing locations. Assuming no deductible applies, Sally's HO-3 insurer would pay $0 to replace the blueprints.

(A) I and II only

(B) II only

(C) II and III only

(D) III only

Answer: (A)I. Ignoring any deductible that may apply, $7,000 is provided for the jewelry

and fur coat, because there is special sublimit of $1,500 for theft of jewelry and furs, but for other perils there is no sublimit.

III. Property not covered: ③ Business data, including drawings, stored either on paper or electronically.

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Topic 15.5. Question: Special Sublimits of HO-3 Section I, Property Coverages

Which of the following statements is not true with regard to Special Sublimits of HO-3 Section I, Property Coverages?

I. Jim and Elana own a single-family home insured to value under an unendorsed HO-3 policy with a limit of $350,000 for the Coverage A-Dwelling. Jim has an extensive gun collection valued at $15,000. A thief breaks into their home while they are away on vacation and steals the complete gun collection. Ignoring any deductible that may apply, the HO-3 insurer will pay $2,500.

II. Sam and Sophia insure their house with an unendorsed HO-3 policy. Sam stores a small fishing boat and trailer behind the house. While they are out for the evening, a fire destroys most of their kitchen and completely destroys the boat and trailer. Assuming Sam's boat and trailer are valued at $4,000 and ignoring any deductible that may apply, their HO-3 insurer would pay $1,500 for the loss of the boat and trailer.

III. Anne and Dave insure their house with an unendorsed HO-3 policy with a Coverage A-Dwelling limit of $300,000, which is the replacement cost of the house. A thief breaks into the house while Anne and Dave are on vacation and steals the following items: ① Jewelry $5,000 ② Sterling silver $4,700. Ignoring any deductible that may apply, Anne and Dave's insurer would pay $3,000 for the loss of the items.

IV. Tom and Martha insure their house with an unendorsed HO-3 policy with a Coverage A-Dwelling limit of $300,000, which is the replacement cost of the house. A thief breaks into the house while Tom and Martha are on vacation and steals the following items: ① $500 cash ② $50,000 stock certificates. Ignoring any deductible that may apply, Tom and Martha's insurer would pay $50,200 for the loss of the items.

(A) I only

(B) I and II only

(C) III and IV only

(D) IV only

Answer: (C)I. Special Sublimits: ⑤ $2,500 for theft of firearms and related items (for other

perils there is no sublimit) II. Special Sublimits: ③ $1,500 on watercraft, including trailers, equipment, and

motors III. Ignoring any deductible that may apply, Anne and Dave's insurer would

pay $4,000 for the loss of the items. Special Sublimits: ④ $1,500 for theft of jewelry and furs (for other perils there is no sublimit) ⑥ $2,500 for theft of silverware, goldware, and platinumware (for other perils there is no sublimit)

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IV. Ignoring any deductible that may apply, Tom and Martha's insurer would pay $1,700 for the loss of the items. Special Sublimits: ① $200 on money and precious metals ② $1,500 on securities, documents, records, and stamps

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Unit 13: HO-3 Section I, Insured Perils, Exclusions, and ConditionsReference: CPCU 553 Online 1st edition / Assignment 3 / Module 3, 4, 5

Topic 16.a. HO-3 Section I, Insured Perils Against Insured perils for Coverage A: Dwelling and Coverage B: Other Structures are

grouped together because both coverages provide special form coverage for real property items with similar exposures to loss. Coverage C: Personal Property applies to the contents of a home and other personal property on a named perils basis. Because Coverage C lists the named perils for which coverage is provided, coverage for personal property under the HO-3 is not as broad as the special form coverage for dwellings and other structures.

Exclusions apply to all coverages in Section I

① Collapse ② Freezing of a plumbing, heating, air conditioning, or sprinkler system, or a household appliance ③ Freezing, thawing, pressure, or weight of water or ice ④ Theft of construction materials ⑤ Vandalism and malicious mischief to vacant dwellings ⑥ Mold, fungus, or wet rot ⑦ Natural deterioration ⑧ Smoke from agricultural smudging or industrial operations ⑨ Pollutants ⑩ Settling of the dwelling ⑪ Animals

Exceptions to excluded perils

① Water damage coverage: Unless the loss is otherwise excluded, the HO-3 covers water damage to buildings or other structures that results from an accidental discharge or overflow of water or steam. The water or steam must come from a plumbing, heating, air conditioning, or sprinkler system; from a household appliance on the residence premises; or from a storm drain or water, steam, or sewer pipe off the residence premises. ② Ensuing losses: Ensuing losses not specifically excluded by the HO-3 are covered.

