dwelling & homeowners exposures and … & homeowners exposures and insurance ... ho...

DWELLING & HOMEOWNERS

EXPOSURES AND

INSURANCE

SANDI KRUISE INSURANCE TRAINING 1-800-517-7500 www.kruise.com

© 2004-2015 Sandi Kruise Insurance Training, Sandi Kruise Inc, All rights reserved.

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DWELLING & HOMEOWNERS

EXPOSURES AND INSURANCE

First Edition – Copyright 2004

WRITTEN BY:

Sandi Kruise, CPCU, CPIW

PUBLISHED BY:

Sandi Kruise Insurance Training P O BOX 786 BONITA, CA 91908-0786 1-800-517-7500 www.kruise.com

Copyright 2004 - 2015, All Rights Reserved. No portion of this book may be reproduced in any manner whatsoever without express written permission of the publisher.


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TABLE OF CONTENTS

PERSONAL INSURANCE EXPOSURES .............................................................................................. 12

LOSS EXPOSURES OF INDIVIDUALS AND FAMILIES .................................................................................. 12 PROPERTY LOSS EXPOSURES ...................................................................................................................... 13

Property Exposed to Loss................................................................................................................................................ 13 Real Property .............................................................................................................................................................. 13 Personal Property ....................................................................................................................................................... 13

Causes of Loss Affecting Property .................................................................................................................................. 14 Financial Consequences of Property Losses................................................................................................................... 14

LIABILITY LOSS EXPOSURES ......................................................................................................................... 14 Law and Liability Insurance ............................................................................................................................................. 15 Tort Liability ..................................................................................................................................................................... 15

Negligence .................................................................................................................................................................. 15 Intentional Torts .......................................................................................................................................................... 16 Absolute Liability ......................................................................................................................................................... 16 Contractual Liability ..................................................................................................................................................... 16 Statutory Liability ......................................................................................................................................................... 16

PERSONAL RISK MANAGEMENT ....................................................................................................................... 17 BASICS OF PERSONAL RISK MANAGEMENT .............................................................................................. 17 HOW A PERSONAL RISK MANAGEMENT PROGRAM WORKS ................................................................... 18 INSURANCE AS A RISK MANAGEMENT TECHNIQUE .................................................................................. 18 OTHER TECHNIQUES TO TREAT LOSS EXPOSURES ................................................................................. 18

Avoidance ........................................................................................................................................................................ 19 Loss Control .................................................................................................................................................................... 19 Noninsurance Transfer .................................................................................................................................................... 19 Retention ......................................................................................................................................................................... 20

PERSONAL INSURANCE POLICIES .................................................................................................................... 21 TYPES OF PERSONAL INSURANCE POLICIES ............................................................................................. 21

OVERVIEW OF HOMEOWNERS POLICIES ......................................................................................................... 22 PACKAGE POLICY ............................................................................................................................................ 22 TWO SECTIONS ................................................................................................................................................ 22 SECTION I-PROPERTY ..................................................................................................................................... 23

Coverage A-Dwelling ....................................................................................................................................................... 23 Coverage B-Other Structures .......................................................................................................................................... 23 Coverage C-Personal Property ........................................................................................................................................ 23 Coverage D-Loss of Use ................................................................................................................................................. 23

SECTION ON II-LIABILITY ................................................................................................................................ 24 Coverage E-Personal Liability ......................................................................................................................................... 24 Coverage F-Medical Payments to Others ........................................................................................................................ 24

HOMEOWNERS FORMS ................................................................................................................................... 24 BASIC, BROAD AND SPECIAL DEFINED ....................................................................................................... 24

Basic Form ...................................................................................................................................................................... 24 Broad Form ...................................................................................................................................................................... 24 Special Form ................................................................................................................................................................... 25

THE HOMEOWNER POLICY FORMS CURRENTLY AVAILABLE ARE: ........................................................ 25 Basic Form (HO 1) ........................................................................................................................................................... 25 Broad Form (HO 2) .......................................................................................................................................................... 25 Special Form (HO 3) ........................................................................................................................................................ 25 Contents Broad Form (HO 4) ........................................................................................................................................... 25 Comprehensive Form (HO 5) .......................................................................................................................................... 25 Condominium Unit Owners Form (HO 6) ......................................................................................................................... 25


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Modified Coverage Form (HO 8) ..................................................................................................................................... 25 ELIGIBILITY ....................................................................................................................................................... 26

Dwelling And Contents Coverage (HO 1, HO 2, HO 3, And HO 8) .................................................................................. 26 Contents Coverage (HO 4 and HO 6) .............................................................................................................................. 26

SPECIAL ELIGIBILITY REQUIREMENTS ........................................................................................................ 27 Dwellings Under Construction ......................................................................................................................................... 27 Secondary and/ or Seasonal Residences ........................................................................................................................ 27

INELIGIBLE FOR HOMEOWNERS POLICIES ................................................................................................. 27 Farm Property .................................................................................................................................................................. 27 Mobile Homes/Trailer Homes/House Trailers .................................................................................................................. 28 Incidental Businesses ...................................................................................................................................................... 28

POLICY MODERNIZATION -- HOW THE HOMEOWNERS POLICY EVOLVED ............................................. 28

HOMEOWNERS POLICY ....................................................................................................................................... 30 DECLARATIONS PAGE .................................................................................................................................... 30

Name And Mailing Address Of The Named Insured ........................................................................................................ 30 Policy Period .................................................................................................................................................................... 30 Insured Location .............................................................................................................................................................. 30 Limit For Each Coverage, A Through F ........................................................................................................................... 31 Forms And Endorsements That Apply To The Policy ...................................................................................................... 31 Premium .......................................................................................................................................................................... 31 Deductible Amount Applicable To Section I ..................................................................................................................... 31 Mortgagee Name And Address ....................................................................................................................................... 32 Countersignature Date And Agent's Signature ................................................................................................................ 32

HOMEOWNERS DEFINITIONS ......................................................................................................................... 32 "You" And "Your", "We," "Us," And "Our"......................................................................................................................... 32 Insured Location .............................................................................................................................................................. 32 Insured............................................................................................................................................................................. 33 Bodily Injury ..................................................................................................................................................................... 34 Property Damage ............................................................................................................................................................ 34 Business .......................................................................................................................................................................... 34 Residence Premises ........................................................................................................................................................ 34 Occurrence ...................................................................................................................................................................... 34 Residence Employee ....................................................................................................................................................... 34 Personal Injury ................................................................................................................................................................. 34 Voluntary Property Damage ............................................................................................................................................ 34

COVERAGE AGREEMENT (INSURING AGREEMENT) .................................................................................. 34

SECTION I - PROPERTY COVERAGES ............................................................................................................... 35 COVERAGE A - DWELLING ............................................................................................................................. 35 COVERAGE B - OTHER STRUCTURES .......................................................................................................... 36

10% Of The Amount Written For Coverage A.................................................................................................................. 36 Used In Whole Or In Part For Business ........................................................................................................................... 37 Rented Or Held For Rental .............................................................................................................................................. 37

PROPERTY WHICH IS LIMITED OR NOT COVERED – COVERAGE A & B ................................................. 37 COVERAGE C - PERSONAL PROPERTY ........................................................................................................ 37

Coverage C Applies To Covered Property Worldwide ..................................................................................................... 38 The Coverage C Limit ...................................................................................................................................................... 38 Personal Property Valuation ............................................................................................................................................ 38

SPECIAL LIMITS OF LIABILITY ....................................................................................................................... 39 Money Or Related Property, Coins And Precious Metals Other Than Tableware ........................................................... 39 Securities, Manuscripts And Other Valuable Papers ....................................................................................................... 39 Watercraft, Including Their Trailers And Equipment ........................................................................................................ 40 Trailers Not Used With Watercraft ................................................................................................................................... 40 Property On The Residence Premises Used For Business Purposes ............................................................................. 40 Property Away From The Residence Premises Used For Business Purposes ................................................................ 41 Electronic Apparatus, While In, On Or Away From A Motor Vehicle ................................................................................ 41 Portable Electronic Apparatus While Not In or Upon a Motor Vehicle ............................................................................. 41

THE NEXT THREE LIMITATIONS APPLY ONLY TO THE PERIL OF THEFT: ..................................................... 41 Jewelry, Watches, Furs, And Precious And Semiprecious Stones .................................................................................. 41


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Silverware, Goldware Or Pewterware .............................................................................................................................. 42 Firearms .......................................................................................................................................................................... 42

PROPERTY NOT COVERED ............................................................................................................................. 42 Articles Separately Described and Specifically Insured Elsewhere ................................................................................. 42 Animals, Birds or Fish ...................................................................................................................................................... 42 Motor Vehicles Or Other Motorized Land Conveyances .................................................................................................. 43 Aircraft And Parts ............................................................................................................................................................ 43 Property Of Roomers Or Boarders .................................................................................................................................. 43 Property In An Apartment Rented Or Held For Rental To Others By An "Insured" .......................................................... 43 Property Rented Or Held For Rental To Others Off The Residence Premises ................................................................ 44 Business Data ................................................................................................................................................................. 44 Credit cards or fund transfer cards .................................................................................................................................. 44

COVERAGE D - LOSS OF USE ........................................................................................................................ 45 Additional Living Expense................................................................................................................................................ 45 Fair Rental Value ............................................................................................................................................................. 46 Loss of Use Due to Civil Authority ................................................................................................................................... 46

SECTION I—ADDITIONAL COVERAGES ........................................................................................................ 47 Debris Removal ............................................................................................................................................................... 47 Reasonable Repairs ........................................................................................................................................................ 48 Trees, Shrubs And Other Plants ...................................................................................................................................... 48 Fire Department Service charge ...................................................................................................................................... 48 Property Removed ........................................................................................................................................................... 49 Credit And Fund Transfer Cards, Forgery And Counterfeit Money .................................................................................. 49 Loss Assessment ............................................................................................................................................................ 49 Collapse........................................................................................................................................................................... 50 Glass Or Safety Glazing Materials ................................................................................................................................... 50 Landlord’s Furnishings .................................................................................................................................................... 51 Building Additions And Alterations ................................................................................................................................... 51 Ordinance or Law (added in multistate revisions): ........................................................................................................... 52

CAUSES OF LOSS ................................................................................................................................................ 53 PERILS INSURED AGAINST COVERAGE C - PERSONAL PROPERTY ....................................................... 53

Named Perils ................................................................................................................................................................... 53 Fire Or Lightning .............................................................................................................................................................. 53 Windstorm Or Hail ........................................................................................................................................................... 54 Explosion ......................................................................................................................................................................... 54 Riot Or Civil Commotion .................................................................................................................................................. 54 Aircraft ............................................................................................................................................................................. 55 Vehicles ........................................................................................................................................................................... 55 Smoke ............................................................................................................................................................................. 55 Vandalism Or Malicious Mischief ..................................................................................................................................... 55 Theft ................................................................................................................................................................................ 56 Falling objects .................................................................................................................................................................. 57 Weight Of Ice, Snow Or Sleet .......................................................................................................................................... 57 Accidental Discharge Or Overflow Of Water Or Steam ................................................................................................... 57 Tearing Apart, Cracking, Burning Or Bulging................................................................................................................... 57 Freezing........................................................................................................................................................................... 58 Damage From Electrical Current ..................................................................................................................................... 58 Volcanic Eruption ............................................................................................................................................................. 58

PERILS INSURED AGAINST FOR COVERAGES A AND B ............................................................................ 59 Special Form - All-Risk Coverage .................................................................................................................................... 59

COVERAGES A AND B EXCLUSIONS ............................................................................................................ 59 Collapse........................................................................................................................................................................... 59 Freezing of a Plumbing, Heating, Air Conditioning, or Sprinkler System, or a Household Appliance ............................................. 59 Freezing, Thawing, Pressure, or Weight of Water or Ice ................................................................................................. 60 Theft of Construction Materials ........................................................................................................................................ 60 Vandalism and Malicious Mischief to Vacant Dwellings .................................................................................................. 60 Natural Deterioration ....................................................................................................................................................... 60 Smoke From Agricultural Smudging or Industrial Operations .......................................................................................... 61 Pollutants ......................................................................................................................................................................... 61 Animals ............................................................................................................................................................................ 61


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EXCEPTION TO EXCLUDED PERILS .............................................................................................................. 61 SECTION I GENERAL EXCLUSIONS ............................................................................................................... 62

Ordinance or Law ............................................................................................................................................................ 62 Earth Movement .............................................................................................................................................................. 62 Water Damage ................................................................................................................................................................ 62 Power Failure .................................................................................................................................................................. 63 Neglect ............................................................................................................................................................................ 63 War .................................................................................................................................................................................. 63 Nuclear Hazard ................................................................................................................................................................ 63 Intentional Loss ............................................................................................................................................................... 64 Concurrent Causation Exclusions .................................................................................................................................... 64

Weather Conditions ..................................................................................................................................................... 64 Acts or Decisions ........................................................................................................................................................ 64 Faulty Workmanship ................................................................................................................................................... 65

PROPERTY CONDITIONS ..................................................................................................................................... 66 SECTION I – PROPERTY CONDITIONS .......................................................................................................... 66

Insurable Interest And Limit Of Liability ........................................................................................................................... 66 Your Duties After Loss ..................................................................................................................................................... 66

Give prompt notice: ..................................................................................................................................................... 67 Notify the police: .......................................................................................................................................................... 67 Notify the credit card or fund transfer card company: .................................................................................................. 67 Protect the property from further damage: .................................................................................................................. 67 Prepare an inventory: .................................................................................................................................................. 67 Verify the loss: ............................................................................................................................................................. 67 Sign a sworn proof of loss: .......................................................................................................................................... 67

Loss Settlement ............................................................................................................................................................... 68 Actual Cash Value ....................................................................................................................................................... 68

Coverage C and Miscellaneous Items .................................................................................................................... 68 Broad Evidence Rule .............................................................................................................................................. 68

Replacement Cost ....................................................................................................................................................... 69 Coverages A and B ................................................................................................................................................. 69

Loss To A Pair Or Set ...................................................................................................................................................... 70 Glass Replacement ......................................................................................................................................................... 70 Appraisal.......................................................................................................................................................................... 70 Other Insurance ............................................................................................................................................................... 70 Suit Against The Insurer .................................................................................................................................................. 71 Option To Repair Or Replace Property ............................................................................................................................ 71 Loss Payment .................................................................................................................................................................. 71 Abandonment .................................................................................................................................................................. 71 Mortgage Clause ............................................................................................................................................................. 71 No Benefit To Bailee ........................................................................................................................................................ 72 Nuclear Hazard ................................................................................................................................................................ 72 Recovered Property ......................................................................................................................................................... 72 Volcanic Eruption Period ................................................................................................................................................. 72

HOMEOWNERS SECTION II: LIABILITY COVERAGES ..................................................................................... 73 Section II Minimum Limits ................................................................................................................................................ 73

COVERAGE E—PERSONAL LIABILITY .......................................................................................................... 73 Prejudgment Interest ............................................................................................................................................... 74

Defense Costs Coverage................................................................................................................................................. 75 COVERAGE F—MEDICAL PAYMENTS TO OTHERS ..................................................................................... 75

Medical Expenses Include: .............................................................................................................................................. 75 Minimum Limit ................................................................................................................................................................. 76 Insured Locations ............................................................................................................................................................ 76 Persons Covered and Not Covered ................................................................................................................................. 76

Residence Employees................................................................................................................................................. 77 Medical Payments To Others Coverage Is “No-Fault” Coverage ..................................................................................... 77 Time Limitation ................................................................................................................................................................ 78

SECTION II ADDITIONAL COVERAGES .......................................................................................................... 78 Claim Expenses ............................................................................................................................................................... 78


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Expenses We Incur ..................................................................................................................................................... 78 Premiums on Bonds .................................................................................................................................................... 78 Reasonable Expenses ................................................................................................................................................ 80 Postjudgment Interest ................................................................................................................................................. 80

First-Aid Expenses .......................................................................................................................................................... 80 Damage to Property of Others ......................................................................................................................................... 80 Loss Assessment Coverages .......................................................................................................................................... 81

SECTION II EXCLUSIONS ................................................................................................................................. 81 COVERAGE E AND F EXCLUSIONS - APPLYING TO LIABILITY AND MEDICAL PAYMENTS......... 81

Expected or Intended Injury or Damage .......................................................................................................................... 81 Business Activity .............................................................................................................................................................. 81 Insured's Premises Rented To Others ............................................................................................................................. 82 Professional Services ...................................................................................................................................................... 82 Locations That Are Not Insured Locations ....................................................................................................................... 82 Motor Vehicles ................................................................................................................................................................. 82 Watercraft ........................................................................................................................................................................ 83 Aircraft ............................................................................................................................................................................. 84 War And Warlike Actions ................................................................................................................................................. 84 Communicable Disease ................................................................................................................................................... 85 Sexual Molestation and Physical or Mental Abuse .......................................................................................................... 85 Controlled Substances .................................................................................................................................................... 85

EXCLUSIONS THAT APPLY ONLY TO COVERAGE E - PERSONAL LIABILITY ......................................... 85 Loss Assessment ............................................................................................................................................................ 85 Liability Assumed Under Contract ................................................................................................................................... 86 Damage to the Insured's Property & Property in the Insured's Care ............................................................................... 86 Bodily Injury to Persons Eligible for Other Benefits ......................................................................................................... 86 Nuclear Liability ............................................................................................................................................................... 86 Bodily Injury To An Insured.............................................................................................................................................. 87

EXCLUSIONS THAT APPLY ONLY TO COVERAGE F - MEDICAL PAYMENTS TO OTHERS .................... 87 Residence Employee Off Premises ................................................................................................................................. 87 Bodily Injury Covered By Compensation Law .................................................................................................................. 87 Nuclear Reaction ............................................................................................................................................................. 87 Injury To Residents .......................................................................................................................................................... 87

CONDITIONS .......................................................................................................................................................... 88 SECTION II CONDITIONS ................................................................................................................................. 88

Limits Of Liability ............................................................................................................................................................. 88 Severability Of Insurance................................................................................................................................................. 88 Insured's Duties After Loss .............................................................................................................................................. 89 Duties Of An Injured Person - Coverage F-Medical Payments To Others ....................................................................... 89 Suit Against Insurer ......................................................................................................................................................... 90 Bankruptcy Of An Insured................................................................................................................................................ 90 Other Insurance-Coverage E-Personal Liability ............................................................................................................... 90

SECTIONS I AND II CONDITIONS .................................................................................................................... 90 Policy Period .................................................................................................................................................................... 90 Concealment Or Fraud .................................................................................................................................................... 90

Section I Concealment or Fraud .................................................................................................................................. 91 Section II Concealment or Fraud ................................................................................................................................. 91

Liberalization Clause ....................................................................................................................................................... 91 Waiver Or Change Of Policy Provisions .......................................................................................................................... 92 Cancellation ..................................................................................................................................................................... 92

The Insured cancels .................................................................................................................................................... 92 The Insurer cancels ..................................................................................................................................................... 92 Nonrenewal ................................................................................................................................................................. 93 Returning unearned Premium ..................................................................................................................................... 93

Assignment ...................................................................................................................................................................... 93 Subrogation ..................................................................................................................................................................... 93 Legal Representative of Deceased Insured ..................................................................................................................... 94

COMPARISON OF COVERAGE UNDER HOMEOWNERS FORMS ................................................................... 95


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HO 3-SPECIAL FORM (HO 00 03) .................................................................................................................... 95 COVERAGES AND AMOUNTS ......................................................................................................................... 95 PERILS COVERED—SPECIAL FORM (HO 3)--OPEN PERILS ....................................................................... 96 OTHER HOMEOWNERS FORMS ..................................................................................................................... 96 PERILS COVERED—COMPREHENSIVE FORM (HO 5 OR HO 3 PLUS HO 15) ........................................... 96 HO 1 BASIC FORM (HO 00 01) ......................................................................................................................... 97

Eligibility And Minimum Limits ......................................................................................................................................... 97 Basic Form Named Perils ................................................................................................................................................ 97

HO 2 BROAD FORM (HO 00 02) ....................................................................................................................... 98 Eligibility And Minimum Limits ......................................................................................................................................... 98 Perils Covered—Broad Form (HO 2) ............................................................................................................................... 99

PERILS COVERED—TENANT BROAD FORM (HO 4) & CONDO UNIT OWNER FORM (HO 6) ................ 100 HO 4 CONTENTS BROAD FORM (HO 00 04) ................................................................................................ 100

Eligibility and Minimum Limits ........................................................................................................................................ 100 Section I – Property Coverages ..................................................................................................................................... 101 Section II – Liability Coverages ..................................................................................................................................... 102

HO 6 UNIT OWNERS FORM (HO 00 06) ........................................................................................................ 102 Eligibility And Minimum Limits ....................................................................................................................................... 102 Unit-Owners' Coverage Needs ...................................................................................................................................... 103 The HO 6 Differs From The HO 3 In The Following Ways: ............................................................................................ 103 Perils Covered ............................................................................................................................................................... 105 Loss Settlement ............................................................................................................................................................. 105 Other Insurance ............................................................................................................................................................. 105 Loss Assessment .......................................................................................................................................................... 105