Coverage C applies to these named perils

① Fire or lightning ② Windstorm or hail ③ Explosion ④ Riot or civil commotion ⑤ Aircraft ⑥ Vehicles ⑦ Smoke ⑧ Vandalism or malicious mischief ⑨ Theft ⑩ Falling objects ⑪ Weight of ice, snow, or sleet ⑫ Accidental discharge or overflow of water or steam ⑬ Sudden and accidental tearing apart, cracking, burning, or bulging ⑭ Freezing ⑮ Sudden and accidental damage from artificially generated electrical current ⑯ Volcanic eruption.

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Topic 16.b. Structure: HO-3 Section I, Exclusions

Topic 16.c. HO-3 Section I, Exclusions ① Ordinance or Law: Excludes coverage for losses resulting from any

ordinance or law that reduces the value of property; that requires testing for or clean up of pollutants; or that requires demolition, construction, or debris removal.② Earth Movement: Excludes coverage for losses resulting from earthquake

and other types of earth movement, such as landslides, mudslides, mudflows, mine subsidence, and sinkholes.③ Water Damage: Excludes coverage for losses caused by flood, surface water,

waves, and water or water-borne material such as sewage that backs up through sewers and drains. However, ensuing losses from fire, explosion, or theft resulting from water damage are covered.④ Power Failure: Excludes coverage for damage resulting from a loss of

electrical power or utility service because of a problem away from the insured premises. However, if power is interrupted by an insured peril that occurs on the premises, resulting losses are covered.⑤ Neglect: Excludes coverage for losses resulting from an insured's failure to

use all reasonable means to protect property at the time of a loss and after a loss occurs. The insurer agrees to pay the cost of reasonable repairs to protect damaged property under an additional coverage.⑨ Governmental Action: Excludes coverage for losses resulting from the

destruction, confiscation, or seizure by order of any governmental or public authority. This exclusion does not preclude coverage for governmental action taken to prevent the spread of fire.

Section I, Exclusions

① Ordinance or Law ② Earth Movement ③ Water Damage ④ Power Failure ⑤ Neglect ⑥ War ⑦ Nuclear Hazard ⑧ Intentional Loss ⑨ Governmental Action

Perils Excluded for Coverages A and B Only (Concurrent Causation Exclusions)

① Weather Conditions: Excludes coverage for losses resulting from weather conditions only if a weather condition contributes to any of the previously excluded perils. ② Acts or Decisions: Excludes coverage for losses resulting from acts or decisions, including the failure to act or decide, of any person, group, organization or government body. ③Faulty Workmanship: Excludes coverage for damage that results from faulty construction, planning, or materials, including faulty zoning, surveying, design specifications, workmanship, construction, renovation, and maintenance.

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Topic 16.d. Concurrent Causation Exclusions Section I, Exclusions contains an additional three exclusions (① weather

conditions, ② act or decisions, and ③ faulty workmanship) that apply only to Coverage A: Dwelling and Coverage B: Other Structures. These exclusions are sometimes called the concurrent causation exclusions, because other causes of loss or perils, such as fire or water damage, often follow or "ensue," or are concurrent, with anyone of the three excluded causes of loss.

Concurrent causation involves loss from two or more perils occurring either at the same time or in sequence. Such losses may not only involve ensuing type losses, but may also be triggered by such perils as flood, earthquake, war, or nuclear reaction. The HO-3 policy excludes coverage for losses directly resulting from these perils, but any ensuing loss is covered unless precluded elsewhere in the policy.

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Topic 16.e. HO-3 Section I, Conditions

1. Insurable Interest and Limit of Liability

The maximum payment for any single loss is the applicable limit shown on the Declarations page and to the extent of that insured's insurable interest in the property at the time of the loss.

2. Your Duties After Loss

① Give prompt notice after a loss has occurred ② Notify the police if the loss is by theft ③ Notify the credit card, electronic fund transfer card company, or access device company ④ Protect the property from further damage ⑤ Cooperate with the insurer during the investigation ⑥ Prepare an inventory of the damaged personal property ⑦ Verify the loss, which may include furnishing records and submitting to an examination under oath ⑧ Sign a sworn proof of loss

3. Loss Settlement

Coverage A and B: ① If the limit of insurance is 80% or more of the replacement cost, the insurer will pay for the replacement cost of the damage up to the limit of coverage. ② If the limit of insurance is less than 80% of the replacement cost, the insurer will pay the GREATER of ⓐ the ACV of the damage or ⓑ the proportion of the cost to repair or replace the damage that the limit of insurance bears to 80% of the replacement cost.Coverage C: Personal Property and for miscellaneous items are settled for the LESSER of ① Actual cash value (ACV) at the time of the loss ② The amount required to repair or replace the items.

4. Loss to a Pair or Set

This condition establishes the amount the insurer is willing to pay if an item that is part of a pair or set is damaged or lost.

5. Appraisal The insured and the insurer both choose an appraiser. If their estimates differ, they submit them to an umpire. An agreement of any two of those three can set the amount of the loss.

6. Other Insurance and Service Agreement

① If two or more insurance policies cover the same loss, they share the loss proportionately. ② If personal property is covered by a service agreement, homeowners insurance coverage applies in excess over any amounts payable under the service agreement.

7. Suit Against Us

An insured is barred from bringing legal action against the insurer unless the insured has complied with all policy provisions. Any legal action must be started within two years of the loss.

8. Our Option Whether to repair or replace damaged property is the insurer's option.

9. Loss Payment Generally, a loss is payable 60 days after the insurer receives a proof of loss and either the insurer and the insured have reached an agreement or a court judgment or appraisal award has been entered.

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10. Abandonment of Property

If the insured abandons the property after it is damaged or destroyed, the insurer need not take responsibility for it.

11. Mortgage Clause

The mortgagee retains the right to collect from the insurer its insurable interest in the property. An insurer must mail notice of policy cancellation or nonrenewal to the mortgagee (in addition to the insured) at least 10 days before the cancellation or nonrenewal.

12. No Benefit to Bailee

A bailee who holds the property of an insured is responsible for the care of that property.

13. Nuclear Hazard Clause

This condition defines the nuclear hazard for which coverage is excluded in Section I, Exclusions.

14. Recovered Property

If the insurer pays a claim for the loss of property, and the property is later recovered, the insured has the option of taking the property and returning the claim payment and allowing the insurer to take over the property.

15. Volcanic Eruption Period

All volcanic eruptions that occur within a 72 hour period are considered to be one volcanic eruption.

16. Policy Period Coverage applies only to losses that occur during the policy period.

17. Concealment or Fraud

Any insured who conceals or misrepresents any material information, engages in fraudulent conduct, or makes false statements relating to the insurance is not covered under the policy.

18. Loss Payable Clause

The insurer agrees to include the named loss payee when a claim is paid involving that personal property. The loss payee is also entitled to notification if the policy is canceled or nonrenewed.

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Topic 16.1. Question: HO-3 Section I, Insured Perils and ExclusionsWhich of the following statements is not true with regard to HO-3 Section I,

Insured Perils and Exclusions?

I. Aircraft is a peril insured against for Coverage C under an HO-3 policy.

II. Theft of construction materials is an excluded peril under Section I-Coverages A and B of the HO-3 policy.

III. The HO-3 policy Section I ordinance or law exclusion eliminates coverage for the destruction, confiscation, or seizure by order of any governmental or public authority.

IV. Under an unendorsed HO-3 policy Section I, earthquake and other types of earth movement, such as landslides, mudslides, mudflows, mine subsidence, and sinkholes, are excluded perils.

V. Under an HO-3 policy, Section I-Exclusions contains an additional three exclusions that apply only to Coverage A-Dwelling and Coverage B-Other Structures. These exclusions include Weather, Acts or decisions, Damage that results from faulty construction, planning, or materials.

(A) I and II only

(B) II only

(C) III only

(D) IV and V only

Answer: (C)III. The HO-3 policy Section I ordinance or law exclusion eliminates coverage

for losses resulting from any ordinance or law that reduces the value of the property or that requires testing for or cleaning up of pollutants. The HO-3 policy Section I, Governmental Action exclusion eliminates coverage for the destruction, confiscation, or seizure by order of any governmental or public authority.

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I. Settling of the dwelling is an excluded peril under Section I-Coverages A and B of the HO-3 policy.

II. Collapse is not a peril insured against under Coverages A and B of the HO-3 policy, but coverage for collapse that results from some other causes of loss is provided under the Section I-Property Coverages.

III. If law enforcement officials seize an insured's personal computer to search for files that might be related to a crime, the insured under an HO-3 policy may be unsuccessful in claiming a theft loss on the computer due to the Personal Computer exclusion.

IV. The water damage exclusion in the HO-3 policy eliminates coverage for losses caused by flood, surface water, waves, and water or water-borne material such as sewage that backs up through sewers and drains.

V. If hidden and it results from an accidental leak of water from a plumbing, heating, or air conditioning system, mold damage to the dwelling would be covered by an HO-3 policy

(A) I and II only

(B) II only

(C) III only

(D) IV and V only

Answer: (C)III. If law enforcement officials seize an insured's personal computer to search

for files that might be related to a crime, the insured under an HO-3 policy may be unsuccessful in claiming a theft loss on the computer due to the Governmental Action exclusion.