HO 8 MODIFIED COVERAGE FORM (HO 00 08) ........................................................................................... 106 Eligibility And Minimums ................................................................................................................................................ 106 ACV Settlement On The Dwelling .................................................................................................................................. 106 The HO 8 Differs from the HO 3 in the Following Ways: ............................................................................................... 107

HOMEOWNERS ENDORSEMENTS .................................................................................................................... 109 Additional Limits of Liability for Coverages A, B, C, and D (HO 04 11) .......................................................................... 109 Increased Limit on Business Property (HO 04 12) ......................................................................................................... 110 Incidental Motorized Land Conveyances (HO 24 13) .................................................................................................... 110 Special Computer Coverage (HO 04 14) ....................................................................................................................... 110 Special Personal Property Coverage (HO 00 15) .......................................................................................................... 110 Functional Replacement Cost Loss Settlement Endorsement (HO 05 30) .................................................................... 111 Unit-Owners Coverage C (HO 17 31) ............................................................................................................................ 111 Unit-Owners Coverage A (HO 17 32) ............................................................................................................................ 111 Unit-Owners Rental to Others (HO 17 33) ..................................................................................................................... 111 Loss Assessment Coverage (HO 04 35) ....................................................................................................................... 112 Structures Rented to Others (HO 04 40) ....................................................................................................................... 112 Additional Insured-Residence Premises Endorsement (HO 04 41) ............................................................................... 112 Permitted Incidental Occupancies Endorsement For Residence Premises (HO 04 42) ................................................ 113 Permitted Incidental Occupancies At An "Other Residence" (HO 24 43)....................................................................... 113 Residence Premises-Three Or Four Family Dwelling (HO 04 44) ................................................................................. 113 Inflation Guard (HO 04 46) ............................................................................................................................................ 113 Guaranteed Replacement Cost (GRC) .......................................................................................................................... 114 Extended Replacement Cost (ERC) .............................................................................................................................. 114 Other Structures-Increased Limits (HO 04 48) .............................................................................................................. 114 Increased Limit on Personal Property in Other Residences (HO 04 50) ........................................................................ 114 Credit Card, Fund Transfer Card, Forgety and Counterfeit Money Coverage (HO 04 53) ............................................. 115 Earthquake (HO 04 54).................................................................................................................................................. 115 Special Loss Settlement Endorsement (HO 04 56) ....................................................................................................... 116 Scheduled Personal Property Endorsement (HO 04 61) ............................................................................................... 116 Snowmobile (HO 24 64) ................................................................................................................................................ 117 Coverage C Increased Special Limits Of Liability (HO 04 65) ....................................................................................... 117 Additional Residence Rented To Others (HO 24 70) ..................................................................................................... 118 Business Pursuits (HO 24 71) ....................................................................................................................................... 118 Watercraft (HO 24 75) ................................................................................................................................................... 119 Ordinance Or Law-Increased Amount Of Coverage (HO 04 77) ................................................................................... 119


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Actual Cash Value Loss Settlement Endorsement (HO 04 81)...................................................................................... 119 Personal Injury (HO 24 82) ............................................................................................................................................ 120 Personal Property Replacement Cost (HO 04 90) ......................................................................................................... 120 Home Business Insurance Coverage Endorsement (HO 05 90) ................................................................................... 121 Coverage B - Off Premises (HO 04 91) ......................................................................................................................... 123 Specific Structures Away From the Residence Premises (H0 04 92) ............................................................................ 123 Water Back Up And Sump Overflow (HO 04 95) ........................................................................................................... 123 Home Day Care Coverage (HO 04 97) .......................................................................................................................... 123 Refrigerated Property Coverage (HO 04 98) ................................................................................................................. 124

MISCELLANEOUS OTHER ENDORSEMENTS .............................................................................................. 124 State-Specific Endorsements ........................................................................................................................................ 124

1984 HOMEOWNERS POLICY ............................................................................................................................ 125

UNDERWRITING & RATING HOMEOWNERS COVERAGE ............................................................................. 126 HOMEOWNERS INSURANCE PREMIUMS .................................................................................................... 126

How Insurance Companies Use Premium Dollars ......................................................................................................... 127 Loss Costs ................................................................................................................................................................ 127 Expenses, Contingencies And Profit ......................................................................................................................... 127

DEVELOPING A HOMEOWNERS PREMIUM ................................................................................................. 127 Factor Rating ............................................................................................................................................................. 127

DEVELOPING A BASE PREMIUM .................................................................................................................. 128 Territory ......................................................................................................................................................................... 128 Protection Class ............................................................................................................................................................ 128 Construction .................................................................................................................................................................. 128 Coverage Amount .......................................................................................................................................................... 129 Policy Form .................................................................................................................................................................... 129 Adjusting The Base Premium ........................................................................................................................................ 129 Change In Deductible .................................................................................................................................................... 129

AGENT’S RESPONSIBILITIES ........................................................................................................................ 130

DWELLING POLICIES ......................................................................................................................................... 131 INTRODUCTION............................................................................................................................................... 131 POLICY MODERNIZATION ............................................................................................................................. 131 COMPONENTS OF A DWELLING POLICY .................................................................................................... 132 DWELLING PROPERTY COVERAGE ............................................................................................................ 132

Eligibility......................................................................................................................................................................... 132 Permitted Incidental Occupancies ............................................................................................................................. 132

Persons Insured ............................................................................................................................................................ 132 THREE DWELLING FORMS ............................................................................................................................ 133 COVERAGES ................................................................................................................................................... 133 OTHER COVERAGES ..................................................................................................................................... 133 BASIC FORM COVERAGES ........................................................................................................................... 134

Coverage A--Dwelling .................................................................................................................................................... 134 Coverage B--Other Structures ....................................................................................................................................... 134 Coverage C--Personal property ..................................................................................................................................... 134 Coverage D--Loss Of Fair Rental Value ........................................................................................................................ 135

PERILS COVERED—BASIC FORM ................................................................................................................ 135 Fire, Lightning, And Internal Explosion .......................................................................................................................... 135

EXTENDED COVERAGE (EC) & VANDALISM OR MALICIOUS MISCHIEF (V&MM) .................................. 135 Riot and Civil Commotion .............................................................................................................................................. 135 Explosion ....................................................................................................................................................................... 135 Vehicles ......................................................................................................................................................................... 135 Smoke ........................................................................................................................................................................... 135 Aircraft ........................................................................................................................................................................... 136 Windstorm Hail .............................................................................................................................................................. 136 Volcanic Eruption ........................................................................................................................................................... 136 Vandalism and Malicious Mischief (V & MM) ................................................................................................................. 136

OTHER COVERAGES ..................................................................................................................................... 136


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Property Removed ......................................................................................................................................................... 136 Other Structures ............................................................................................................................................................ 136 Debris Removal ............................................................................................................................................................. 136 Reasonable Cost For Repairs ....................................................................................................................................... 137 Tenant's improvements, alterations, and additions ........................................................................................................ 137 Fire Department Service Charges ................................................................................................................................. 137 Worldwide Personal Property Coverage ........................................................................................................................ 137 Rental Value Or Combined Rental Value And Additional Living Expense ..................................................................... 137

CONDITIONS ................................................................................................................................................. 137 Loss Settlement ............................................................................................................................................................. 137 Our Option ..................................................................................................................................................................... 138 Deductible Clause ......................................................................................................................................................... 138 Pair Or Set ..................................................................................................................................................................... 138 Loss Payment ................................................................................................................................................................ 138 Other Insurance ............................................................................................................................................................. 138 Recovered Property ....................................................................................................................................................... 138 Cancellation and Nonrenewal ........................................................................................................................................ 138 Liberalization Clause ..................................................................................................................................................... 138

BROAD FORM, SPECIAL FORM .................................................................................................................... 139 Coverages And Perils Insured Against .......................................................................................................................... 139 Coverage E--Additional Living Expense ........................................................................................................................ 139

OTHER COVERAGES ..................................................................................................................................... 139 Lawns, Trees, Shrubs, And Plants ................................................................................................................................ 139 Collapse Of A Building ................................................................................................................................................... 139 Breakage Of Glass Or Safety Glazing Material ............................................................................................................. 140

REPLACEMENT COST CLAUSE .................................................................................................................... 140 PERILS COVERED—BROAD FORM .............................................................................................................. 140

Explosion ....................................................................................................................................................................... 140 Vehicle ........................................................................................................................................................................... 140 Vandalism Or Malicious Mischief ................................................................................................................................... 141 Damage To Covered Property Caused By Burglars, ..................................................................................................... 141 Falling Objects ............................................................................................................................................................... 141 Weight Of Ice, Snow Or Sleet ........................................................................................................................................ 141 Accidental Discharge Or Overflow At The Described Location Of Water Or Steam ...................................................... 141 Sudden And Accidental Tearing Apart, Cracking, Burning, Or Bulging ......................................................................... 141 Sudden And Accidental Damage From Artificially Generated Electrical Current, .......................................................... 141 Sudden And Accidental Damage From Smoke From Fireplaces ................................................................................... 141 Collapse......................................................................................................................................................................... 142 Freezing......................................................................................................................................................................... 142

PERILS COVERED—SPECIAL FORM ........................................................................................................... 142 Dwelling And Other Structures (A And B) ...................................................................................................................... 142 Personal Property (C) .................................................................................................................................................... 142

EXCLUSIONS -- PROPERTY AND LOSSES NOT COVERED ...................................................................... 142 Land .............................................................................................................................................................................. 142 Other Structures Used For Business ............................................................................................................................. 142 Other Structures Rented Or Held For Rental ................................................................................................................. 143 Cancellation Of A Lease Or Agreement ........................................................................................................................ 143 Accounts, Bank Notes, Bills, Bullion, Coins ................................................................................................................... 143 Animals, Birds, Or Fish .................................................................................................................................................. 143 Aircraft And Parts .......................................................................................................................................................... 143 Boats ............................................................................................................................................................................. 143 Credit Cards And Fund Transfer Cards ......................................................................................................................... 143 Motor Vehicles ............................................................................................................................................................... 143 Motor Vehicle Equipment And Accessories ................................................................................................................... 143 Data ............................................................................................................................................................................... 143 Power Interruption ......................................................................................................................................................... 144 Earth Movement ............................................................................................................................................................ 144 Water Damage .............................................................................................................................................................. 144 Neglect .......................................................................................................................................................................... 144 War ................................................................................................................................................................................ 144 Nuclear Hazard .............................................................................................................................................................. 144


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Losses Caused By The Insured ..................................................................................................................................... 144 Ordinance Or Law ......................................................................................................................................................... 144 Weather Conditions ....................................................................................................................................................... 144 Faulty, Inadequate, Or Defective ................................................................................................................................... 145 Acts, Decisions, Or The Failure To Act Or Decide ......................................................................................................... 145

DWELLING ENDORSEMENTS ....................................................................................................................... 145 Inflation Guard—Automatic Increase in Insurance ........................................................................................................ 145 Dwelling Under Construction ......................................................................................................................................... 145 Condominium Unit Owners Coverage ........................................................................................................................... 145 Sinkhole Collapse .......................................................................................................................................................... 145 Ordinance Or Law Coverage ......................................................................................................................................... 145 The Water Back Up And Sump Overflow....................................................................................................................... 146 Theft Coverage .............................................................................................................................................................. 146 Personal Liability And Medical Payments To Others ..................................................................................................... 146

THEFT COVERAGE ............................................................................................................................................. 147 BROAD THEFT COVERAGE ........................................................................................................................... 147

Perils Insured Against .................................................................................................................................................... 147 Definitions ...................................................................................................................................................................... 147 On-Premises Coverage ................................................................................................................................................. 147 Off-Premises Coverage ................................................................................................................................................. 148 Newly Acquired Principal Residence— Automatic Removal Coverage ......................................................................... 148 Special Limits of Liability................................................................................................................................................ 148 Property Not Covered .................................................................................................................................................... 149 Theft Conditions ............................................................................................................................................................ 149

LIMITED THEFT COVERAGE ......................................................................................................................... 150 On-Premises Coverage Only ......................................................................................................................................... 150 Special Limits of Liability................................................................................................................................................ 150 Property Not Covered .................................................................................................................................................... 150

PERSONAL LIABILITY SUPPLEMENT .............................................................................................................. 152 KEY LIABILITY DEFINITIONS ......................................................................................................................... 152 PERSONAL LIABILITY COVERAGES ............................................................................................................ 153

Personal Liability – Coverage L ..................................................................................................................................... 154 Medical Payments -- Coverage M ................................................................................................................................. 154

ADDITIONAL COVERAGES ............................................................................................................................ 154 Claim Expenses ............................................................................................................................................................. 154 First Aid To Others ........................................................................................................................................................ 154 Damage To The Property Of Others .............................................................................................................................. 154

EXCLUSIONS—LOSSES NOT COVERED ..................................................................................................... 155 War Or Warlike Action ................................................................................................................................................... 155 An Occurrence Expected Or Intended By An Insured ................................................................................................... 155 Rendering Or Failure To Render Professional Services ................................................................................................ 155 Any Business Engaged In By An Insured ...................................................................................................................... 155 Transmission Of A Communicable Disease By An Insured ........................................................................................... 155 Sexual Molestation, Corporal Punishment, Or Physical Or Mental Abuse ..................................................................... 155 Controlled Substances .................................................................................................................................................. 155 Rental Or Holding For Rental ........................................................................................................................................ 155 Not an Insured Location................................................................................................................................................. 155 Excluded Vehicle, Watercraft, or Aircraft ....................................................................................................................... 155 Entrustment By An Insured Of An Excluded Vehicle, Watercraft, Or Aircraft................................................................. 155 Exclusions Which Apply to Coverage L -- Personal Liability .......................................................................................... 156 Exclusions Which Apply to Coverage M -- Medical Payments to Others ....................................................................... 156 Exclusions Which Apply to Damage to the Property of Others ...................................................................................... 157

CONDITIONS .................................................................................................................................................... 157 Bankruptcy ..................................................................................................................................................................... 157 Other Insurance ............................................................................................................................................................. 157 Insured's Duties in the Event of a Covered Occurrence ................................................................................................ 157 Payment of Medical Payments ...................................................................................................................................... 157


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ALLIED LINES ...................................................................................................................................................... 158 FLOOD INSURANCE ....................................................................................................................................... 158 EARTHQUAKE INSURANCE .......................................................................................................................... 159 FAIR PLANS ..................................................................................................................................................... 159 PERSONAL INLAND MARINE INSURANCE .................................................................................................. 160

Personal Inland Marine Forms ....................................................................................................................................... 161 Personal Articles Form .............................................................................................................................................. 161 Personal Property Form ............................................................................................................................................ 161 Personal Effects Form ............................................................................................................................................... 162

MOBILE HOME COVERAGE ........................................................................................................................... 162 WATERCRAFT INSURANCE .......................................................................................................................... 163 FARM COVERAGES ........................................................................................................................................ 163 PERSONAL UMBRELLA INSURANCE .......................................................................................................... 164


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PERSONAL INSURANCE EXPOSURES

LOSS EXPOSURES OF INDIVIDUALS AND FAMILIES

A loss exposure, or simply exposure, is any condition or situation that presents the possibility of a financial loss. All individuals and families face loss exposures. How they handle those loss exposures varies according to individual preference, resources, knowledge, and often ignorance. Personal loss exposures exist when personal resources are subject to losses that might adversely affect an individual's or a family's financial condition. Personal loss exposures include property and liability loss exposures as well as "human" loss exposures such as death, illness, and disability. This text examines loss exposures that can cause property and liability losses that are often insured under Homeowner and Dwelling policies. Purchasing a home is often the single largest financial investment an individual or family ever makes. And, since the value of real estate property frequently increases over time, the owner’s financial interest in the property also may increase. Along with its investment value, home ownership carries with it a potential exposure to financial loss from unpredictable events such as:

A fire or windstorm damages a home, making the residence uninhabitable and forcing the family into temporary living quarters.

Thieves steal the homeowner’s personal property.

An injured person sues the homeowner for medical expenses and for pain and suffering resulting from an injury incurred when they slip and fall on the insured’s walkway.


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PROPERTY LOSS EXPOSURES

A property loss exposure is any condition or situation that presents the possibility that a property loss will happen. All property loss exposures consist of three elements:

The property exposed to loss

The possible causes of loss

The financial consequences of loss. A property loss results when property is destroyed, damaged, stolen, lost, or otherwise suffers a decrease in value because of a particular cause of loss (peril).

Property Exposed to Loss

Property is any item with value. Property can be divided into two basic categories: real property and personal property. Property losses can affect real property, such as houses and other structures, and personal property, such as household contents, business personal property, and mobile property such as autos and boats. Real Property Real property will probably represent the family’s greatest property loss exposure. Real property consists of land as well as buildings and other structures attached to the land or embedded in it. A family might own several types of real property that give rise to property loss exposures. In addition to the home, the land on which their home is built would also be considered real property. In addition, items embedded in the land, such as underground pipes or foundations, and any separate structures on their land, such as a storage shed or detached garage. Other types of real property may also create property loss exposures. For example, ownership of vacation homes or rental properties as well as common areas of condominium property, such as land, swimming pools, and recreational areas. Personal Property Personal property consists of all tangible or intangible property that is not real property. For the purpose of identifying and insuring personal property loss exposures, personal property can be divided into the following categories:

Dwelling contents such as furniture, appliances, kitchenware, groceries, clothing, sports equipment, tools, and many other items common to the use of a dwelling as a home.

High-value personal property such as money, such as silverware, jewelry, furs, and firearms and property with unusual or intrinsic value such as antiques, works of art, and coin or stamp collections. Since many insurance policies limit the amount of coverage available for such items under the category of dwelling contents, they usually require an endorsement or separate policy.


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The value of these items must be established (usually by an appraisal) when insurance is purchased.

Business personal property such as office furniture and computer equipment used for business purposes. Most personal insurance policies limit or exclude coverage for business personal property, so endorsements or separate insurance coverage might be necessary for these exposures.

Motor vehicles, trailers, watercraft, and aircraft are typically excluded (or covered only up to a certain limit) in policies covering dwellings and their contents. There are special insurance contracts designed for these exposures.

Causes of Loss Affecting Property

A cause of loss (also known as a peril) is the actual means by which property is damaged or destroyed. Examples are fire, theft, collision and flood. All types of property are exposed to numerous causes of loss, many of which can be insured against, but not all. It is important to identify all possible causes of loss that property may be exposed to, not just those that can be insured.

Financial Consequences of Property Losses

When a loss happens to property, an individual or family suffers one or more of the following consequences:

Reduction in value of property, the difference between the value of the property before the loss and after the loss.

Increased expenses, in addition to normal living expenses, that are necessary because of the loss. Increased expenses would include the cost of moving to a hotel while the damaged dwelling is being repaired.

Lost income that results if income-producing property, such as a rental dwelling, is damaged.

LIABILITY LOSS EXPOSURES

A liability loss exposure is any condition or situation that presents the possibility that a liability loss could happen. A liability loss is a claim for money damages because of injury to another party or damage to their property. As disastrous as a severe property loss might be, the potential for loss created by a liability loss exposure is even greater. In a society, such as the United States, where the legal climate encourages lawsuits, individuals and families face a severe risk to assets from the possibility of being sued or being held responsible for someone else's injury or damages. To understand liability loss exposures, consider two elements of such exposures:


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The possibility of a claim for money damages A liability loss exposure involves the possibility that one party, claiming injury or damage, will bring a claim for money damages against another party allegedly at fault for the injury or damage to another’s property, resulting in potentially large financial consequences.

The financial consequences that might occur from a liability loss The financial consequences of liability claims can include costs of investigation and defense, as well as money damages if the defense is not successful or if the claim is settled out of court. Many liability claims are settled before they reach court. In cases settled out of court, parties to the claim negotiate the amount paid in damages, and the costs of investigation and defense are usually reduced. Since settling out of court is usually less expensive than going through a potentially long trial, insurance companies often try to reach out-of-court settlements. When a court orders an individual to pay liability damages, the amount of the damages is based on the loss the injured party suffers. The court is not concerned with the financial resources of the party at fault or with their ability to pay the damages. As a result, all of an individual's or family's savings and property are exposed to loss. When a liability claim occurs, all of an individual's current assets, plus his or her future income and assets, may be required to pay for liability damages.

Law and Liability Insurance

Law can be divided into two broad categories: Criminal law deals with crimes against society such as murder, rape, and theft; involves the

violation of local, state or federal laws; and/or conduct that endangers the public welfare. Criminal acts are almost never covered by insurance.

Civil law deals with the rights and duties of citizens, including actions between two or more

individuals, which do not necessarily involve violation of criminal laws. The liability portion of the Homeowners policy is concerned with civil law. Several types of claims fall under civil law, but the most common involve tort liability, contractual liability, and statutory liability.

Tort Liability

A tort is a wrongful act, other than crime or breach of contract, committed by one party against another. When injury or damage results from a tort, the injured party has the right under civil law to seek payment from the wrongdoer. A person might face a claim for tort liability on the basis of negligence, intentional torts, or absolute liability. Negligence In liability insurance, the most common type of tort involves negligence. Negligence is acting differently from the way a reasonably prudent person would act under similar circumstances. An individual is negligent when he or she fails to exercise the appropriate degree of care under given circumstances. In order to avoid legal liability, homeowners must exercise a high degree of care to protect others from harm.


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Injured persons must prove that another party was negligent before they can collect damages. In order to prove negligence, an injured party must prove that all four legal elements of negligence have occurred. 1. A Legal Duty Owed to Another Person. For example a homeowner with a swimming pool on their

property has a duty to protect others, especially children, from injury due to that pool.

2. A Breach of That Duty. A homeowner with a swimming pool neglects to lock the gate leading to the pool area.

3. Actual Damages Resulting From The Breach. A child enters the property through the unlocked gate, falls into the pool and is injured.

4. The Breach of Duty Must Be the Proximate Cause of the Damages Suffered. The child’s medical expenses and pain and suffering are a direct result of the homeowner neglecting to lock the gate to the pool area.

Intentional Torts

An intentional tort is a deliberate act that causes harm to another person, such as libel or slander. Regardless of whether the harm itself is intended, the intentional act can create liability. For instance calling a neighbor a thief and a liar during a heated argument at a homeowners association meeting causing their reputation to suffer. Absolute Liability

Absolute liability involves the right of recovery in cases where inherently dangerous activities result in injury or harm to another. Absolute liability does not involve proof of negligence. For example, a person who keeps a dangerous animal as a pet will be held liable if that animal bites a neighbor, regardless of how carefully the owner confines it. Contractual Liability

Contractual liability is liability assumed from another when an individual enters into a contract or agreement. For example leases for homes and apartments, as well as rental agreements for autos, power tools, and other equipment, typically contain provisions that transfer the financial consequences of liability losses from one party to another. Statutory Liability

Statutory liability is liability imposed because of the passage of a statute or law. These laws vary by state, homeowners, and as well as insurance agents, should know the laws that apply in the state or states in which they live and work. Tort Reform

The tort liability system, based on fault, is the traditional and most commonly used method in the United States of seeking compensation for injured persons. Critics have attacked the tort liability system in recent years, arguing that this system is unfair and has many defects. Many believe that the United States needs a new system for compensating injured persons. Tort reform is the gradual process of proposing, debating, and passing legislation that reduces legal costs or settlement awards resulting from negligence lawsuits. An example of tort-reform that has been implemented in several states is no-fault auto insurance.


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PERSONAL RISK MANAGEMENT

Risk management is the process of making and carrying out decisions that will decrease the adverse effects of potential losses. Personal risk management is applying the risk management process to the exposures of individuals or families. Risk management helps people identify loss exposures and decide how to protect against potential losses before they happen. Those who engage in risk management can minimize worry and ease the harmful effects of losses that do occur.

BASICS OF PERSONAL RISK MANAGEMENT

Personal risk management is often unplanned and unintentional. The typical individual or family does not pay much attention to risk management. They are likely to consider insurance as the only way to handle their loss exposures and to expect insurance to take care of all their exposures for them. They are not likely to identify all their loss exposures, study alternatives or select and implement other techniques. They are even less likely to monitor and revise their decisions. Some customers expect their insurance agent or an insurance company representative to serve as their risk manager. Although trained insurance personnel can help clients identify their loss exposures and suggest appropriate insurance coverages, customers, not insurance companies, should select the desired coverage forms and endorsements. Insurance professionals should offer customers several coverage options and then let them choose the ones they want and can afford. Insurance personnel should not select coverages for the customer, or they might become involved in errors and omissions (E&O) claims. Customers who think an insurance professional gave them misleading or incorrect advice might bring an E&O claim against the insurance agency or company they believe to be responsible. Errors and omissions (also known as E&O) are negligent acts (errors) committed by a person in the conduct of the insurance business that give rise to legal liability for damages. E&O claims can also arise from a failure to act (omission) that creates legal liability. Agents can, and should, purchase professional liability insurance to protect themselves from the consequences of these claims. In spite of the increase in liability, there are many advantages to the producer who advocates a good risk management program in his or her sales approach:

It necessitates account selling and leads to larger premiums

The account becomes less vulnerable to takeover by a competitor because the producer handles all of a family's insurance coverages

Account retention is increased

The producer has the satisfaction of knowing that the client is being well served.


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HOW A PERSONAL RISK MANAGEMENT PROGRAM WORKS

Personal risk management can minimize worry and ease the harmful effects of a loss. Risk management involves the following steps:

Identifying and analyzing loss exposures

Examining alternative risk management techniques

Choosing the appropriate techniques

Implementing the chosen techniques

Monitoring and revising the plan Good risk management means addressing all exposures. Before risks can be managed, a client must to identify and analyze their loss exposures. The use of a risk management tool such as a questionnaire or checklist can help to generate the information needed to recommend the coverages that the producer believes will best protect the insured. It can also document the discussion between the agent and the insured that may be of assistance in defense of an E&O claim in the future. One of the best ways for clients to identify property loss exposures is to make a complete home inventory, listing all of their possessions, when they were acquired and the price. They can also take pictures or videotapes of every room in their home. Many insurance companies and agents offer inventory forms to help in this process. The completed inventory should be kept off the residence premises so it is not destroyed if a loss to the premises occurs. The client should also list and evaluate their personal activities that could cause liability claims.

INSURANCE AS A RISK MANAGEMENT TECHNIQUE

Personal insurance can protect against many typical loss exposures the average person or family faces. It can be an excellent risk management technique for individuals and families, as long as they understand that insurance will not cover all their loss exposures and that they must use other techniques as well. Unfortunately, many individuals think insurance is the only technique available to handle loss exposures, and they do not explore other possibilities. Many also think that insurance should cover all losses, no matter what the cause or the circumstances. In reality, insurance covers only certain losses, and other risk management techniques are appropriate for treating many loss exposures.

OTHER TECHNIQUES TO TREAT LOSS EXPOSURES

Although insurance is a very effective risk management technique, an individual or family should also consider using one or more of the following additional risk management techniques, either as an alternative to, or in combination with, insurance:

Avoidance

Loss control

Noninsurance transfer

Retention


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Avoidance

One way of handling loss exposures is avoidance. Avoidance involves the decision to ward off certain loss exposures by not participating in an activity or by not purchasing an object that might result in losses. If a homeowner is successful in avoiding an exposure, neither insurance nor any of the other risk management techniques will be necessary. For example, since the homeowner’s policy does not cover flood damage to either their home or its contents, a homeowner could avoid exposure to flood losses purchasing a house in an area that is not subject to flooding. That way they would not need insurance or any other flood control measures.

Unfortunately, avoidance isn’t possible or practical for most everyday exposures. For example, not owning a home avoids some risks but the client may assume additional risks as a renter. Since most losses cannot be avoided, homeowners will need to employ one or more of the following techniques:

Loss Control

Loss control means taking measures to reduce the frequency or severity of losses. Loss control is one of the most important and often overlooked personal risk management techniques. Controlling loss exposures involves both loss prevention and loss reduction. Loss prevention measures seek to control the frequency of losses (how often losses occur). Loss prevention measures, such as installing deadbolt locks, help to control loss frequency but do little, if anything, to reduce the cost of losses that do occur

Loss reduction measures, such as limiting the amount of cash kept in a home, help to reduce loss severity (the amount of damage caused by losses). Loss reduction cannot prevent losses, but it can help to reduce the dollar amount of losses that occur.

Noninsurance Transfer

A noninsurance transfer is the act of transferring loss exposures from one party to another party that is not an insurance company. By use of a contract, such as a lease, individuals can transfer the potential consequences of a loss exposure to another party by contract. For example, homeowners can transfer property and/or liability exposures to the tenants in the lease. The tenants might then purchase property and liability insurance on the house to transfer this exposure to the insurance company.


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Retention

Retention is a risk management technique that involves using the financial resources of an individual or family to pay for the consequences of a loss. Retention can be intentional or unintentional. By intentionally choosing higher deductibles on their homeowners and auto policies, the insured could save substantial premium dollars. However, they must be prepared to pay the greater deductible amount for each loss that occurs. Unintentional retention occurs when insureds do not purchase coverage for a particular exposure, either because they do not know that their

policies exclude these perils or because they do not know that specific insurance is available to cover them. If individuals or families do not transfer their loss exposures to an insurance company or to someone else, they retain their losses and must pay for such losses with their own resources. If the agent has not explained the exclusions and limitations clearly, or has not offered optional coverages or endorsements, the insured may pursue an E & O claim against the agent after finding out that his or her loss.


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PERSONAL INSURANCE POLICIES

An insurance policy is a written agreement between two "parties." One party is the insured, and the other party is the insurer (the insurance company). An insurance policy is also a legally binding contract. As with all contracts, an insurance policy describes the rights and obligations of each party. In addition, the policy identifies how much the insured must pay to receive those rights (the premium), and how much the insurance company is obligated to pay if certain events occur (the limits of insurance.) Personal insurance is a subject that affects all of us, both in our professional and in our personal lives. Personal insurance consists of the insurance coverages designed to transfer the financial consequences of personal losses from individuals and families to an insurer. Without insurance, most of us could not buy our homes, finance our cars, pay our hospital and medical bills, or prepare for financial emergencies. Although all individuals and families are different, most people have similar coverage needs for their property, their personal possessions, and their exposure to potential liability losses. In order to keep the cost of personal insurance reasonable, personal insurance policies are designed to cover the loss exposures of the average person or family. If personal policies included unlimited coverage on all categories of property, insurance premiums would be higher than most people could afford or would be willing to pay. It is fair for those persons who own valuable or unusual items to pay an additional premium to insure them.

TYPES OF PERSONAL INSURANCE POLICIES

This course examines two of the many policies used to insure loss exposures for individuals and families: the Homeowners policy (HO) and the Dwelling policy (DP). Some of the other policies that provide important protection for individuals and families, include:

Personal Automobile policy

Mobilehome insurance

Farm insurance

Flood insurance

Inland marine insurance

Watercraft insurance

Umbrella policies


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OVERVIEW OF HOMEOWNERS POLICIES

The homeowner’s policy is a versatile insurance contract that provides a broad set of coverages designed to meet the property and liability needs of many individuals and families. The homeowner’s policy is a useful tool for insuring real property and personal property owned by individuals and families as well as their personal liability exposures. Homeowner’s policies provide coverage that is broad in scope, easy to modify, flexible and relatively inexpensive.

PACKAGE POLICY

The homeowner’s policy includes coverages for a home, its contents, and the occupant’s liability. It provides the most appropriate coverage for many individuals and families by including a broad range of coverages that can be modified to meet policyholders' specific needs. Traditionally, homeowners obtained coverages by buying several different policies (property, theft and liability). Contemporary Homeowners policies are multi-line, or “package” policies, which mean property and casualty

coverage are combined in the same policy. It usually results in better protection, fewer insurance gaps or overlaps and lower premiums than if the coverages were purchased separately. Another reason homeowners insurance is considered a package policy is that the insured person must purchase all coverages the insurance company has packaged together. No individual Coverage may be eliminated.

TWO SECTIONS

A homeowner’s policy includes two major coverage sections, Section I – Property and Section II -- Liability. A policy form carefully describes:


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SECTION I Property Coverages

The property covered

The perils insured against

The perils excluded

The insured’s responsibilities under the policy

The insurer’s responsibilities under the policy

SECTION II Liability Coverages

The potential liability situations covered and excluded

The additional related expenses that are covered

The insured’s responsibilities under the policy

The insurer’s responsibilities under the policy

The responsibilities of injured persons

Conditions applicable to both property and liability coverages.

SECTION I-PROPERTY

Section I specifies the property covered, the perils for which property is covered, and the exclusions and conditions that apply to property coverages. The policy begins with segments that establish the policy insuring agreement and the definitions for words used.

Coverage A-Dwelling

Provides coverage on the structure of the home, and any attachments (such as an attached garage), for an indicated amount of insurance. Coverage is usually provided on a replacement cost basis (not included in HO 4).

Coverage B-Other Structures

Provides coverage on a garage or other appurtenant private structures not attached to or part of the home (not included in HO 4 or HO 6).

Coverage C-Personal Property

Covers the homeowner's personal property (also referred to as Contents) both on and off the premises.

Coverage D-Loss of Use

Provides additional living expense coverage if the home is damaged as well as loss of rental value under certain circumstances


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SECTION ON II-LIABILITY

Section II-Liability Coverages, provides similar information regarding liability coverages, exclusions, and conditions.

Coverage E-Personal Liability

Provides coverage for bodily injury and/or property damage for which the insured is legally liable, including defense costs.

Coverage F-Medical Payments to Others

Covers reimbursement of reasonable medical expenses for injuries sustained by a third party as a result of the insured's activities, whether or not the insured is legally liable.

HOMEOWNERS FORMS

A necessary part of a Homeowners Policy is a preprinted policy form developed and issued by the insurer. There are six different Homeowners forms to vary the extent of coverage, each of which provides various levels of coverage but some forms are not available in all states. The forms differ in regard to property Coverages (Section I) only, not liability coverage (Section II), which is identical in all 1991 Homeowners forms. These differences will be reviewed in detail in a later section of this text. The homeowner’s policy includes a core of mandatory coverages designed to fit a typical family's fundamental needs. Each policy form is designed to serve different insurance needs. Property insurance for the residence and its contents is provided by HO 1, HO 2 and HO 3, HO 5 (HO 3 plus HO 15) and HO 8. HO 4 and HO 6 do not provide any major forms of property insurance for the residence. All forms provide liability insurance and require minimum amounts of coverage. Although Homeowners Policies are standardized and preprinted, they must be flexible enough to meet a variety of needs. In addition to the different HO forms, dozens of endorsements are available for optional modifications of the coverage included in the HO forms. The endorsements offer a significant degree of flexibility, thereby tailoring a policy to most individual needs.

BASIC, BROAD AND SPECIAL DEFINED

The terms basic, broad and special as used in these forms have very specific meanings in regard to the particular perils that are covered in the property Coverage section of the Homeowners Policy. The Basic, Broad and Special forms represent increasing degrees of coverage for the property portion of the Homeowners Policy. The liability portion is identical in all forms.

Basic Form

Insures against 10 perils specifically listed in the policy. Provides the minimum coverage available.

Broad Form

Insures against the 10 perils of the Basic form plus 6 additional perils for a total of 16. Provides more extensive coverage than the Basic form under all the described perils.


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Special Form

Insures the insured’s dwelling, against all perils not specifically excluded rather than listing perils. For the insured’s personal property, it lists the perils of the Broad form. Provides the most extensive Coverage of all three forms.

THE HOMEOWNER POLICY FORMS CURRENTLY AVAILABLE ARE:

Basic Form (HO 1)

The Basic Form (HO 1) provides coverage on both the dwelling and personal property against fire, lightning, Extended Coverage perils, and V&MM. In addition, it insures against breakage of glass and theft. In many areas, the HO 1 is no longer available.

Broad Form (HO 2)

The Broad Form (HO 2) provides "named perils" coverage on the insured dwelling, other structures, and personal property. It covers all of the HO 1 perils, but broadens certain perils and covers additional perils as well. This broad coverage applies to both the dwelling and personal property.

Special Form (HO 3)

The Special Form (HO 3) covers personal property for the same set of named perils as the Broad Form, but provides “All Risk” coverage on the dwelling and other structures. This open perils coverage for loss to the dwelling provides coverage for any peril that is not specifically excluded.

Contents Broad Form (HO 4)

The Tenants form (HO 4) insures tenants—people who do not own the building where they reside. It provides broad form coverage for personal property only and no coverage at all for the dwelling.

Comprehensive Form (HO 5)

The Comprehensive Form (HO 5) provides Special ("all risk") coverage for both the residence and its contents. The form is available from a limited number of insurers, but the identical coverage is available by attaching a Special Personal Property Coverage endorsement (HO 15) to the HO 3 form.

Condominium Unit Owners Form (HO 6)

The Condominium Form (HO 6) provides Broad coverage on the personal property of condominium residents, similar to that provided under the HO 4. It provides very limited coverage for the condominium building since the building is usually insured by the condominium association.

Modified Coverage Form (HO 8)

The Modified Homeowners Form (HO 8) is designed for older homes with replacement values that may far exceed their market values not meeting HO standards. It provides similar coverage to the HO 1. However, certain restrictions on coverage and settlement of losses have been added to this form.


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ELIGIBILITY

Not every person or every house is eligible for coverage under a Homeowners policy. The rules vary somewhat depending on the HO form and also vary from one insurer to another.

Dwelling And Contents Coverage (HO 1, HO 2, HO 3, And HO 8)

While Homeowners policies are available to cover many different situations, certain qualifications are required. Forms that provide both dwelling and contents Coverage are HO 1, HO 2, HO 3, and HO 8, can be issued only to the owner-occupants of a one-or two-family dwelling used principally as a residence. (Some states and insurers will allow three, or four-family dwellings to be covered under an endorsement.) Each family is limited to a maximum of two boarders or renters. ISO eligibility rules prohibit issuance to owners who do not occupy the dwelling. A purchaser-occupant when the seller retains title under an installment contract until payments are completed, and occupants with a life estate arrangement, which allows them to live in the house until death, are also eligible for a homeowners policy. A dwelling under construction is eligible if the named insured is the intended owner-occupant. Dwellings located on farm premises are not eligible on any of the HO forms One co-owner of distinct portion of a multi-family dwelling occupied by co-owners is also eligible. Some companies will insure 3-to-4 family units, if the named insured owns the dwelling and occupies one of the units, in which case a special endorsement, (HO 04 44) Residence Premises (3 or 4 Family Dwelling), is added to the policy. In cases where a homeowners policy is sold to a co-owner, purchaser-occupant, or an occupant under a life estate, the owner or remaining co-owner will have an insurable interest in the dwelling, other structures, premises liability, and medical payments coverage. The seller's interest in the building and premises liability may be insured by attaching an Additional Insured Endorsement (HO 04 41), for which there is no premium. The remaining co-owner occupant(s) would have to purchase a separate policy (HO 4) to cover their personal property and liability exposures.

Contents Coverage (HO 4 and HO 6)

Two forms, HO 04 and HO 06, provide primarily contents coverage, with these eligibility requirements: The HO 4, the Contents Broad Form, is sometimes referred to as a “Tenant Homeowner” policy. It is the only Homeowners form that can be issued to a tenant who maintains a residential premise in a dwelling or apartment. The following are eligible for an HO 4:

A tenant non-owner of a dwelling, apartment or a mobilehome

An owner-occupant of a condominium unit

An owner-occupant of a dwelling which is not eligible for coverage under one of the combined building and contents Homeowner forms

If a prospect's home is eligible for Homeowners coverage, they may not purchase the HO 4 for personal property only coverage. The full package must be purchased. If a two-family dwelling is co-owned by the two families who reside there, one of the owner-occupants may be issued an HO 3, with the other named as an additional insured to cover that party's interest in the building. The other owner-occupant


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may be issued an HO 4 to cover their personal property and liability exposures. The HO 6, the Unit-Owners Form, may only be issued to the owner of a condominium or cooperative unit, although the insured is not required to be an occupant of the unit. The owner of a condominium or cooperative unit usually belongs to an association that purchases coverage on the building, and other property that is owned in common. But each individual unit-owner must purchase property insurance on the contents of his or her unit, any improvements made to the unit, and dwelling items that are the insured's responsibility under the association's agreement, as well as personal liability coverage. Anyone eligible for HO 6 may, as an alternative, purchase HO 4 to cover personal property and liability exposures, but HO 6 is better designed to coordinate with the joint coverage carried by the condominium association.

SPECIAL ELIGIBILITY REQUIREMENTS

Under special circumstances, other dwellings may be eligible for a Homeowners Policy:

Dwellings Under Construction

A dwelling under construction may be eligible as long as the named insured under the policy is the owner and intends to occupy the dwelling when it is completed. While the HO 01, 02, 03 and 08 Homeowners forms may be used before construction is complete, the policy may be written only in the name of the intended owner-occupant, not the builder or contractor.

Secondary and/ or Seasonal Residences

A secondary residence or a seasonal residence may be covered, but insurance must be written on a separate policy, apart from any policy issued on the insured’s principal residence. Not all secondary residences are seasonal. The Homeowners program defines a seasonal residence as a dwelling with continuous unoccupancy of three or more consecutive months during any one-year period.

When the same insurer writes the coverage for both residences, liability coverage for the secondary residence can be extended from the policy covering the primary residence.

INELIGIBLE FOR HOMEOWNERS POLICIES

Farm Property

A homeowner’s policy may not be issued or endorsed to cover any property to which farm forms or farm rates apply, or property situated on any premises used for farming purposes.


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Mobile Homes/Trailer Homes/House Trailers

Eligible Mobilehomes may be covered by HO 2 or HO 3 when the Mobilehome Endorsement (MH-200) is attached to the policy. This endorsement alters certain policy provisions as necessary to provide mobilehome coverage. To be eligible, a mobilehome must be at least 10 feet wide and at least 40 feet long and be designed for year-around living The contents of a mobilehome, trailer home or a house trailer may be

covered by an HO 4 form but a trailer home or house trailer itself may not be covered by the dwelling portion of a Homeowners Policy for either the owner-occupant or tenant.