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I. Windstorm or hail damage to personal property is not covered unless the building is first damaged.

II. A deer leaps through a plate glass window of the insured's house, breaking the glass, and damaging interior walls before escaping through the broken window. This is an example of a loss caused by animals that would be covered by an unendorsed HO-3 policy under Section I.

III. Beth has an unendorsed HO-3 policy. While cleaning the closet where she stores her stamp and coin collection, Beth spilled cleaning solution on one of the albums of stamps. The accident resulted in the loss of stamps valued at $500. This loss is not covered by Beth's HO-3 policy, because the albums of stamps is not a covered property.

IV. A windstorm causes a tree on the insured's premises to fall, breaking the electrical lines that enter the house. The loss of electrical power causes the food in the freezer to thaw and spoil. This loss is covered because it was caused by a covered peril on the residence premises.

V. A storm causes power lines to break 10 miles from the insured's premises. The loss of electrical power causes food in the insured's freezer to thaw and spoil. Coverage for this loss is excluded because the power failure occurred off the residence premises.

(A) I and II only

(B) II only

(C) III only

(D) IV and V only

Answer: (C)II. The HO-3 excludes damage caused by animals that an insured owns or

keeps, or by birds, vermin, rodents, or insects. But a deer is not excluded. However, the HO-3 does not cover damage to animals, because they are not covered property.

III. This loss is not covered by Beth's HO-3 policy, because this is not a covered peril.

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Topic 16.4. Question: HO-3 Section I, ConditionsWhich of the following statements is not true with regard to HO-3 Section I,

Conditions?

I. $500 is the Section I standard deductible in the HO-3 policy, and the deductible, which appears on the declarations pages of a homeowners policy, is deducted from Section I (property) losses.

II. Under the HO-3 policy Section I-Conditions, the Abandonment of Property Condition provides that if the insured abandons the property after it is damaged, the insurer need not take over responsibility for it.

III. Alfred has an unendorsed HO-3 policy. After a severe fire loss to Alfred's house, an investigation proved that Alfred intentionally set the fire. Alfred was jailed for arson, and his property claim was denied. In this case, the mortgagee will not collect any amount of the claim because the loss was a fraudulent act.

IV. Adam and his insurer disagree on the amount of a loss covered by his homeowners policy. Adam wants the insurer to pay $10,000 toward the loss. The insurer's representative feels that the loss should be valued at $5,000. In this case, Adam and the insurer will each select an appraiser, and the two appraisers will submit their differences to an impartial umpire who will reach a resolution.

(A) I only

(B) I and II only

(C) III only

(D) III and IV only

Answer: (C)III. In this case, the mortgagee will collect the amount of its insurable interest

in the property.

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Topic 16.5. Question: HO-3 Section I, ConditionsWhich of the following statements is not true with regard to HO-3 Section I,

Conditions?

I. Anne and Joe have a home with a $300,000 replacement cost and an HO-3 policy with a Coverage A limit of $150,000. Lightning strikes the central air conditioning unit and destroys it beyond repair. The unit has a replacement cost of $5,000, is five years old, and has a useful life of 10 years. Ignoring any deductible that might apply, the insurer would pay $2,500 to replace the air conditioning unit.

II. Jim purchased an HO-3 policy with a $270,000 Coverage A-Dwelling limit. Unaware that Jim had purchased a policy, his wife Sue Ellen also purchased an HO-3, with a $330,000 Coverage A-Dwelling limit. A fire destroys the couple's home, which has a $300,000 replacement cost. In this case, Jim's insurer will pay $135,000; Sue Ellen's insurer will pay $165,000.

III. Jill and Tom have a home with a $300,000 replacement cost and an HO-3 policy with a Coverage A limit of $270,000. Lightning strikes the central air conditioning unit and destroys it beyond repair. The unit has a replacement cost of $5,000, is five years old, and has a useful life of 10 years. Ignoring any deductible that might apply, the insurer would pay $5,000 to replace the air conditioning unit.

(A) I only

(B) I and II only

(C) II and III only

(D) III only

Answer: (A)I. Ignoring any deductible that might apply, the insurer would pay $3,125 to

replace the air conditioning unit. $3,125 = {150,000 / (80% x 300,000)} x 5,000II. Jim's insurer will pay $135,000 = {270,000 / (270,000 + 330,000)} x 300,000,

Sue Ellen's insurer will pay $165,000 = {330,000 / (270,000 + 330,000)} x 300,000.

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chapter 2. customizing personal auto coverage

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