Incidental Businesses

In order for a home with an incidental business to be covered under a Homeowners Policy, the dwelling must be used exclusively as a residence, except for certain incidental occupancies such as offices, professional or private schools or studios. The home must be used primarily as a residence and there must be no other businesses operating on the same premises. Occasional rental of the premises to others is also allowed. A separate endorsement must be attached to cover these "incidental" occupancy exposures (HO 04 42) Permitted Incidental Occupancies.

Individual insurers generally have more specific underwriting guidelines as to what types of incidental businesses they are willing to accept under a Homeowners Policy.

POLICY MODERNIZATION -- HOW THE HOMEOWNERS POLICY EVOLVED

One of the challenges for the insurance industry is to update its products to reflect changing needs. With the passage of time, consumer perceptions about the need for insurance have changed. Some entirely new exposures have been created by court decisions & legislation. Responding to changing needs is one reason why insurance contracts are periodically revised. Equally important has been an effort to condense and sim-plify the language of insurance contracts. Many attempts have been made to cut down on the number of words in a policy, and to clarify and simplify definitions and policy provisions. As this process continues, insurance products will continue to evolve

Before the 1950s, owners of private residences had to purchase separate policies to cover their various needs. For example, a typical homeowner might have purchased a fire policy a theft policy, and a personal liability policy. Additional separate policies were often needed to cover such items as glass, jewelry, and furs. In the late 1950s, a standard homeowner’s policy was developed to cover most types of private residences and personal property, as well as to provide liability insurance for owners of such property. Soon many insurers provided standard homeowners policies.


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The homeowners program (HO) is regarded as the most popular and successful innovation in insurance marketing. Shortly after the introduction of the program in the 1950s, virtually all eligible insureds were converted from separate fire, theft, and liability monoline policies to this package policy. The program offered improved coverage at a lower cost, or substantially better coverage at a minimal increase in premium cost. Before the 1970s, insurance policies were written in language based on a legal writing style. Insurers felt more confident using wording that had already been interpreted through many court decisions. In the 1970s, the need grew for insurance contracts containing simplified language so that policyholders could better understand the policies they were purchasing. In 1976, ISO introduced simplified homeowners policy language known as the 76 Policies Series to improve the format and streamline the wording. Most states approved the new policies, however, since the laws in some states required that the 1943 New York standard fire policy be included in all homeowner’s policies, the 1976 policy series was not universally adopted throughout the United States. 1982, the policies were revised again to reflect the changing needs of consumers. The Homeowners '82 edition was a significant modernization of the 1976 policies. The Insurance Services Office obtained feedback from insurers, agents, regulators, legislators, consumer groups, and individual policyholders. After reviewing the program, minor adjustments were made, and the finalized product was restated as the Homeowners '84 edition of the policies. The 1984 edition of the ISO homeowner’s policy, using simplified policy language, was filed and approved in all states except Texas. A 1991 edition with simplified language was subsequently issued. In 1994, ISO introduced multistate revisions in the form of endorsements to be attached to the 1991 homeowner’s policies rather than completely rewriting the policies. The 1991 homeowner’s policy with multistate revisions is the current ISO homeowner’s policy. Multistate revisions are policy revisions that are introduced in most (or all) states. Coverages and policy language can vary from state to state. The most significant changes are found in just three areas—revision of the coverage for loss of use, adding an additional coverage for ordinance or law expenses, and revision of the cancellation provisions. Although the standard homeowner’s policies in use by most companies are promulgated by Insurance Services Office (ISO), a significant portion of the total market is insured by companies using independent forms. In this course, you will be studying the 1991 edition of Homeowners forms devised by the Insurance Services Office (ISO). These forms are in use in most states and they are models for a number of similar forms devised by individual companies that do not use ISO.


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HOMEOWNERS POLICY

A Homeowners Policy must include at least two parts:

Declarations Page - the part that is personalized for the particular insured and is different for every policy.

Policy Form - the part that is preprinted and the same for every policy.

DECLARATIONS PAGE

Regardless of which Homeowners form is used, a Declarations page must be attached. The Declarations is the first page of a policy which personalized as each policy is issued. It contains essential information about the insured, the property covered, and the coverages and limits. Any forms and endorsements to be attached will be listed, and the name of the Mortgagee (if any) will appear, as well as the policy term, the deductible and the premium. Insurers are free to individualize the style and format for their declarations page, but it must include the following information:

Name And Mailing Address Of The Named Insured

The policyholder refers to the person or persons insured. The Declarations page contains both the names and mailing address of each insured. The insured might be one or several individuals. Everyone who has a financial interest in the property should be named as an insured.

Policy Period

The effective date and expiration date of the policy (when coverage under the policy begins and ends). This is also referred to as the policy period or when a policy is in force. Most Homeowners Policies are written for a period of one year.

Insured Location

The location of the property that is covered is the same as the insured’s mailing address unless otherwise specified on the declarations page.


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Limit For Each Coverage, A Through F

The Coverage Limits are not picked arbitrarily. The amount of coverage written for the Dwelling (Coverage A) is usually based on the cost to replace it if it were a total loss. Limits for the other Section I Coverages are specified percentages of the Coverage A Dwelling limit: Coverage B - Other Structures: 10% of Coverage A limit Coverage C - Personal Property: 50% of Coverage A limit Coverage D - Loss of Use: 20% of Coverage A limit for HO 2 and HO 3 20% of Coverage C limit for HO 4

40% of Coverage C limit for HO 6 10% of Coverage C limit for HO 1 and HO 8

The ISO Homeowners Manual also establishes minimum limits for homeowner’s policies, but actual minimums may vary from state to state and from insurer to insurer. Limits for Section II Coverages begin with minimum basic limits and can be increased. Coverage E - Personal Liability: $100,000 per occurrence, Coverage F - Medical Payments to Others $1,000 per person for each accident.

Forms And Endorsements That Apply To The Policy

A list of policy forms and endorsements used to provide coverage including the form numbers and edition dates is included on the declaration page.

Premium

The amount of the premium (the insured’s payment) for the coverage and additional amount charged for any endorsements or options is shown.

Deductible Amount Applicable To Section I

All homeowner’s policies include a deductible that applies to Section I losses on an occurrence basis. No reference to a deductible appears in the forms. The deductible that appears on the declarations page is the amount that the insurance company will deduct from the amount of a covered property loss before paying the claim. It does not apply to fire department service charges or to coverage for credit cards, fund transfer cards, forgery and counterfeit money. The deductible does not apply to the liability coverages in Section II. The intent of deductibles is to have the property owner assume responsibility for the smaller, more affordable losses that can occur to property. To help avoid the expense of numerous small claims, insurers build in a specific deductible amount. With most insurers, the basic deductible is $250. An insured has the option of lowering their deductible to $100 deductible for a slight additional premium, or to choose optional higher deductibles of $500, $1,000, or $2,500, which would reduce the policy premium.


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Mortgagee Name And Address

People who buy homes usually pay a small down payment and carry a mortgage on the balance of the home’s price. The lending institution, or Mortgagee, has an insurable financial interest in the property until the mortgage is paid. Every Mortgagee requires homebuyers to cover the Mortgagee’s interest as well as the insured’s. The Mortgagee may then recover any loss to the extent of its interest in the property. For this reason the Mortgagee is listed on the declaration page.

Countersignature Date And Agent's Signature

Most, but not all, states require that the signature of a representative of the insurer appear on the declarations page in order to validate and place the coverage in force. This person may be an officer of the insurance company or an authorized agent.

HOMEOWNERS DEFINITIONS

All of the Homeowners forms and endorsements are written in simple, non-legal, language format. The first page of the form contains definitions of words and phrases that are used within the contract to avoid misunderstanding between the insured and the insurer. Some terms are found only in the property section, others, only in the liability section. The definitions are identical in all forms with one exception in the HO 6 form, which we’ll address when we discuss that form. Those defined words and phrases are printed in boldface type or with quotation marks wherever used in the policy to indicate that they are specifically defined in the policy. These words have special meaning as they are used within the policy. Words defined within a contract sometimes change meaning from one policy to the next. These words might have a different or narrower definition found in a dictionary. A word used within a policy that is not specifically defined in the policy is given its common meaning, the definition of a word that might be found in a dictionary. The definitions section of the policy is extremely important because a homeowner policy is a “contract of adhesion”, that means it is drafted by one party and that the other party must adhere to it on a take-it-or-leave-it basis. Under a contract of adhesion any ambiguities (unclear provisions) are construed against the party that wrote the contract. A clear understanding of the terms used in the contract is necessary. The following definitions are important for understanding the application of homeowner liability coverages:

"You" And "Your", "We," "Us," And "Our"

The terms "you" and "your" are defined in the HO 3 as referring to the "named insured" shown in the declarations and the spouse if a resident of the same household. The terms "we," "us," and "our" refer to the insurer providing the coverage.

Insured Location

The insured location is a broad definition that frequently applies to liability coverages. It is identical on all HO forms, and includes all of the following:

The residence premises


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Any other premises used by the insured as a residence and identified in the declarations or acquired during the policy period

Any premises used in connection with the residence premises or a newly-acquired premises

Any non-owned premises where an insured temporarily resides

Vacant land owned by or rented to an insured (but not farm land)

Land owned by or rented to an insured on which a one- or two-family dwelling is being constructed as a residence for any insured

Individual or family cemetery plots or burial vaults of any insured

Any part of premises occasionally rented to any insured for non-business purposes

Insured

The term "Insured" has a specific meaning in the homeowner’s policy. "Insured" means “you” (the named insured) and residents of “your” household who are “your” relatives, or other persons under the age of 21 and in the care of any person named above. Property insurance is provided for the named insured and all residents of the same household who are relatives of the named insured, and any residents who are under age 21 and are in the care of any member of the named insured's family as well as others who are temporarily residing with the insured. The following are insureds under Section II:

The policyholder (the named insured) shown on the declarations page and the named insured's spouse if a resident of the same household. The policyholder and resident spouse are identified as "you" in the policy.

Residents of the household who are relatives of the named insured or spouse.

Residents of the household who are under the age of twenty-one and in the care of the named insured or resident relatives.

Any person or organization legally responsible for animals or watercraft that are covered by the policy and owned by a person an insured household member, but not when the other party has custody in the course of any business or without permission.

Any person using any vehicle covered by the policy on an insured location, with the consent of the named insured or spouse, or while employed by any insured, is covered by the liability insurance.

If the named insured or the spouse dies, coverage continues for their legal representatives as well as any temporary custodian of the named insured's property. All household members who are insured at the time of the named insured's death will continue to be covered while they continue to live at the residence premises.


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Bodily Injury

Bodily injury means bodily harm, sickness or disease, including required care, loss of services and death that results.

Property Damage

Property damage means physical injury to, destruction of, or loss of use of tangible property.

Business

Business means a trade, profession or occupation.

Residence Premises

Residence premises means the dwelling, other structures and grounds, or that part of any other building where the named insured lives, and which is identified as the residence premises in the declarations.

Occurrence

Occurrence means an accident, including continuous or to the same repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in "bodily injury" or “property damage."

Residence Employee

Residence employee means an employee of an "insured" whose duties are related to the maintenance or use of the "residence premises," including household or domestic services; or one who, performs similar duties elsewhere not related to the business " of an " insured”.

An employee whose duties are related to the "business" of an insured is not a "residence employee" nor are independent contractors who perform work for the insured

Personal Injury

Personal Injury means false arrest, detention, imprisonment, malicious prosecution, libel, slander, defamation, invasion of privacy, or wrongful eviction and entry.

Voluntary Property Damage

Voluntary property damage pays for damage to property of others without regard to fault or legal liability under certain circumstances.

COVERAGE AGREEMENT (INSURING AGREEMENT)

The Insuring Agreement is the first sentence in the policy and is exactly the same in all six Homeowners forms. This agreement establishes the basis for the contract and specifies that the insurer will provide coverage if the policyholder pays the premium and complies with the policy provisions.

According to the Insuring Agreement, the insurer agrees to provide the insurance described in the form if the insured pays the premium and complies with the policy terms. A homeowner’s policy is completed by attaching one of the policy forms, and any mandatory or optional endorsements.


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SECTION I - PROPERTY COVERAGES

COVERAGE A - DWELLING

Coverage A applies to the dwelling, attached structures, and materials and supplies on or adjacent to the residence premises for use in the construction, alteration, or repair of the dwelling or other structures. The policy must show a specific amount of insurance for the dwelling. The dwelling, by definition, includes everything attached to it, such as plumbing, heating and cooling equipment, lighting fixtures, permanently affixed wall-to-wall carpeting, canopies, patio coverings, and garages. Detached structures are covered under Coverage B, and property not

attached to the building is covered under Coverage C (except for materials and supplies referred to above). This coverage does not apply to land, including the land on which the dwelling is located. Land is specifically excluded from coverage consistently throughout the contract. Dwelling coverage is the most significant coverage on all forms except HO 4 and HO 6. HO 4 does not provide dwelling coverage because the form was designed for tenants or others whose primary exposure is limited to personal property. HO 6 provides a limited type of dwelling coverage. For condominium unit owners, HO 6 provides $1,000 of coverage at no additional charge for owned structures at the residence premises which are not part of the residence, property for which the insured has assumed insurance responsibility under a property owners agreement, real property items pertaining to the residence premises, and alterations, appliances, fixtures and improvements which are part of the residence building. If coverage is insufficient, the $1,000 limit may be increased for an additional premium charge. The insured should select the Coverage A limit with care, considering all of the property that is included in this definition. The Coverage A limit should also be at least 80 percent of the current replacement cost of the dwelling in order for losses to be settled at replacement cost. The producer should, however, recommend that the building be insured for 100 percent of its estimated replacement cost. This approach provides enough money to rebuild the home if it is totally destroyed, plus it allows a margin for


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error if the replacement cost is estimated too low. It also allows enough money to provide for additional coverages such as debris removal and temporary repairs, which are included within the limit of Coverage A. The Coverage A limit is also very important because all other Section I limits are established from it.

COVERAGE B - OTHER STRUCTURES

Coverage B - Other Structures of the Homeowners Policy. The first part of this coverage description defines what kind of property can be considered "other structures." The second part describes how the other structures can be used. Coverage for other structures is found on all forms except HO 4 and HO 6.

Coverage B applies to structures on the residence premises, other than the insured's dwelling, that are not attached to the dwelling and are separated from the dwelling "by clear space." Other structures include that those connected to the dwelling by only a fence, utility line, or similar connection. The definition does not require the "other structure" to be a building. Examples of other structures include swimming pools, fences, tool sheds, tennis courts, and greenhouses and a satellite dish attached to a concrete pad. Other structures that are buildings would be valued at the current replacement cost in the event of a claim. While other structures that are not buildings would be valued at actual cash value. This coverage does not apply to land, including the land on which the other structures are located. The difference between whether a building or structure is covered under Coverage A or Coverage B is very crucial in determining whether there are adequate limits of liability for each coverage. Structures that are attached to the dwelling are covered under Coverage A. Structures separated (detached) from the dwelling are covered under Coverage B.

10% Of The Amount Written For Coverage A

Coverage for other structures is automatically provided under the HO 3 with a limit that is 10 percent of the limit for Coverage A, and applies collectively to all of the other structures at the residence premises. The limit applies in addition to the Coverage A limit. Usually the standard Coverage B amount is adequate to cover most other structures a homeowner might have. If this amount of coverage is insufficient, higher amounts of Coverage B may be written. Specific coverage on scheduled structures may also be obtained with endorsement HO 04 48, Other Structures-Increased Limit. Coverage B as provided in the policy covers only structures on the residence premises. Producers should ask their insureds if any owned structures are located away from the residence premises, for example, a boat dock located several blocks from the insured's residence. Coverage B may be extended to include such structures by using endorsement HO 04 91, Coverage B-Off Premises. If a specific amount is desired for a specific structure located away from the residence premises, use endorsement HO 04 92, Specific Structures Away From The Residence Premises. Coverage B has two important exclusions. No coverage is provided for other structures used in any way for the following purposes:


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Used In Whole Or In Part For Business

Coverage B excludes any structure used in whole or in part for business. A "business" is defined as a trade, a profession, or an occupation. Today, home-based businesses are one of the fastest-growing segments of the economy and insureds are often using detached buildings to operate a home business or store business items. It is very important to inquire as to whether or not any type of business exposure exists. The premium charged for a Homeowners Policy is based on risks associated with the residential use of a home. The type of activities that are part of most businesses pose a greater risk than is common to the ownership and use of a home as a residence. It is therefore, appropriate that a homeowner with a business exposure should pay a premium based on the risk associated with that particular business. If business exposures exist, agents should recommend the appropriate business endorsements or separate insurance policies to their insureds.

Rented Or Held For Rental

Coverage B does not apply to structures that are rented to others who are not residents of the dwelling (except for use as a private garage). Specific coverage on such structures on the residence premises can be provided by endorsement HO 04 40, Structures Rented to Others-Residence Premises. Coverage may also be obtained by attachment of endorsement HO 04 42, Permitted Incidental Occupancies-Residence Premises.

PROPERTY WHICH IS LIMITED OR NOT COVERED – COVERAGE A & B

The following types of property are not covered by any homeowner’s policy:

Land, including the land on which the residence is built

Structures used primarily for business purposes

Structures (other than a private garage) rented or held for rental to any person who is not a tenant of the dwelling

COVERAGE C - PERSONAL PROPERTY

Coverage for Personal Property is included on all HO forms. Under the Homeowners program, personal property, commonly referred to as dwelling contents, includes the wide variety of items found in almost any household, both within the home and away from the premises. Coverage C—Personal Property provides coverage for personal property that is owned or used by an insured. At their option, an insured can also provide coverage for personal property owned by a guest or residence employee while the property is in any residence occupied by the insured

and for personal property owned by others while it is on the residence premises.


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Whether or not to cover someone else's property is a decision that the insured would make after a loss has occurred. An insured might need all of the Coverage C limit available to replace their own damaged contents and it might not be possible to provide coverage for a friend or a guest.

Coverage C Applies To Covered Property Worldwide

Coverage C applies to the policyholder's personal property anywhere in the world. Personal property includes items that the policyholder owns or uses. Property that is owned by others but being used by the insured is covered in the same way as the insured's property. There is a single exception to the full Coverage C limit applying worldwide. Coverage for personal property usually kept at an insured's residence other than the residence premises is limited to the larger of $1,000 or 10% of the Coverage C limit. If a secondary residence is owned or rented on a long-term basis, or a student is residing at a school away from home, property usually kept at such locations is subject to the 10 percent limit. When the insured is on a brief vacation, the insured's property is not subject to this limitation. This restriction specifically applies the 10 percent limit to an insured's residence, not to all other locations. An insured who has property in a self-storage warehouse, for instance, would have the full amount of Coverage C available, because a warehouse is not a residence. If the insured owns one or more secondary residences, a separate HO policy is usually advisable, preferably with the same company that insures the primary residence, because of potential coverage gaps and overlaps not only for Coverage C but Dwelling and Other Structures as well. In most cases, the 10 percent of Coverage C limit is adequate, however, the limit may be increased with endorsement HO 04 50-Increased Limit on Personal Property in Other Residences, stating a specific increased amount for each such location. If personal property is moved to a newly acquired principal residence, this limitation does not apply during the first 30 days after the property is moved. An insured will have the full limit of Coverage C (without the 10 percent limit) at both locations for up to thirty days.

The Coverage C Limit

The standard limit for Coverage C is 50 percent of the Coverage A limit and applies in addition to the Coverage A limit. The Coverage C limit can be increased or decreased simply by changing the amount appearing on the declarations page. No special endorsement is required but the premium will be adjusted. Coverage C cannot be decreased below 40% of the Coverage A limit. Although the Coverage C limit may be reduced, credits for such reduction are so small that lowering the automatic limit is generally inadvisable. In fact many insurers now automatically increase the Coverage C limit to 70% of the Coverage A amount, particularly when the Replacement Cost Contents endorsement is added.

Personal Property Valuation

Personal Property is valued at actual cash value with deduction for depreciation. Replacement cost coverage is available however, by attachment of endorsement HO 04 90, Personal Property Replacement Cost.


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SPECIAL LIMITS OF LIABILITY

Coverage C Special Limits of Liability describes 11 special categories of personal property with special limitations of coverage. Each limit applies per occurrence to the class of property described. In some cases, these limits apply to all losses involving the class of property described, in other cases, limits apply to theft losses only. Items within these categories might have potentially high values or be items that are targets for theft. The special smaller limits for each category represent the dollar amount of exposure that an average individual or family is likely to have. These special limits are sublimits within the Coverage C

limit of liability and do not increase the total limit of Coverage C. The special limit for each category below is the total limit for each loss for all property in that category. The intent of homeowners’ policies is to provide some basic coverage for these special items. If these limits are inadequate for a policyholder's exposure, optional higher limits may be purchased. The insured may also purchase scheduled personal property coverage by endorsement or on a separate policy. Producers should review these internal limits with insureds, either when placing the original policy or at renewal time, and update or endorse the policy as necessary. The types of personal property with limited coverage in the standard homeowner’s policy are:

Money Or Related Property, Coins And Precious Metals Other Than Tableware

$200 on money, bank notes, bullion, gold other than goldware, silver other than silverware, platinum, coins and medals. Coverage can be increased up to $1,000 with endorsement HO 65, or HO 211 if the HO 3 has already been endorsed with the HO 15.

Securities, Manuscripts And Other Valuable Papers

$1,000 on securities, accounts, deeds, evidences of debt, letters of credit, notes other than bank notes, manuscripts, personal records, passports, tickets and stamps. This limit includes the cost to research, replace or restore the information from the lost or damaged property. Coverage can be increased up to $2,000 with endorsement HO 65.


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Watercraft, Including Their Trailers And Equipment

$1,000 on watercraft, including their trailers, furnishings, equipment and outboard motors. This limit on watercraft and equipment does not include marine perils such as sinking, stranding and running aground. The standard HO program does not provide for increases in special limits for watercraft or trailers. Some companies offer a watercraft endorsement providing additional property coverage for such equipment. If not, the exposure can be handled by a separate marine policy. Physical damage on trailers can be covered by automobile insurance.

Trailers Not Used With Watercraft

$1,000 on trailers that are not used with watercraft. Higher limits of physical damage on trailers can be covered under a personal automobile policy.

Property On The Residence Premises Used For Business Purposes

$2,500 on property, on the residence premises, used at any time or in any manner for any "business" purpose. This limitation applies to any business property, whether the property is owned by the insured or owned by another business. For example computer equipment provided by an insured’s employer for the insured’s use at home (telecommuting). Increased limits for business property can be obtained in several different ways:

Endorsement HO 04 12 - Increased Limits on Business Property.

Endorsement HO 04 42 - Permitted Incidental Occupancies.

Endorsement HO 05 90 – Business in the Home Other endorsements may also be available for dealing with these business exposures. Refer to the endorsement section of this text as well as your company underwriting manual.


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Property Away From The Residence Premises Used For Business Purposes

$250 on property, away from the residence premises, used at any time or in any manner for any business purpose. This limitation applies to business property that is owned or used by the policyholder but that is not at the residence premises. Coverage can be increased with endorsement HO 04 12 up to 10% of the on-premises limit.

Electronic Apparatus, While In, On Or Away From A Motor Vehicle

$1,000 for loss to electronic apparatus, while in or upon a motor vehicle or other motorized land conveyance provided the apparatus can be operated by both the vehicle's power and other power sources while retaining its capability of being operated by other sources of power. Any device which may be operated solely by the vehicle's electrical system is excluded. Covered electronic apparatus would include such things as portable compact disc players, cellular phones, television sets and other items that may be plugged into an automobile cigarette lighter for power. This limit can be increased up to $5,000 with the HO 65 endorsement.

Portable Electronic Apparatus While Not In or Upon a Motor Vehicle

$1,000 for electronic apparatus equipped to be operated by power from a motor vehicle, while not in or upon a motor vehicle. The limited coverage for portable "electronic apparatus" applies to items that are equipped to be operated by power from the electrical system of a motor vehicle, and which also retain the capability of being operated by another source of power (such as a battery or wall outlet). This applies to car phones, tape recorders and similar devices which are not permanently installed, but

only if the electronic apparatus is away from the residence premises and is used at any time or in any manner for business purposes. Again the HO 65 can be used to increase coverage up to $5,000.

THE NEXT THREE LIMITATIONS APPLY ONLY TO THE PERIL OF THEFT:

Jewelry, Watches, Furs, And Precious And Semiprecious Stones

$1,000 for theft of jewelry and furs. Jewelry, watches, furs, and gems are prime targets for theft. This sublimit does not apply to other covered perils. The HO 65 can be used to increase coverage up to $5,000. All-risks coverage may also be provided by the HO 15 endorsement or by scheduling the items with a specific value for each, by using the Scheduled Personal Property Endorsement HO 61. Silverware, photography equipment, musical instruments, golfer's equipment, fine arts, and stamp or coin collections may also be covered under this endorsement to provide both higher limits and broader coverage on such property.


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Silverware, Goldware Or Pewterware

$2,500 for loss by theft of silverware, silver-plated ware, goldware, gold-plated ware and pewterware. This includes flatware, hollowware, tea sets, trays and trophies made of, or including, precious and semiprecious metals such as silver, gold or pewter. Coverage can be increased up to $10,000 with the HO 65 endorsement or for higher limits and broader coverage, these items may also be scheduled under the HO 61.

Firearms

$2,000 for loss by theft of firearms. Coverage can be increased up to $6,000 with the HO 65 endorsement. No standard HO endorsement provides coverage if the $6,000 maximum available theft limit is inadequate. Coverage may be available through a "sporting goods floater" or a similar inland marine form.

PROPERTY NOT COVERED

Although some items are limited under Coverage C, they are still covered property. The policy also lists several types of property that are completely excluded under Coverage C. Some of these categories are provided with limited coverage in the additional coverage section of the policy. In most cases, these items are best insured through policies other than the homeowner’s policy.

Articles Separately Described and Specifically Insured Elsewhere

Articles that are specifically insured in this or other insurance are excluded under Coverage C. For example a ring that is listed and covered under the Scheduled Personal Property Endorsement (HO 04 61) will no longer be covered under Coverage C. This exclusion eliminates the possibility of duplicate coverage. If some property normally included under Coverage C is covered under the scheduled personal property endorsement or is otherwise specifically insured, its value should be excluded in establishing the needed Coverage C limit.

Animals, Birds or Fish

It is not within the scope of the homeowner’s policy to provide property coverage for living creatures. Coverage for specific animals, especially show or breeding animals, might be available under an animal mortality policy. It is extremely difficult to place an accurate value on family pets.


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Motor Vehicles Or Other Motorized Land Conveyances

Losses to any motor vehicle or motorized land conveyance, including equipment and accessories, and any electronic apparatus designed to be operated solely by use of the power from the electrical system of motor vehicles. This exclusion prevents overlap with automobile insurance. An exception is made, and coverage is provided for, vehicles that are not subject to motor vehicle registration and that are used to service an insured's residence (such as a riding lawn mower) or are designed to assist the handicapped (such as a motorized wheelchair).

Coverage on motorized equipment such as go-carts, snowmobiles, golf carts, mopeds, or trail bikes, should be provided under an automobile or recreational vehicle type of policy. CB radios, mobile phones, tape players, televisions, and similar property, including media such as tapes while in a motor vehicle would be covered if outside the vehicle at the time of loss. The insured has the option to insure that type of property under an automobile insurance policy.

Aircraft And Parts

All aircraft and their parts are excluded from the policy. Aircraft means any device used or designed for flight, except model or hobby aircraft not used or designed to carry people or cargo.

Property Of Roomers Or Boarders

Property of roomers, boarders and other tenants except those related to an "insured", is excluded. A policyholder who rents an apartment or a room to a tenant will not have coverage under the HO 3 for the tenant's property. However, a policyholder who rents a room or an apartment to a relative will have coverage for that relative's property.

Property In An Apartment Rented Or Held For Rental To Others By An "Insured"

Property in an apartment, which is rented or held for rental to others by an insured, is not covered. A policyholder who rents a furnished apartment to a tenant will not have coverage under the HO 3 for the furnishings. (Some limited coverage is provided for the landlord's furnishings under the Additional Coverages section.)


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Property Rented Or Held For Rental To Others Off The Residence Premises

Any property rented or held for rental to others off the residence premises is excluded from coverage.

Business Data

Also excluded are accounts, drawings, paper records, electronic data processing tapes, wires, records, discs, or other software media containing business data, but blank records or media are covered There is no coverage for business data stored either on paper or electronically. However, coverage is provided for the cost of blank recording and storage media and the cost of pre-recorded computer software programs available on the retail market.

Credit cards or fund transfer cards

Coverage C does not apply to losses arising from unauthorized use of a credit or fund transfer card. (Some limited coverage is provided under the Additional Coverages section.)


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COVERAGE D - LOSS OF USE

Coverage D - Loss of Use on a Homeowners Policy combines "Additional Living Expense" and "Fair Rental Value" and provides reimbursement to the insured for loss of use of the residence premises. Coverages A, B, and C all pay the insured for direct loss to covered property. Coverage D, however, pays the insured for indirect loss such as additional expenses incurred by the insured, the rental value of the property, or loss or rental income, when a loss caused by a covered peril makes all or part of the residence unfit to live in. A dwelling should be safe, sanitary, and secure; a dwelling that fails to meet those criteria is not fit to live in. As a result of loss, a family would probably need to move elsewhere until repairs to the dwelling could be completed. After a covered loss Coverage D pays for extraordinary living expenses of the insured family for the period required to relocate or to repair or rebuild the residence if it becomes uninhabitable because of damage from an insured peril. The insured is also paid the fair rental value of the residence during the repairing/rebuilding/relocation period if part of the residence is rented to others. Coverage D applies only if the damage is the result of a loss that is covered under Section I of the policy. A family with flood damage might also have to move elsewhere, but since flood is not a covered loss under the HO 3, Coverage D would not respond. The limit that automatically applies for Coverage D (20% of Coverage A) is usually adequate for the typical insured. However, the limit may be increased to any desired amount. The Coverage D limit can be increased simply by changing the amount appearing on the declarations page. No special endorsement is required but an additional premium is charged. All homeowners policies provide essentially the same coverage for loss of use. While there is some variation in the basic limits of the different forms, higher limits for Coverage D may be purchased on all forms. The limit of liability for Coverage D is the total limit for all the coverages that follow:

Additional Living Expense

When a loss covered by Section I of the policy makes the part of the residence premises where the insured resides unfit to live in, the insured is entitled to Additional Living Expense coverage meaning any necessary increase in living expenses incurred by you so that your household can maintain its normal standard of living. A claims adjuster will help the individual or family relocate to a temporary residence that is similar to the insured residence. Coverage D covers only the necessary and increased expenses caused by the temporary relocation - the difference between the insured's normal living expenses and the higher expenses due to the relocation. The rent for the temporary residence or a hotel as well as the difference between the reasonable cost of eating out and the family's normal food costs would also be covered by Coverage D.

Payment is made for the shortest time required to repair the dwelling or to permanently relocate the household.


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Fair Rental Value

If part of the residence is rented to others and a covered loss makes that part of the residence "not fit to live in," Coverage D will reimburse the policyholder the lost rental value (minus expenses that do not continue) until repairs are made. Payment will be for the shortest time required to repair or replace that part of the premises rented or held for rental. Recovery under "Loss of Use" is not limited by expiration of the policy. The policy does not cover loss or expense due to cancellation of a lease or agreement. Even if the damaged property is the insured's principal residence, the insured might choose Fair Rental Value rather than Additional Living Expense. When having to live temporarily away from the insured premises would not create any

extra expense (for example, the insured might temporarily move to a secondary residence or stay with relatives) the option of choosing Fair Rental Value would still allow the insured to collect for the loss of use of the damaged premises. If a covered property loss makes the residence premises uninhabitable, the 1991 policy forms cover at the insured's option either additional living expenses, or the fair rental value of the part of the residence where the insured lives minus expenses that do not continue. In states where the 1994 homeowner’s coverage changes are in effect, the option of electing fair rental value for loss of use of the insured's residence has been withdrawn and the policy only provides additional living expenses. This change was made due to an increase in rental value claims following some major hurricanes. In such cases, when available housing in the area has been reduced, the rental value of remaining housing often doubles or triples in value. As a result, many insureds elected to collect the inflated fair rental value because it exceeded their actual additional expenses. It was not the intent of the policy to allow insureds to profit in this manner, so coverage was revised to pay only additional living expenses actually incurred. However, keep in mind that this only applies to that part of the premises occupied by the insured as a residence. The 1994 revision did not affect the coverage provided for damage to that part of the premises that the insured rents to others or holds for rent (such as a room rented to a boarder, or the second family unit in the insured's duplex). If a covered property loss makes that part of the residence premises rented to others, or held for rental by the insured, uninhabitable, the policies do cover the loss of fair rental value minus any expenses that do not continue.

Loss of Use Due to Civil Authority

If a civil authority, such as police, fire department, or civil defense, prohibits use of the residence premises because a peril insured against has damaged neighboring premises, this coverage is limited to a maximum period of two weeks. Occasionally, civil authorities prohibit property owners from using their residence premises because neighboring property is damaged, even though a policyholder's own property might be undamaged. For example, a fire threatening an area could cause civil authorities to evacuate a neighborhood. For this coverage to respond, the threat to the property must come from a peril insured against by the HO 3. Coverage D will reimburse the policyholder both additional living expenses and fair rental value for up to two consecutive weeks for loss of use due to civil authority.


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SECTION I—ADDITIONAL COVERAGES

In addition to the four coverages just discussed the following Additional Coverages are included in all Homeowners forms. These coverages involve loss situations or kinds of property damage which are not specifically provided for elsewhere in the policy.

Some of these coverages are provided within the same limit of liability that applies to insured property under Coverages A through D. Others apply as additional amounts of insurance - beyond the basic limits of coverage specified in the policy.

Some additional coverages items provide reduced limits of coverage and limited perils for items that have been eliminated under Coverage C

Some additional coverages are subject to the deductible, but others are not.

Some additional coverages are available only after a covered loss has occurred, but others are independent of any other covered loss.

The additional Coverages are:

Debris Removal

After a major loss, debris from the loss must be removed before repair or rebuilding can begin. In some cases, remaining portions of the structure must be demolished before rebuilding can begin. The major property coverages, which pay for the loss or damage, do not cover the additional expenses for removing debris. Under the Debris Removal additional coverage payment is provided for the cost of removing debris of covered property after a loss from a covered peril or resulting from volcanic ash, dust, or particles when damage to covered property has occurred.

In general, the coverage for Debris Removal expenses is included in the limit that applies to the damaged property, but a Homeowners Policy expands the limit of liability under some circumstances. If the combined loss and expense for debris removal is less than the policy limit for the damaged property, the full debris removal expense is covered. If the combined loss and debris removal expense exceeds the policy limit for the damaged property, an additional 5% of the property coverage limit will be allowed for debris removal.

The second part of the Debris Removal provision deals with another kind of debris, fallen trees. The policy will pay reasonable expenses, up to $500 in any one loss (regardless of the number of fallen trees) for removal of the fallen trees only when:

The insured's tree(s) is felled by the peril of Windstorm or Hail, the Weight of Ice, Snow or Sleet

A neighbor's tree(s) is felled by a Peril Insured Against under Coverage C (these are the Broad Form perils)


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This Coverage is for removal of tree debris only, not for loss of the trees themselves. Coverage is for removal from the residence premises, not from anywhere else. For the Coverage to apply to tree removal, the tree fallen must have damaged a structure described under Coverage A or B. While most parts of the debris removal coverage are the same in all HO forms, the HO 1 Basic form does not cover removal of trees that belong to the insured when they are felled by weight of ice, snow or sleet a peril insured against under coverage.

Reasonable Repairs

Reasonable Repairs pays the reasonable costs incurred by the insured for repairs necessary to protect covered property from further loss after being damaged by a peril insured against. This is included in the policy limit and is not additional insurance. According to the Section I-Conditions, the policyholder is required to protect the property from further damage following a loss, such as boarding up a window or covering a hole in the roof, until final repairs can be arranged. This additional coverage will pay for the costs of hiring a repairperson and purchasing the material needed to complete the temporary repairs.

Trees, Shrubs And Other Plants

Trees, shrubs, and other plants on the residence premises are covered for the perils of fire, lightning, explosion, riot, civil commotion, aircraft, vehicles (not owned or operated by a resident), vandalism, malicious mischief, or theft. Other weather-related losses are not covered nor are plants that are grown for business on or off the residence premises. The maximum coverage for any one tree, shrub or plant is $500. On forms HO 4 and HO 6, coverage is limited to 10% of the limit for Coverage C. On

all other forms, coverage is limited to 5% of the amount for Coverage A. This is additional insurance on all forms

Fire Department Service charge

If firefighters are called to save or protect covered property from a peril insured against, all forms provide up to $500 of coverage for fire department service charges for which the insured has assumed liability under contract or agreement. Coverage applies only when an insured living outside a fire protection district has made arrangements through a contract or other agreement with that fire protection district to have fire protection provided. This coverage is additional insurance, and no deductible applies to it.


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Property Removed

To encourage insureds to minimize losses by protecting their property from loss as much as possible, insurance policies will reimburse for damages to property removed from endangered premises. All-risks coverage is provided on property removed to protect it from loss due to a covered peril. This coverage applies to the property while it is being moved and while it is being temporarily stored for up to thirty days. In order for this coverage to apply, the property must be removed because the premises are threatened by a peril insured against by the policy. While

the property is being removed from the premises, the insurer will cover the removed contents for any peril, even a peril not normally covered (such as marring, mildew, or flood). This coverage does not however provide an additional amount of insurance. While the coverage provided is all-risk, the policy limits and sublimits still apply to any loss.

Credit And Fund Transfer Cards, Forgery And Counterfeit Money

All forms provide up to $500 of coverage, as an additional amount of insurance, for losses resulting from theft or unauthorized use of an insured's credit card, or fund transfer card, or due to forgery of checks or negotiable instruments, or due to the acceptance of counterfeit US or Canadian paper money. No deductible applies to this coverage. Card coverage is not provided if the insured has failed to comply with the terms under which the card was issued, or if the misuse was conducted by a resident of the insured's household or any

person who was entrusted with the card. Losses related to an insured's business pursuits, or due to an insured's dishonesty, are not covered. The insurer will also defend an insured who is being sued for costs related to the unauthorized use of his fund transfer card. The choice of attorney in this case would be made by the insurer. The limit may be increased to as much as $10,000 by endorsement HO 04 53, Credit Card, Fund Transfer Card, Forgery and Counterfeit Money Coverage. Although the cardholder's liability is limited by law to $50 per card if the loss of cards is promptly reported to the issuers, higher limits may be appropriate for people holding numerous credit cards and/or having large checking account balances subject to forgery losses.

Loss Assessment

Loss Assessment coverage concerns the insured's obligation to pay loss assessments charged by corporations or associations of property owners. Residents of some neighborhoods join together in homeowners associations or similar groups to oversee maintenance of common areas or other property that the residents own collectively. If such property is damaged, the association may require each member to pay a share of the cost. This coverage provides up to $1,000 for an insured's share of such charges.


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Coverage applies only to assessments charged against the insured as owner or tenant of the residence premises, and made as a result of direct loss to property owned by members collectively and caused by a peril insured against under Coverage A (Coverage C on HO 4) other than earthquake or land shockwave related to a volcanic eruption. Loss assessment charged against the insured or the association of property owners by any governmental body is not covered. Loss assessment from earthquake damage is not covered, even if earthquake is a covered peril on the insured's policy. But the coverage may be purchased for an additional premium with endorsement HO 04 36 Loss Assessment Coverage for Earthquake Increased limits are also available by endorsement HO 04 35 Loss Assessment Coverage. This endorsement increases the amount recoverable, but a limit of $1,000 still remains for any assessment made because of the deductible under the association's master policy.

Collapse

Damage resulting from certain types of collapse may be covered. All forms except HO 1 cover direct property loss involving the collapse of a building or any part of one. This coverage is not additional insurance. On earlier policies, "collapse" was listed as a peril, but it has been moved to the "additional coverages" section due to court decisions regarding losses having more than one cause. Collapse is now covered only when caused by:

Perils insured against in Coverage C

Hidden decay

Hidden insect or vermin damage

Weight of contents, equipment, animals, or people

Weight of rain that collects on a roof

Use of defective material or construction methods

Normal settling, cracking, shrinking, bulging, or expansion is not covered.

Glass Or Safety Glazing Materials

Coverage is provided for breakage of glass or safety glazing material which is part of a building, storm door or storm window. Coverage is also provided for the damage caused by that breakage such as items cut by shards of broken glass. Covered glass losses will be settled on the basis of replacement with safety glazing materials when required by ordinance or law. Safety glazing materials means safety glass that does not splinter when broken as ordinary glass does. When safety glazing material is broken, pieces tend to be small, rounded pieces rather than dangerous glass shards. Safety glass is more expensive than ordinary glass.

On HO 1, coverage for glass is limited to $100 per occurrence. While the HO 2 and HO 3 forms impose no specific dollar limits on this coverage. Other parts of this additional coverage are identical among the forms. This coverage is suspended if the dwelling has been vacant for more than 30 consecutive days immediately before a loss. A dwelling being constructed is not considered vacant.


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Landlord’s Furnishings

Up to $2,500 of additional coverage is provided for landlord's furnishings, such as appliances, carpeting and household furniture in an apartment on the residence premises that is rented or held for rental to others by an insured. No standard endorsement is available to increase the $2,500 limit. This coverage applies only to losses caused by the following perils:

Fire or lightning

Windstorm or hail

Explosion

Riot or civil commotion

Aircraft

Vehicles

Smoke

Vandalism or malicious mischief

Falling objects

Weight of ice, snow, or sleet

Accidental discharge or overflow of water or steam

Sudden and accidental tearing apart of a steam or water heating system

Freezing

Sudden, accidental damage from artificially generated electrical current

Volcanic eruption

Notice that theft coverage is not included.

Building Additions And Alterations

Sometimes tenants make improvements to rented property which become a permanent part of the structure. If these are destroyed, the tenant would likely move elsewhere and would suffer the loss of the value of these improvements. The HO 4 has an Additional Coverage for Building Additions And Alterations. It covers fixtures, installations and improvements made or acquired at the insured's expense. Coverage is limited to 10% of the amount for Coverage C, and it is provided as additional insurance.


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Ordinance or Law (added in multistate revisions):

An individual who owns a home in an older, historic, or recently rezoned neighborhood could discover after a loss that repairs must be made in compliance with current ordinances or laws. The HO 3 provides replacement cost coverage for the same type of construction materials and methods that were used when the building was originally constructed but does not allow any additional sums for increased cost due to changes in building ordinances. In states where the 1994 coverage revisions are in effect, the Special

Provisions endorsement adds one more additional coverage. When damage is caused by an insured peril, the insured may use up to 10% of the Coverage A limit to pay for increased costs of construction or demolition resulting from the enforcement of any building ordinance or law requiring construction methods or materials which differ from those used in the original construction. This coverage is provided as an additional amount of insurance. This additional coverage includes the added cost of demolition, construction, remodeling, renovation, or repair due to the enforcement of any ordinance or law as a result of a covered peril. Specifically excluded are losses in value to the building and costs associated with pollutants. For example if a property previously consisted of four units, but due to rezoning, only two units could be constructed following a loss, the loss of value of the two additional units would not be covered. Additional amounts of coverage is available by endorsement HO 04 77, Ordinance or Law – Increased Amount.


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CAUSES OF LOSS

PERILS INSURED AGAINST COVERAGE C - PERSONAL PROPERTY

Named Perils

The perils covered under Coverage C-Personal Property differ significantly from the special coverage previously described for Coverages A and B. Under Coverage C - Personal Property, HO 3 covers direct physical loss to property by a peril listed in the policy, unless the loss is excluded. The perils insured against for Coverage C are named perils. Named perils are listed and described in the policy. This coverage approach limits the types of covered losses, so coverage for personal property is not as broad as coverage for buildings and structures. Only damages caused by listed perils are covered. There are sixteen named perils applying to Coverage C. These Broad form perils are the same under HO 2, HO 3, HO 4 and HO 6. An insured could suffer damage to both building items and personal property in the same loss and be paid only for the building damage since a peril could be both not excluded by coverage A and not covered by coverage C. For example, an insured could spill a can of paint damaging both the wall and the furniture in the family room. Since the wall is part of the building (coverage A), which is covered for all-risk perils, and spilling paint is not excluded, the damage done to the building would be covered. The damage done to the sofa (Coverage C), however, would not be covered since it is covered by named peril coverage and spilled paint is not one of the listed perils.

Fire Or Lightning

Fire has a specific definition in the insurance industry. A fire that is covered by an insurance policy must include three elements: There must be rapid oxidation (combustion). It must produce a flame, or at least a glow. It must be hostile, not friendly. A friendly fire is one that was intentionally started and remains confined in the intended place such as a fire in a fireplace. A hostile fire, on the other hand, is one that has escaped the place it was intended to be or is uncontrolled such as a hot coal that rolled

out of the fireplace and set the carpet on file.


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. Lightning is electricity that is atmospherically produced by nature as opposed to artificially generated electrical current that is excluded.

Windstorm Or Hail

This peril covers damage done by windstorm and hail including hurricane and tornado, subject to some special limitations. Damage to personal property caused by rain, snow, sleet, sand, or dust is covered only if wind or hail first damages the building and causes an opening in a roof or wall through which the rain, snow, sleet, sand, or dust enters. For example, water damage to furniture because a window was left open would not be covered. However the resulting water damage to the personal property would be covered if wind or

hail had first damaged the building by breaking a window, by tearing shingles off the roof, or by causing a tree to fall through the roof. This peril covers loss to watercraft and their trailers, furnishings, equipment, and outboard motors, but only while these items are inside a fully enclosed building.

Explosion

Explosion means a rapid chemical reaction with the production of noise, heat, and the violent expansion of gases there are no qualifying words, no limitations, and no exclusions of particular types of explosions. Damage to property as a result of a gunshot or rifle shot would be considered to be within the definition of “explosion.”

Riot Or Civil Commotion

Riot and Civil Commotion have the common meaning of a violent disturbance, possibly prolonged. Looting of personal property in the course of a riot would be covered even in the absence of theft coverage.


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Aircraft

The aircraft peril includes self-propelled missiles and spacecraft in addition to airplanes, helicopters and other flying craft. Something that falls from aircraft, damaging the insured’s property, is also covered.

Vehicles

This peril covers damaged done to covered property by vehicles. A vehicle is generally considered to be any means of carrying people or goods. No restrictions apply as to the type of vehicle or by whom it is being operated when the damage occurs. Remember damage to the vehicle itself is not covered.

Smoke

Smoke damage to personal property means sudden and accidental damage but if the loss is caused by smoke that results from agricultural smudging or industrial operations, there is no coverage.

Vandalism Or Malicious Mischief

Vandalism and malicious mischief refer to the willful, intentional destruction or defacement of property. Unlike the peril of riot, theft committed during vandalism or malicious mischief is not covered.


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Theft

More insureds suffer losses due to theft than any other peril. Theft losses can be accompanied by considerable emotional distress and are also subject to several important limitations and exclusions. The description of the theft peril is longer than for any of the other perils. The first portion of the description states when coverage does and does not apply to theft of personal property in general, while the second portion deals with the theft of personal property away from the residence premises.

Theft includes losses of personal property as a result of burglary or robbery. It also includes loss of property that has disappeared from its last known location if it is likely that the property has been stolen. A loss may be covered even if there is no evidence that theft has occurred when theft appears to be the only likely explanation for a loss. The theft peril also includes attempted theft. The following types of theft are excluded for personal property:

Theft coverage is excluded if the theft is committed by an "insured," including resident relatives and people under the age of twenty-one in the insured's care.

Theft of construction materials is not covered.

Theft from that part of the insured premises rented to someone other than an insured is not covered.

Theft of property from another residence the insured owns, rents, or occupies is not covered unless the insured is temporarily living there.

Theft of property belonging to an insured who is a student at a residence away from home (such as a dormitory room at a college) is not covered if the student has not been there for more than forty-five days.

Theft is excluded for watercraft, including its furnishings and equipment, away from the residence premises (such as a boat at a dock or boat landing).

Theft of trailers and campers. When a dwelling is occasionally rented, the other perils of Coverage C are covered, but theft is not. With optional endorsement HO 04 80, Residence Rental Theft, the absolute exclusion of theft losses while the residence is rented to others may be modified to provide for suspension of coverage only when the residence is regularly rented ("regular" versus "occasional" is not defined). With this endorsement, a loss is still not covered if caused by the tenant or a member of the tenant's household; and money, securities, jewelry, and furs (which would not normally be left in a residence rented to others) are not covered. This further emphasizes the need for a separate homeowners policy on a secondary residence (rather than relying on the 10 percent of Coverage C that applies) because the theft coverage is suspended when the insured is not residing there.


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Falling objects

Coverage is provided for losses to personal property if a falling object breaks through the dwelling's roof or wall and damages the contents. This peril does not include loss to property contained in a building unless the roof or an outside wall of the building is first damaged by a falling object. Damage to the falling object itself is not included.

Weight Of Ice, Snow Or Sleet

Weight of ice, snow, or sleet that causes damage to property contained in a building. Coverage applies only to damage to property contained in a building. The peril does not require that ice, snow, or sleet actually enter the building through an opening it has made in order for there to be coverage (in contrast to coverage for Wind or Hail damage, which does have such a requirement).

Accidental Discharge Or Overflow Of Water Or Steam

This peril covers damage to personal property caused by the accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance. Although discharge of water from a household appliance is a covered peril, it does not cover damage to the appliance itself. The policy also specifies that a "plumbing system" does not include a sump, sump pump or related equipment. This peril does not include loss:

To the system or appliance from which the water or steam escaped;

Caused by or resulting from freezing except as provided in the peril of freezing;

On the "residence premises" caused by accidental discharge or overflow which occurs off the "residence premises".

Tearing Apart, Cracking, Burning Or Bulging

Personal property is covered if damaged by sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system, an air conditioning or automatic fire protective sprinkler system, or an appliance for heating water. There is no exclusion under this peril for damage to the system or appliance itself. It does not cover loss caused by or resulting from freezing.


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Freezing

Damage to personal property that results from the freezing of a plumbing, heating, air conditioning, or sprinkling system or of a household appliance is covered as long as the insured has taken reasonable precautions to maintain the heat or shut off and drain the system and appliances while the dwelling is unoccupied. This peril does not exclude loss to the system or appliance itself.

Damage From Electrical Current

This peril covers sudden and accidental damage from artificially generated electrical current. The only exclusions are for losses to electronic components such as tubes and transistors. If the HO 00 15 is added, this limitation is eliminated from the policy. The HO 04 14, Special Computer Coverage, is a more limited "all-risks" endorsement that only applies to computer hardware, peripherals, and media, not software or data.

Volcanic Eruption

Losses caused by volcanic eruption other than loss caused by earthquake, land shock waves or tremors are covered. Coverage under this peril applies to all loss from the eruption of a volcano, including damage caused by volcanic explosion, airborne shock waves, lava flow and volcanic ash, other than earthquake and land tremors.


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PERILS INSURED AGAINST FOR COVERAGES A AND B

Special Form - All-Risk Coverage

Insured Perils for Coverage A-Dwelling and Coverage B-Other Structures are grouped together because the items insured under these two coverages include structures with similar exposures to loss. The perils insured against for Coverages A and B are known as special coverage. The HO 3 Special form provides open perils rather than named perils coverage, which means the policy covers everything except losses caused by a peril specifically excluded in the policy. This is followed by an extensive list of exclusions. The all-risks agreement requires many more exclusions than the specified perils agreement because if no exclusion applies, the loss is covered. Although the term “all-risks" is commonly used among insurance professionals, it is best to use the more correct term "special form" when speaking to or corresponding with an insured. That way the insured will not get the impression that the policy covers every loss. Some agents even use the phrase “named-exclusion” form to reinforce the fact that the policy does contain exclusions.

COVERAGES A AND B EXCLUSIONS

Special coverage provides coverage for "risk of direct loss" to property. In other words, coverage is provided for any direct loss that is not excluded. Next, a list of excluded perils is provided. If a peril is not listed in these exclusions, it is covered. The following eight kinds of loss are excluded perils for Coverages A and B under "all risk" or Special Coverage forms.

Collapse

The policy excludes loss involving collapse, other than to the extent that collapse is covered by the Additional Coverage section, which only applies to collapse caused by specified perils.

Freezing of a Plumbing, Heating, Air Conditioning, or Sprinkler System, or a Household Appliance

Damage caused by freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a household appliance, or by discharge, leakage or overflow from within the system or appliance caused by freezing. Freezing can cause pipes and hoses to burst or leak, which can create extensive damage. This exclusion applies only if the dwelling is vacant, unoccupied, or under

construction. An unoccupied dwelling is furnished but has no occupants. If the insured fails to take precautions against freezing, such as keeping the heat on or shutting off the water and draining the systems, coverage is excluded for any damage that results.


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Freezing, Thawing, Pressure, or Weight of Water or Ice

Damage to external property (such as fences, pavement, patios, swimming pools, foundations, retaining walls, piers, and wharves or docks) caused by freezing, thawing, and the pressure of water or ice, whether driven by wind or not, is excluded.

Theft of Construction Materials

Theft in or to a dwelling under construction, or of building materials and supplies for use in the construction are excluded until the dwelling is finished and occupied.

Vandalism and Malicious Mischief to Vacant Dwellings

Vandalism and malicious mischief or breakage of glass and safety glazing materials are excluded if the dwelling has been vacant for more than 30 consecutive days immediately before the loss. A dwelling being constructed is not considered vacant.

Natural Deterioration

Dwellings naturally age and deteriorate over time and require maintenance to keep them in good shape and prevent damage. Losses caused by age and natural deterioration are not covered. The policy specifically excludes the following: wear and tear, marring, deterioration, inherent vice, latent defects, mechanical breakdown, smog, rust, corrosion, mold, and rot. Most of these are fairly self-explanatory, except inherent vice. Inherent vice is a characteristic deterioration of a material, such as the tendency of paint to fade, paper to turn yellow, and iron to rust. No peril is involved in the process.


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Smoke From Agricultural Smudging or Industrial Operations

Damage that results from smoke caused by agricultural smudging or industrial operations is excluded from coverage. Other types of smoke damage are covered

Pollutants

The policy excludes coverage for damage caused by the release, discharge or dispersal of contaminants or pollutants, whether they are solid, liquid, gaseous, or thermal. An exception is made if the pollutants are released or escape as the result of any of the perils insured under Coverage C.

Animals

Section I of the Homeowners policy does not cover damage caused by animals that an insured owns or keeps, or by birds, vermin, rodents, insects or domestic animals. However, the policy does cover a loss caused by an animal which is not owned by the insured and is not included in the list of excluded animals, such as a deer.

EXCEPTION TO EXCLUDED PERILS

An exception to these exclusions is made to provide some coverage for water damage that might result from any of the excluded perils previously listed. If any of these excluded perils (other than collapse) cause water damage (that is not otherwise excluded) from a plumbing, heating, air conditioning, or sprinkler system, or from a household appliance, coverage is provided for damage caused by the water and also for the cost of tearing out and replacing any part of the building necessary to make repairs. However, the loss to the damaged system or appliance is not covered. These exclusions apply whether or not any other cause or event is contributing concurrently or in any sequence to the loss, except for the "ensuing" losses under specifically mentioned perils. An ensuing loss is a loss caused by a subsequent peril that takes place after or as a result of an initial peril. Ensuing means "happens as a consequence of." So, when the policy says that it will pay for the ensuing loss, they mean that if a loss that would normally be covered (a peril insured against) results from an excluded peril, then only the amount that results from the loss covered by the covered peril would be covered.


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SECTION I GENERAL EXCLUSIONS

These losses are excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss:

Ordinance or Law

Losses resulting from enforcement of any building ordinance or law regulating construction, repair or demolition are excluded. In states where the 1994 coverage revisions are in effect, this exclusion is modified to state that it does not apply to the additional coverages or any optional higher amounts of ordinance or law coverage. Coverage can be added by endorsement (HO 04 77) to insure against this exposure.

Earth Movement

Losses caused by, resulting from, contributing to, or aggravated by earth movement, such as landslide, mudflow, earth sinking, rising, or shifting, and earthquake including land shock waves before, during, or after a volcanic erup-tion. This term also includes "mine subsidence." If direct loss by fire, explosion, or breakage of glass parts of a building, storm door or storm window follow earth movement, the policies will cover the additional loss, and that loss only. The peril of earthquake can be covered by a Homeowners Policy by adding endorsement HO 04 54, the premium for this coverage can be quite high. A deductible of 5 percent, or more, of the amount of each coverage applies, with a minimum of $250. The availability of this endorsement varies dramatically by location and by insurer.

Water Damage

The water damage exclusion eliminates coverage for losses caused by flood, surface water, waves, and water that backs up through sewers and drains. However, ensuing losses from fire, explosion, or theft resulting from water damage are covered. The policy does cover various types of water damage that originate within the residence (bursting or leaking pipes or appliances). The 1991 revision of Homeowner Policy Forms broadened coverage under HO 3 for water damage. Earlier forms contained an exclusion for damage caused by "constant or repeated seepage or leakage of water or steam" over a period of time. This exclusion has been dropped from the 1991 and later HO 3 forms.

Separate flood insurance policies are available through the National Flood Insurance Program, which is subsidized by federal funds. Surveys of consumers consistently show the majority of insureds believe their homeowner’s policy covers flood. You must clarify to every insured that a flood insurance policy is needed to cover this exposure.


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Power Failure

Loss from power failure is excluded if the cause of the interruption happens at another location off the residence premises. This exclusion primarily deals with spoilage losses from the loss of refrigeration resulting from a power failure. An insured who loses electrical power or utility service without any damage at the residence will not be covered for the resulting damage. However, a loss is covered if power is interrupted by an insured peril that occurs on the premises.

Neglect

There is no coverage for losses caused by the neglect of an insured to use all reasonable means to save and preserve property. If the insured fails to use all reasonable means to save and preserve property during and after the time of a loss, coverage will be excluded.

War

Property losses that result from any form of war, including the discharge of nuclear weapons, are excluded. War includes undeclared war and the accidental discharge of a nuclear weapon. Coverage for both is excluded. Confusion sometimes exists about the differences between riot and civil commotion, which are covered perils, and rebellion and insurrection, which are excluded as acts of war. The critical difference is that rebellion and insurrection are defined as acts involved in an attempt to change an existing government or ruling authority.

Nuclear Hazard

Property losses that occur because of a nuclear hazard are excluded. A nuclear hazard is defined in the Section I-Conditions portion of the policy as any nuclear reaction, radiation, or contamination.


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Intentional Loss

Any intentional loss arising out of an act committed by or at the direction of an insured is excluded if the act was taken with the intent to cause a loss. The exclusion requires that the loss is intended, not just the result of carelessness or bad judgment.

Concurrent Causation Exclusions

The following exclusions apply only to Coverage A-Dwelling and Coverage B-Other Structures. These three exclusions are unique because the policy excludes losses from these perils, but any ensuing loss is covered as long as the policy does not exclude that ensuing loss.

Some losses occur as the result of more than one peril. Such an occurrence is called a concurrent causation. Concurrent Causation means that a single loss was caused by two or more perils, occurring either simultaneously or in succession. These exclusions were inserted in property insurance forms following numerous court decisions that ordered insurers to pay for losses never intended to be covered by standard property policies such as the Homeowners forms. The courts said that if an excluded loss, such as an earthquake or mudslide, occurred at the same time as, or concurrently with, a covered peril such as a fire, insurers must pay for the entire loss, not just the part of the loss caused by a peril insured against. These exclusions avoid payment for similar claims in the future. Weather Conditions

Weather is an excluded peril if it contributes to any cause or event that was previously specifically excluded. Rain that causes a mudslide would not be covered because earth movement is an excluded peril. However, if the weight of rainwater on a roof causes the roof to collapse, coverage is provided because collapse caused by the weight of rain on a roof is covered as an additional coverage.

Acts or Decisions Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body that cause property damage are not covered.


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Faulty Workmanship

Damage that results from the following are excluded: faulty planning, zoning, surveying, design specifications, workmanship, construction, renovation, materials, and maintenance.


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PROPERTY CONDITIONS

The part of an insurance form that specifies the general rules for applying coverage is referred to as the conditions. "Conditions" in a legal contract are statements that clarify the intent of the parties, or specify various duties or obligations that must be satisfied when specific situations exist. The Homeowners policy contains many conditions regarding the insurer's and the insured's responsibilities under the policy. The conditions are important for several reasons. An insurance contract will pay for losses according to the terms of its conditions, and only when condi-tions that impose duties or obligations on the insured have been satisfied. If conditions are not satisfied, the contract is not enforceable. Since Homeowners forms have two parts, Section I and Section II, separate conditions apply to each. Some additional conditions apply to both Sections I and II.

SECTION I – PROPERTY CONDITIONS

Section I - Conditions only apply to the property coverages. Later in the form, we will find conditions applicable to Section II, and a separate set of conditions that apply to both Section I and Section II. The Section I--Conditions of the policy describe the conditions applying to Section I that both the policyholder and the insurer must meet.

Insurable Interest And Limit Of Liability

The Section I Conditions limit the maximum payment for any single loss to the applicable limits shown on the Declarations page, regardless of the number of insureds who might have an insurable interest in the property. To reinforce the principle of indemnity, losses are payable up to the insured's interest in the property at the time of loss, or the limit of liability, whichever is less. An insurable interest exists if a person is in a position to suffer a financial loss if a loss occurs

Your Duties After Loss

The second Section I Condition describes the duties of the named insured following property loss. This section explains how losses to contents or buildings will be settled and how property will be valued in the event of a loss, as well as the steps that will be taken in settling a loss. These duties are required of the insured in order that:

The property be protected from further loss

The extent of the loss can be determined accurately and fairly

Settlement of the claim can be made promptly


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The Conditions section gives the insurer the right to deny a claim if the conditions listed are not met. In an actual claim settlement, an adjuster might not require that all of the listed items be completed, but this clause allows an adjuster to require these activities if the adjuster feels they are helpful in the loss settlement process. The listed duties follow: Give prompt notice: After a loss has occurred, the insured must promptly notify the insurance company or its agent. No specific time frame is given. It is implied that it will be done as soon as possible after a loss under normal conditions. Notify the police: If a loss is by theft, the insured must also report the loss to the police. Notify the credit card or fund transfer card company: If the loss involves a credit card or fund transfer card, the insured must also notify the company that issued the card. Protect the property from further damage: The insured must protect damaged property from further loss. If necessary, the insured must make reasonable repairs to protect the property. If repairs are required to protect the property from further damage, the insured must keep an accurate record of repair expenses. These expenses are considered part of the loss. One of the additional coverages (reasonable repairs) applies to these expenses. Prepare an inventory: The insured must also present an inventory of damaged personal property showing the actual cash value of items lost. That inventory should include (for each item) the quantity, description, value, and amount of the loss, any supporting documents such as bills, receipts, and accounts that justify the amounts shown in the inventory should be attached. Verify the loss: An insured is expected to cooperate with the insurer in the settlement of a loss. As often as the insurer requires, the insured must show the adjuster the damaged property, allow the insurer to make copies of records and documents, and submit to an examination under oath. The insured must be willing to be examined under oath, while not in the presence of other claimants, as often as the insurance company requires. The purpose of this condition is to provide a means by which the insurer may be able to detect any possible collusion and claims fraud. Sign a sworn proof of loss: Within sixty days of the insurer's request, the insured must file a signed, sworn proof of loss. The proof of loss is a form provided by the insurer that establishes the date, time and cause of the loss, the extent of the insured's insurable interest in the property and any lienholders or mortgagees interest, other insurance that might cover the loss, specifications and repair estimates for damaged buildings, the


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inventory of the damaged personal property, information supporting additional living expenses and fair rental value, and information regarding a credit card or fund transfer card loss.

Loss Settlement

The Loss Settlement condition specifies how losses will be paid under the policy and establishes the value that will be paid for property after a loss. There are two settlement methods: one method is established for Coverage C personal property items and other miscellaneous items, and the other method is established for Coverage A or B buildings. In order to understand the loss settlement provisions, you need to understand the differences between these two forms of valuation: actual cash value and replacement cost. The Homeowners form also provides for a deductible that applies to coverage under Section I. Typical deductibles are $100, $250 or $500; other deductible amounts may also be available. The deductible shown on the declarations page is subtracted from each loss under Section I with the exception of the some additional coverages. Actual Cash Value Coverage C and Miscellaneous Items The Loss Settlement Condition lists several items of property for which losses are to be settled on the basis of Actual Cash Value (ACV) or the cost to repair or replace, whichever is less. Those items are: personal property listed under Coverage C, awnings, carpeting, household appliances, outdoor antennas, and outdoor equipment and structures that are not buildings. In insurance Actual Cash Value usually means the cost to replace the item, in today’s market, minus depreciation. Many types of property begin to depreciate in value as soon as it is put to use. Some property depreciates quickly, other types, more slowly. To simply replace damaged or destroyed property at its current cost would actually leave the insured in a better financial position than before the loss occurred, which is not what insurance is intended to do. It would also present the risk of moral hazard in that the insured might want to destroy used property in order to obtain new property in its place. Since the insured has lost only the remaining usefulness of the property, and not the entire value, deducting depreciation from the settlement is the proper way to indemnify the insured. It is possible to insure personal property under Coverage C of a Homeowners Policy for its full replacement cost, by using an endorsement that will be discussed later in this course. Without this replacement cost endorsement, however, personal property losses are always paid on an actual cash value basis. Broad Evidence Rule The definition of actual cash value, which has long been the insurance industry standard, has been broadened to the benefit of the insured. Recent interpretations in both case law and some state laws have resulted in what is known as the broad evidence rule. Under the broad evidence rule, in determining the ACV the insurer must consider everything relevant to the specific situation, including the property's fair market value, rather than just replacement cost and depreciation. Using this method to determine ACV results in a settlement that is more likely to leave the insured indemnified, that is, in the same economic position after the loss as before the loss, no better -


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no worse. The concept that new property should not be given for old property exists to minimize moral hazard to eliminate the incentive to destroy owned property to obtain cash or new property. Replacement Cost For some types of property, such as buildings, an insurer might be willing to pay replacement cost rather than actual cash value. Replacement cost is defined as: The full cost of repair or replacement with like kind and quality and with no deduction for depreciation. Replacement Cost represents a departure from the principle of indemnity, paying more than the actual amount of loss. Payment without deduction for depreciation would give the insured something better, but the new portion of the building, after all, would do only what the old one did. The insurer's position is not likely to be compromised because the insured would not likely put in a claim just to end up in essentially the same position as before. Coverages A and B Losses to the dwelling and other buildings protected by Coverage A or Coverage B will be paid at replacement cost, without deduction for depreciation. However, replacement cost coverage is only available if the insured carries an amount of insurance equal to at least 80% of the dwelling's replacement cost. If the insured's Coverage A limit is less than 80 percent of current replacement value of the building at the time of loss, the insured receives a proportionally reduced benefit, but never less than the actual cash value of the property.

Policy Limit x Replacement Cost of Loss = Claim Payment RC X 80%

Whether the loss is a total loss or a partial loss, if the insureds do not carry enough insurance on the dwelling to meet the 80% requirement, they will not be able to collect in full for their loss - a sort of penalty. (Since most insurance losses are only partial, many people would choose lower limits, and still recover in full for partial losses, if it were not for this provision in the policy.) This provision in the loss settlement condition should provide a strong incentive for insureds to carry at least 80 percent of the full replacement cost for Coverage A, not just because of a possible total loss, but in order to receive full replacement cost of repairs for partial losses. The Replacement Cost condition is designed to encourage insureds to insure their homes to value. Regardless of the amount of insurance carried, however, the amount paid will never be less than the actual cash value of the loss. And no matter which method is used to determine the loss settlement amount, the limit of coverage shown on the declarations page is still the maximum amount that will be paid for any loss. The deductible, of course, is applied before the insured is reimbursed. Because the 80-percent-or-more test applies at the time of loss, in inflationary times, the amount properly established at the policy's inception may become inadequate during the policy’s term. The Inflation Guard endorsement (HO 04 46) is used to overcome this problem caused by rapid inflation of property values. This endorsement provides an automatic increase in the amount of each Section I coverage. The insured selects an agreed percentage of increase that is applied to the original amount of insurance


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determined on an annual basis, it is prorated for each day the policy is in force. The amount of the annual increase may be 4, 6, or 8 percent; additional 4 percent increments are also available. Normally, the actual repair or replacement must be completed before the insurer will settle at replacement value; otherwise, settlement is at actual cash value. However, on small claims, the insurer will pay as soon as the loss is established. If the damage is more than $2,500, or 5 percent of the amount of insurance on the building, the insured must actually replace the damaged property in order to receive the benefits of replacement cost. The insured can settle on an actual cash value basis and retain the right, within 180 days after loss, to collect the difference between the actual cash value and the replacement cost.

Loss To A Pair Or Set

Personal possessions sometimes come in pairs or sets. The "Pair or set" clause explains how loss settlement will be handled when there has been loss to apart of a pair or set of items. Often, items that are in pairs or sets are more valuable as parts of the whole than the each of the items are individually. This provision allows the insurer to settle losses involving pairs or sets by repairing or replacing any part to restore the set to its previous value, or by paying the difference between the value of the set before and after the loss.

Glass Replacement

Normally, the Homeowners policy will not pay additional amounts resulting from enforcement of an ordinance or law. An exception applies to glass replacement. Some communities require any glass replacement to be made with safety glazing materials. When the law requires replacement with this material, the policy will pay the additional cost, if glass was damaged as a result of a covered peril.

Appraisal

Before losses can be paid, someone must determine the value of the property and the amount of loss to it. The insured and the insurer do not always agree on those amounts, so the Homeowners forms provide a way to settle the dispute. If the insured and insurer disagree on the amount of loss, either may demand an appraisal. In this process, each party chooses an appraiser, and the two appraisers select an umpire (or the courts may select the umpire if the appraisers cannot). Both parties have just 20 days after the written demand to select appraisers. Each appraiser then sets the amount of loss. If both appraisers agree, the agreed upon amount becomes the amount of the loss. If they disagree, the differences are submitted to the umpire, and the decision of any two of the three becomes binding. The insured and insurer each pay the costs for their own appraiser, and they share the expense of the umpire and all other appraisal costs.

Other Insurance

The Other Insurance Condition describes how the policy will pay for a loss that is also covered by another policy. If two or more policies cover the same loss, this condition explains that the loss will be shared proportionally by all policies. This way the insured is restores to their pre-loss condition without being unjustly enriched and creating a moral hazard.


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For example, if one policy provided a $100,000 limit and the other policy’s limit was $200,000, the first policy would pay 1/3 of any claim since it represented 1/3 of the total coverage in force. The second policy would pay the remaining 2/3 of the claim. The principle of indemnity upon which insurance is based is concerned with returning the insured to the same financial position as before the loss. If the insured could collect the full amount of a loss from each of more than one policy, a financial gain would result.

Suit Against The Insurer

An insured cannot bring legal action against the insurance company unless all policy provisions have been complied with. In addition the suit must begin within one year of the date of loss.

Option To Repair Or Replace Property

Under the "Our Option" condition, the insurer reserves the right to repair or replace damaged property with similar property rather than pay the insured in cash. The insurer may give notice within thirty days of receipt of the sworn proof of loss of its intention to repair or replace any part of the damaged property with like kind and quality. The insured cannot require the insurer to repair or replace damaged property. When insurers use this approach, the insured still gets the property replaced, and the insurer saves money. Because this right is the insurer's option, it is important that the insured not begin repairs or replace any property without the permission of the insurer.

Loss Payment

The insurer will adjust all losses with the policyholder or spouse (unless another person is named in the policy or is legally entitled to receive payment). Losses are payable within sixty days after the insurer receives a proof of loss and either the insurer and the policyholder have reached an agreement or a court judgment or appraisal award has been entered. (Some states require a different time period.) A proof of loss is a document that describes the details of a loss, property values, and interests in the property.

Abandonment

The term "abandonment" means to transfer title of the damaged property to the insurance company, and then claim a total loss. The insurance company has the right to declare the property a total loss, pay the insured the value and keep whatever salvage value might be gained from the damaged property, but only the insurance company may decide whether or not to take charge of damaged property after a loss. An insured might wish to simply walk away from damaged property, preferring the insurer to provide a new item or items rather than repairing the old. Under this condition, the insurer reserves the right to refuse such abandonment of damaged property.

Mortgage Clause

The Mortgage Clause is a description of the Mortgagee's rights and obligations under the policy. Important protection applies to a named Mortgagee. Because most homes are purchased with a loan made by a mortgage company, the lender has an insurable interest in the property. This condition establishes the following rights of the Mortgagee listed on the declarations page:


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If a loss occurs to property covered by Coverages A or B, the loss will be payable jointly to the Mortgagee and the policyholder, to ensure that the policyholder uses the money to repair the property.

A Mortgagee has rights that are independent of the policyholder's rights. If the insurer denies the policyholder's loss, the Mortgagee may still be able to collect from the insurer up to the amount of its insurable interest in the property.

If the insurer cancels or nonrenews the policy, the insurer must mail notice to the Mortgagee (in addition to notice sent to the insured) at least ten days before the cancellation or nonrenewal.

No Benefit To Bailee

A bailee is a person or organization possessing someone else's property for a fee. The owner of the property has temporarily entrusted it to the bailee. A bailee who holds the property of an insured is responsible for the care of that property. This condition prohibits coverage for a bailee whether the insured is the person who has left property with a bailee or whether the insured is the bailee. Bailees, such as dry cleaners, storage facilities, appliance repair shops, movers and others must purchase insurance to protect their own interests.

Nuclear Hazard

This condition defines a nuclear hazard. An excluded nuclear hazard encompasses any resulting radiation, contamination, explosion, or smoke. All losses from the so-called nuclear hazard are excluded, except direct losses by fire resulting from a nuclear incident.

Recovered Property

After an insurer reimburses the insured for a loss, it is possible that the property might be recovered. If the insurer pays a claim for the loss of property, and the insurer or the policyholder later recovers the property, the policyholder has the option of keeping the property and returning the claim payment or of keeping the claim payment and allowing the insurer to keep the property. The insured may want to keep the property if it is of historic or sentimental value.

Volcanic Eruption Period

Volcanic eruptions sometimes occur repeatedly over a period of days or even weeks. Damage from two separate eruptions would be considered two separate losses under a Homeowners Policy and the limit of liability would apply separately to each. However a separate deductible would also apply to each. Therefore it is important to determine whether the loss is caused by a new eruption or an aftershock of a previous eruption. Under this condition all volcanic eruptions that occur within a seventy-two hour period are considered to be one volcanic eruption. If multiple eruptions occur within that period, only one coverage limit and one deductible would apply. This definition benefits the insured, because the deductible will be applied only once during the period.


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HOMEOWNERS SECTION II: LIABILITY COVERAGES

Section II is the part of a Homeowners Policy that deals with Personal Liability and Medical Payments to Others. The Section II Liability Coverages, as well as all other parts of the form pertaining to Section II, are identical on all Homeowners forms. Section II-Liability includes two principal coverages: Coverage E- Personal Liability Coverage F- Medical Payments to others

Section II Minimum Limits

Under Section II the company will "pay up to the limit of liability" which is found on the Declarations page of the policy. The minimum limit that may be written under a Homeowners Policy for Personal Liability Coverage E is $100,000 per occurrence. Under all policy forms, this basic limit may be increased, usually at very little additional premium, to $300,000, $500,000 or even $1,000,000. The basic limit for medical payments Coverage F is $1,000 per person. Higher limits of liability may be purchased not usually more than $5,000 or $10,000 per person. Someone who was very seriously injured would most likely file a liability claim which would be covered under Coverage E, where much higher limits would be available as well as payment for defense costs.

COVERAGE E—PERSONAL LIABILITY

Coverage E-Personal Liability provides coverage for damages for which an insured is legally liable because of bodily injury or property damage in a covered occurrence up to the policy limit. The term "damages" includes any prejudgment interest awarded against an insured. In addition to the limit of liability for Coverage E, the insurer pays defense costs if an insured is involved in a lawsuit for a loss that is covered under the policy.

In general, Coverage E applies to liability for bodily injury or property damage arising out of insureds personal, nonbusiness activities that occur anywhere. Coverage E also applies to liability for bodily injury


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or property damage arising from insured locations. These include:

The premises described in the Declarations

Residences newly acquired during the policy period

Locations where an insured is temporarily residing or renting for nonbusiness use

Vacant land owned or rented by the insured

The insured's land on which a residence is being built

Cemetery plots or burial vaults If there is a claim for bodily injury or property damage against anyone who is an "insured" and if no exclusion applies, the insurer will pay damages for which the insured is legally liable, up to the policy limit and provide a legal defense for the insured, the cost of which is paid in addition to the limit of liability in the policy. Coverage E may be extended beyond bodily injury to include liability for personal injury (false arrest, detention, imprisonment, malicious prosecution, libel, slander, defamation, invasion of privacy, wrongful eviction, or wrongful entry) with endorsement HO 24 82, Personal Injury. The basic requirements for Coverage E to apply:

A claim or suit is brought against a person insured for damages because of bodily injury or property damage and

These events resulted from an occurrence covered by the policy, and no exclusions apply to deny coverage.

Personal liability insurance applies separately to each insured, but total liability coverage resulting from any one occurrence may not exceed the Coverage E limit stated in the policy. The limits of liability for Coverage E stated in the Declarations are the most that will be paid, regardless of the amount for which the insured is found liable. Prejudgment Interest "Damages" include any prejudgment interest awarded against an insured (this means such interest falls within the limit of liability, and is not paid in addition to the policy limit). Prejudgment interest is an amount a claimant requests in addition to the damage judgment itself, which is usually a percentage of the final judgment amount. The premise behind prejudgment interest is that the claimant could have had earlier use of the money if the claim had been settled earlier. Therefore, the claimant should be awarded interest for the period during which the money was not available. Prejudgment interest is awarded at the discretion of the court. The limit provided for all bodily injury or property damage arising out of any one occurrence includes any prejudgment interest awarded on any amount of a judgment the insurer is obligated to pay


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Liability might be obvious from the circumstances surrounding a loss and the claim will be processed and paid routinely and quickly. On the other hand, some circumstances are not so clear and investigation and further negotiation will be necessary in order to dispose of the claim.

Defense Costs Coverage

In addition to paying the damages, the company will also provide a defense at its own expense, if an insured is presented with a lawsuit that involves a claim that is covered under the policy. This defense cost coverage is provided even if the suit is groundless, false, or fraudulent. The defense of a suit can cost thousands of dollars. The insurance company must provide this defense for any occurrence to which the coverage would apply in addition to the limit of liability. The insurer retains the right to investigate and settle any claim and conduct the defense in a way the insurer decides is most appropriate. The insured might not agree with the insurer’s decision, but the policy makes it clear that the insurer has the right to determine what is appropriate in settling a liability claim or suit. Once it has paid the total limit of Coverage E-Personal Liability, the insurer is not required to continue defending the insured against any further damages as a result of the same occurrence. If unsettled or additional claims exist from an occurrence after the policy limit has been exhausted, the insurer has no obligation to defend the insured.

COVERAGE F—MEDICAL PAYMENTS TO OTHERS

Coverage F-Medical Payments to Others provides a limited amount of coverage for necessary medical expenses incurred by others for injuries sustained by a third party (not an insured) as a result of the insured's activities, whether or not the insured is legally liable, within three years of an injury.

Medical Expenses Include:

Coverage F, Medical Payments to Others, lists the kinds of medical expenses it will pay for: Medical treatment and services X-ray services Surgical treatment Dental services Ambulance services Hospital services Professional nursing Prosthetic device Funeral services


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Coverage F applies when the expenses are necessary as determined by the particular injury and for charges that are reasonable. Although "reasonable" is not defined, this term generally refers to similar or customary charges for the same service in a given locale since costs may differ widely in different parts of the country.

Minimum Limit

The limit for Coverage F is shown on the declarations page. A minimum limit of $1,000 per occurrence is automatically included in all homeowner’s policies. This limit can be increased for an additional premium. A limit higher than the minimum is especially recommended if the insured has residence employees, a swimming pool, watercraft, business in the home or any exposure which could increase their liability. All insureds should be offered higher limits and encouraged to purchase them since the additional premium is relatively low.

Insured Locations

An "insured location" is a defined term in the HO 3 policy definitions section. There are eight locations included in this definition:

The residence premises;

The part of other premises, other structures and grounds used by you as a residence and:

Shown in the Declarations, or

Acquired by the insured during the policy period for use as a residence.

Any premises used by the insured in connection with a premises above;

Any part of a premises:

Not owned by an insured;

Where an insured is temporarily residing.

Vacant land, other than farm land, owned by or rented to an insured;

Land owned by or rented to an insured on which a one- or two-family dwelling is being built as a residence for an insured;

Individual or family cemetery plots or burial vaults of an insured

Any part of a premises occasionally rented to an insured for other than business use.

Persons Covered and Not Covered

Without regard to legal liability for bodily injury, Coverage F pays for medical expenses to persons other than an insured and members of the household who are not residence employees and who are injured at the insured location or as a result of activities of insureds at other locations.

To a person on the " insured location" with the permission of an "insured"; or


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Permission to be on the property might be implied permission. For example, a neighbor might walk into the insured's yard without a specific invitation but with implied permission because the neighbors frequently visit each other.

To a person off the "insured location," if the "bodily injury":

Arises out of a condition on the "insured location" or the ways immediately adjoining;

Is caused by the activities of an "insured";

Is caused by a "residence employee" in the course of the residence employee's employment by an insured; or

Is caused by an animal owned by or in the care of an "insured. This coverage does not apply to expenses related to injuries of the named insured or any regular resident of the insured's household, except residence employees. Residence Employees Residence employees are insured for Coverage F-Medical Payments to Others, and the term "residence employees" has a specific meaning that is shown in the definitions section of the homeowner’s policy. Because this term appears frequently in Section II of the homeowner’s policy, it is important to review the following definition quoted from the policy: "Residence employee" means:

An employee of an "insured" whose duties are related to the maintenance or use of the "residence premises," including household or domestic services; or

One who performs similar duties elsewhere not related to the "business" of an "insured." This definition clarifies that a residence employee is a person whose duties relate to the insured's residence. There is no requirement that the employee reside at the premises. A part-time gardener, baby-sitter, plumber, or maid might be considered a residence employee. The employer must purchase Workers Compensation insurance to cover this exposure. The definition further specifies that an employee who is involved in the insured's business is not a residence employee as defined by this policy. For example, an insured owns a publishing business and employs a secretary in the business. Even if the secretary frequently works in the insured's residence, the secretary is not a residence employee.

Medical Payments To Others Coverage Is “No-Fault” Coverage

Medical payments to others coverage differs from personal liability coverage because there is no requirement that the insured be legally liable for medical payments to others coverage to apply. Medical payments coverage is designed to help prevent suits by providing "no fault" coverage for minor claims. Medical payments claims are paid without implying or admitting liability on the part of the insured. Medical Payments coverage helps to prevent larger claims under the liability coverage.


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There are some advantages to providing Medical Payments coverage under a Homeowners Policy in addition to Liability Coverage. It can be very costly for the insurance company to defend the insured against a liability claim for certain injuries or damages. Making payment under Medical Payments Coverage sometimes saves the insurance company the greater expense involved in having to defend a liability suit. The injured person can be paid for medical expenses sooner, without having to wait for the results of a suit, since it is not necessary for the insured to be found legally liable in order for Coverage F to pay for injuries to others The personal auto policy and the homeowner’s policy differ greatly in regard to medical payments coverage. The personal auto medical payments coverage protects the insured, family members, and other passengers of the insured automobile. This is a first-party coverage. The homeowners medical payments to others coverage is a third-party coverage that applies to others, but no protection is afforded to the insured and residents of the insured's household.

Time Limitation

Medical payments to others covers necessary medical expenses incurred within three years of an accident causing bodily injury. An accident is covered only if it occurs during the policy period. The liability coverage has no such time limitation.

SECTION II ADDITIONAL COVERAGES

Section II also includes additional coverages which are paid in addition to the limits for Coverages E and F, consist of claim expenses, first-aid expenses, damage to property of others, and loss assessment. Four additional coverages supplement the protection provided by Coverages E and F. These four additional coverages include miscellaneous additional items and limited coverage for previously excluded personal liability exposures. All Section II-Additional Coverages are in addition to the limits for Coverage E and Coverage F.

Claim Expenses

The first additional coverage, Claim Expenses, provides coverage for expenses associated with defending a claim or suit against the insured. These amounts are reimbursed over and above the insured's limit of liability. So, the insurance company will pay the judgment plus additional eligible claim expenses. Expenses We Incur The insurer will assume expenses incurred by the insurer and taxed against an insured in a suit defended by the insurer. Costs that might be assumed by the insurer include the expenses of defense counsel, filing fees, additional experts, witnesses, or other individuals necessary for testimony. Premiums on Bonds The insurer will pay the premiums on bonds required in the defense of a suit, for bonds up to the amount of the Coverage E limit. If a higher bond amount is needed, the insured must pay the premium for any amount above the policy limit.


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The insurer is not required to apply for or furnish any bond; the insurer is only required to pay the premium for the bond obtained by the insured up to the policy limit.


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Reasonable Expenses The insurer will pay for reasonable expenses incurred by an insured, including actual loss of earnings up to $50 per day, at the insurer's request for assisting the insurer in the investigation or defense of a claim or suit. Reasonable expenses include parking expenses, meals, and mileage. Postjudgment Interest After a judgment is made against an insured, interest can accrue on the amount to be paid to a plaintiff until the insurer pays the judgment (up to the limit of Coverage E). This postjudgment interest can be substantial if the insurer appeals the judgment to a higher court but is unsuccessful in the appeal. Even though the insurer only has to pay damages up to the policy limit, it must pay interest on the entire judgment. The insurer will pay the interest on the entire judgment, not just the interest on that portion of the judgment that does not exceed the Coverage E limit. Interest that might accrue on damages before a judgment is called prejudgment interest. Any prejudgment interest awarded against the insured is included within the Coverage E limit rather than being provided as an additional amount.

First-Aid Expenses

The insurer will reimburse expenses incurred by an insured for first aid rendered to others due to any bodily injury covered under the policy. Expenses for first aid to any insured are not covered.

Damage to Property of Others

Under this provision, sometimes called voluntary property damage, a relatively small additional amount of insurance may apply when an insured is responsible for damage to property of others not covered under the Section I property coverages. The insurer will pay up to $500 per occurrence for damage to the property of others caused by an insured. Coverage is provided on a replacement cost basis for the lost or damaged property. This coverage pays for minor property damage without the need to prove the insured's negligence. This coverage allows the insured to maintain goodwill by paying for relatively minor losses to another person's property. The $500 per occurrence limit may not be increased under standard rules. This additional coverage is independent of Coverage E and is not subject to the Coverage exclusions. The insurer will not pay in any of the following circumstances under this additional coverage:

To the extent of any amount recoverable under Section I of this policy

If the loss is caused intentionally by any insured who is at least 13 years of age or older

To property owned by an "insured"

If the property is owned by or rented to a tenant of an insured or a resident of the named insured's household


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If the damage arises out of a business engaged in by an insured

Arising out of any act or omission in connection with a premises owned, rented, or controlled by an insured, other than the insured location

Arising out of the ownership, maintenance, or use of aircraft, watercraft, or motorized land vehicles other than non-owned, non-registered, recreational vehicles designed for use off public roads

Loss Assessment Coverages

Up to $1,000 is provided on an occurrence basis for the named insured's share of any loss assessment charged by a corporation or association of property owners. Covered assessments result from liability for acts of directors, officers, or trustees who are elected by members of the corporation or association and serve without pay. The insured is covered only when the liability stems from bodily injury or property damage to which Section II of the policy would apply, and when the assessment is charged to the insured as owner or tenant of the residence premises. Loss assessments made by governmental bodies are excluded under this additional coverage.

SECTION II EXCLUSIONS

Because the Section II coverages are defined in broad coverage terms, the policy lists a number of exclusions that eliminate coverage for specified types of occurrences. Section II exclusions, which are important for the student to learn, are divided into the following categories:

Exclusions that apply to both Coverages E and F

Exclusions that apply only to Coverage E

Exclusions that apply only to Coverage F

COVERAGE E AND F EXCLUSIONS - APPLYING TO LIABILITY AND MEDICAL PAYMENTS

Coverages E and F provide very broad coverage to protect the insured from the financial consequences of causing injury to others or damage to their property. However, some injuries and damage are beyond the scope of the homeowner’s policy, or are more effectively covered elsewhere and these types of exposures are excluded from coverage. The following section describes the bodily injury and property damage exposures that are excluded for both Coverages E and F.

Expected or Intended Injury or Damage

There is no coverage for injury or damage expected or intended by the insured. Insurance is designed to cover accidents or events that may or may not occur. These must be an element of uncertainty. Intentional acts are excluded because they are not accidental and the outcome is certain. Some coverage may exist when an action is intended, but the resulting injury or damage is not expected.

Business Activity

Bodily injury and property damage arising out of business pursuits or the rendering of or failure to render professional services, is excluded with some exceptions. Some nonbusiness losses are covered


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by the homeowner’s policy even if the loss takes place while the insured is involved in a business activity. These exposures must be covered under commercial liability contracts. Many insureds are now operating businesses out of their home. Although Section I provided some limited coverage for business property, this exclusion eliminates all liability coverage under Section II. A producer who recognizes these exposures and designs the insured's coverage to the exposures provide a very valuable service. Not recognizing these exposures and offering the available coverage endorsements leaves a producer open to an E & 0 claim should an insured suffer a loss arising out of a home-based business. Mandatory endorsement HO 04 96, No Coverage for Home Day Care Business, clarifies that such an activity, if conducted for compensation, is considered to be a business and is therefore excluded.

Insured's Premises Rented To Others

BI or PD arising out of the Rental or holding for rental of any part of any premises by an insured that is not an "insured location" is excluded. Three exceptions to this exclusion are allowed for some common rental situations: 1. Rental of an insured location on an occasional basis is a covered exposure if the location is used

only as a residence. 2. Rental of part of an insured location as a residence is a covered exposure, as long as the

occupying family takes no more than two roomers or boarders in a single-family unit. 3. Rental of part of an insured location is a covered exposure if it is used only as an office, school,

studio, or private garage. For each of the above situations, Section II coverage applies to the insured but not to the tenant of the insured.

Professional Services

Injury or damage resulting from the insured's rendering or failure to render professional services is not covered. This exposure is excluded from the homeowner’s policy because it should be addressed by a professional liability policy.

Locations That Are Not Insured Locations

A loss that arises out of premises that are not an insured location is not covered. The form excludes injury (except to a residence employee) or damage arising out of any premises owned by any insured, rented to any insured, or rented to others by an insured that is not considered an insured location. When the insured acquires an additional residence during the policy term, however, coverage is automatically afforded until expiration.

Motor Vehicles

Section II of the homeowners policy excludes coverage for most of an individual's or a family's vehicle-related exposures with some exceptions. Motor vehicle exposures are more effectively addressed by a personal auto policy (PAP). The following motor vehicle exposures are excluded from Section II coverage:


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The ownership, maintenance, use, loading, or unloading of a motor vehicle or a motorized land conveyance, including trailers, owned or operated by or rented or loaned to an insured.

An insured's entrustment of a motor vehicle or a motorized land conveyance to any person.

An insured's vicarious liability for the actions of a child or minor while using an excluded motor vehicle or motorized land conveyance. Vicarious liability is indirect legal responsibility that occurs when one party is held liable for the actions of another party. Parents might be found vicariously liable for the actions of their children.

Excluded vehicles include most motor vehicles, motorized land conveyances, and trailers towed by or carried on motorized vehicles, which are owned or operated by, or rented or loaned to, an insured, except:

Vehicles in dead storage on an insured location

A trailer not being towed or carried

Vehicles used to service an insured's residence

Vehicles designed to assist the handicapped

Motorized golf carts while used to play golf on a golf course

Recreational vehicles designed for use off public roads, which are either owned by an insured and on an insured location or are not owned by an insured.

Endorsement HO 24 13, Incidental Motorized Land Conveyances, provides some broadened coverage. Refer to the endorsement section of this text for more information.

Watercraft

The watercraft exclusion is similar to the motor vehicle exclusions previously addressed. The following watercraft exposures are excluded from Section II coverage:

The ownership, maintenance, use, loading, or unloading of an excluded watercraft

An insured's entrustment of an excluded watercraft to any person (such as loaning a boat to a friend)

An insured's vicarious liability for the actions of a child or minor using an excluded watercraft The policy does cover some exposures arising out of various vessels or motors depending on their ownership, power and length. The following are covered:

Sailing vessels, with or without auxiliary power less than 26 feet in overall length

Sailing vessels, with or without auxiliary power 26 feet or more in overall length, not owned by or rented to an insured


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Any watercraft that is in storage.

Watercraft with inboard or inboard-outdrive motors of more than 50 HP not owned by an insured (they may be rented or borrowed);

Watercraft with inboard or inboard-outdrive motors of 50 HP or less not owned or rented by an insured;

One or more outboard engines or motors with 25 total horsepower or less (these may be owned);

One or more outboard engines or motors with more than 25 total horsepower if the outboard engine or motor is not owned by an insured

Outboard engines or motors of more than 25 total horsepower owned by an insured if acquired before the policy period and declared at policy inception or the intention to insure is reported in writing within 45 days after acquisition

The watercraft exclusion is designed to limit the coverage that is provided automatically by a Homeowners Policy. Because coverage for watercraft is limited under the homeowner’s policy, any exposures should be reviewed carefully with the insured, and a determination should be made as to the coverage available. Coverage for vessels or motors that are excluded because of length, motor type or power, may be added by endorsement for an additional premium. HO 24 74, the Watercraft Endorsement may be used to provide Section II Liability Coverage for scheduled motors and vessels (not property coverage for such items). Under Section I (Property Coverages) there is a Special Limit of Liability of $1,000 for damage to watercraft, including their trailers, furnishings, equipment and outboard motors. There is no standard homeowner’s endorsement to increase the property coverage on the homeowner’s policy. Considering the cost of watercraft today, it might be a better idea to cover watercraft under a separate Watercraft Policy. Separate marine policies or watercraft policies are widely available for exposures not covered under the HO.

Aircraft

Section II coverage is excluded for the ownership, maintenance, use, loading, unloading, or negligent entrustment of all forms of aircraft. Excluded aircraft means any device used or designed for flight, other than model or hobby aircraft that are not designed to carry people or cargo. Note: The prior four exclusions (locations that are not insured, motor vehicles, watercraft, and aircraft) do not apply to bodily injury sustained by a "residence employee" if the injury is sustained in the course of employment by an insured. Therefore, the insured has Coverages E and F available to cover a residence employee's injuries.

War And Warlike Actions

Section II of the homeowners policy excludes any loss for bodily injury or property damage that results from war whether directly or indirectly related, including the following:

Undeclared war


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Civil war

Insurrection

Rebellion

Revolution

Warlike acts by a military force or military personnel

Destruction, seizure, or use for a military purpose

Discharge of a nuclear weapon

Communicable Disease

Bodily injury or property damage arising out of the transmission of a communicable disease by an insured is excluded under Section II of the homeowner’s policy.

Sexual Molestation and Physical or Mental Abuse

Bodily injury or property damage arising out of sexual molestation, corporal punishment, or physical and mental abuse is excluded under Section II.

Controlled Substances

There is no coverage for bodily injury or property damage arising out of the use, sale, manufacture, delivery, transfer, or possession of controlled substances (cocaine, marijuana, hallucinogens and other narcotic drugs). This applies to illegal drugs and not to the legitimate use of prescription drugs prescribed under the orders of a doctor.

EXCLUSIONS THAT APPLY ONLY TO COVERAGE E - PERSONAL LIABILITY

The second set of exclusions found in Section II that apply only to Coverage E Personal Liability are listed below.

Loss Assessment

Liability for the named insured's share of any loss assessment charged against all members of an asso-ciation, corporation, or community of property owners are excluded. All Homeowners Policies provides $1,000 of Additional Coverage under Section II for assessments made as a result of liability claims, additional amounts may also be added by endorsement. The purpose of this exclusion is to make clear that these additional coverages are the sole source of Homeowners coverage for Loss Assessments. Even though such assessments represent amounts that the insured is "liable" for, they are not covered as ordinary liability losses.


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Liability Assumed Under Contract

Coverage does not apply to liability assumed under a contract or an agreement other than that under written contracts related to the ownership, maintenance, or use of an insured location, or written contracts where liability is assumed prior to an occurrence unless excluded elsewhere in this policy.

Damage to the Insured's Property & Property in the Insured's Care

Damage to property rented to, occupied or used by, or in the care of, an insured is excluded. This exclusion does not apply to property damage caused by fire, smoke or explosion. This exclusion makes sense because Coverage E is intended to be a third-party coverage that protects the insured against liability for damage that might be done to others' property.

Bodily Injury to Persons Eligible for Other Benefits

Bodily injury to any person eligible to receive any benefits voluntarily provided, or required to be provided, by an insured under any workers compensation law, occupational disease law, or nonoccupational disability law Residence employees can recover under Coverage E and Coverage F only if bodily injury arises in the course of employment by an insured. If the insured lives in a state where the insured is not required to provide workers compensation for a domestic worker, the insured will have coverage for his or her liability for the housekeeper's bodily injury under Coverage E (unless the insured has voluntarily purchased a workers compensation policy). If the insured lives in a state where workers compensation is required for a domestic worker, the insured will not have coverage for his or her liability for the housekeeper's bodily injury under Coverage E, regardless of whether the insured actually purchased a workers' compensation policy. In California, for instance, all HO policies automatically include Workers Compensation coverage for domestic employees.

Nuclear Liability

There is no coverage for bodily injury or property damage for which the insured is covered under a Nuclear Energy Liability policy or would be an insured under that policy but for the exhaustion of its limit of liability. A nuclear energy liability policy is one issued by:

American Nuclear Insurers

Mutual Atomic Energy Liability Underwriters

Nuclear Insurance Association of Canada or any of their successors It is highly unlikely that an insured would be held responsible for damages related to a nuclear energy loss, but this is a standard exclusion that is inserted into many types of insurance policies, both personal and commercial. The intent of this exclusion is to restrict the coverage to specialty nuclear energy liability policies.


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Bodily Injury To An Insured

The named insured, resident relatives, and other residents under the age of twenty-one in the insured's care cannot collect damages under Coverage E for their own bodily injury. This is to prevent lawsuits between people covered by the same policy.

EXCLUSIONS THAT APPLY ONLY TO COVERAGE F - MEDICAL PAYMENTS TO OTHERS

The exclusions that follow apply only to Coverage F - Medical Payments to Others.

Residence Employee Off Premises

Bodily injury to a residence employee that occurs off the insured location and does not arise out of or in the course of work the employee performs for the insured. Coverage F would apply in the following types of situations:

The employee is working, but away from the insured location.

The employee is on the insured location (whether working or not)

Bodily Injury Covered By Compensation Law

Bodily injury to any person eligible to receive benefits voluntarily provided, or required to be provided, under any workers compensation law, occupational disease law, or non-occupational disability law is excluded under Coverage F. In states where workers compensation is not required if the insured wants coverage for the employee's injuries without the need to be sued, then workers compensation coverage should be recommended. Medical payments would apply, but the maximum limits available make Coverage F adequate for only minor claims.

Nuclear Reaction

Coverage F excludes bodily injury from any nuclear reaction, nuclear radiation, or radioactive contamination including any consequential injuries, regardless of the cause of any of these.

Injury To Residents

Bodily injury to any person, such as a roommate or tenant, who regularly resides on any part the insured location (other than a residence employee) is excluded under Coverage F.


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CONDITIONS

SECTION II CONDITIONS

Due to the differences between property and liability coverages, certain conditions apply only to the liability section of homeowners policies. Section II--Conditions establish the duties and responsibilities of the insurer and the policyholder under the liability section. This part of the policy also describes how Section II claims will be settled. The following conditions are applicable only to Section II.

Limits Of Liability

The first condition clarifies the extent of the Coverage E and Coverage F limits of liability. The Coverage E Personal Liability limit appearing on the declaration page applies per occurrence. It is the total limit of coverage applicable any one occurrence. This limit will not increase regardless of the number of insureds, claims made, or people injured. This Section II condition also states that all bodily injury and property damage that result from continuous or repeated exposure to the same harmful conditions are considered to be one occurrence; therefore, the Coverage E limit is the maximum amount that will be paid for any loss of that type. The Coverage F Medical Payments to Others limit applies per person. This condition further states that the total liability under Coverage F-Medical Payments to Others for all medical expenses for bodily injury to one person as the result of an accident will not be more than the Coverage F limit shown on the declarations page.

Severability Of Insurance

Severability of insurance is a policy condition that states that the insurance applies separately to each insured. Each insured is treated as if he or she has separate coverage under the policy. This condition means that the policy provisions are applied to each insured against whom a claim is made, as if the other insureds do not exist. However, the insurer's limit of liability does not increase regardless of how many insureds are involved. Therefore, the insureds might be without adequate coverage because the


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policy's limit of liability must be divided among them to pay for resulting damages for any one occurrence. .

Insured's Duties After Loss

The insured's duties in the event of a covered occurrence include:

Give written notice. The insured must give written notice to the insurer (or its agent) as soon as practical. The notice should identify the policy and the insured involved; provide information about the time, place, and circumstances of the occurrence; and state the names and addresses of the claimants and witnesses.

Forward legal documents. The insured is required to forward promptly to the insurer every notice, demand, summons, or other process relating to an occurrence. Legal demands or notices of suit usually have a time limit during which a response must be entered with the court.

Provide claims assistance. The insured is required to assist the insurer in making a settlement, enforcing any right of contribution against another party who might be liable, attending hearings and trials, securing and giving evidence, and obtaining the attendance of witnesses.

Submit evidence for damage to property of others. If a claim is made under the additional coverage for damage to property of others, the insured must submit to the insurer, within sixty days after the loss, a sworn statement of loss and show the damaged property to the insurer (if possible).

Pay for voluntary payments. If the insured makes any voluntary payment, assumes any obligations, or incurs expenses (other than for first aid to others), it will be at the insured's own expense.

Duties Of An Injured Person - Coverage F-Medical Payments To Others

An injured person seeking medical payments benefits must cooperate with the insurer to enable insurer verification of the claim; the injured person (or someone acting on his or her behalf) must do the following:

Give the insurer written proof of the claim as soon as possible; the proof must be given under oath if required.

Authorize the insurer to obtain copies of medical reports and records.

Submit to a physical exam by a doctor chosen by the insurer as often as the insurer requires such examinations.

A claim paid under Coverage F-Medical Payments to Others, is not an admission of liability by the insured or the insurer. Claims for medical payments are often paid when the insured feels an obligation to another person, even though the insured is not negligent and has no legal responsibility.


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Suit Against Insurer

This condition specifies certain activities that must be complied with before the insurer may be sued:

No legal action can be brought against the insurer unless the insured has complied with the policy provisions.

No one has the right to join the insurer as a party to any action against an insured.

No action with respect to Coverage E can be brought against the insurer until the obligation of the insured has been determined by a final judgment or an agreement has been signed by the insurer.

Bankruptcy Of An Insured

If the insured becomes bankrupt or insolvent, the insurer is not relieved of its financial obligations and is still obligated to settle the loss as it normally would.

Other Insurance-Coverage E-Personal Liability

Occasionally, an insured’s personal liability may be covered under more than one policy. When there is more than one policy applies to an accident, one of the policies is usually considered "primary," which means that policy would pay first, up to its limit of liability. Then, if the loss is greater than the primary policy's limit, the second policy involved would pay the excess amount, up to the second policy's limit of liability. The other insurance condition for Section II of the homeowners policy is different from the Section I other insurance condition. Coverage E limits are paid as excess over any other collectible insurance unless the other insurance is written specifically to provide excess coverage (such as a personal umbrella liability policy). Whereas under Section I, all policies contribute to the loss proportionately. This condition does not apply to the additional coverage for loss assessment.

SECTIONS I AND II CONDITIONS

Section I and II-Conditions, which apply to the entire policy, are exactly the same in all Homeowners forms.

Policy Period

Only those losses that occur during the policy period shown on the declarations page are covered. A loss that is discovered during the policy period but that occurred before the policy period is not covered; however, the loss might be covered by a previous policy.

Concealment Or Fraud

An insurance policy is a legal binding contract of utmost good faith between the insurer and the insured, with each party trusting any statements made by the other party. While the insurance company is regulated by law, the insured’s word on applications or claims is essentially taken on good faith, although the insurer may use various resources to confirm the insured’s statements. The insurer retains the right


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to void a policy if the insured has been dishonest. In order to void the policy, any misrepresentation must not only be material, it must also be intentional. In the multistate revisions to the homeowner’s policy, two separate Section I and Section II conditions were established for concealment or fraud. Section I Concealment or Fraud The concealment or fraud condition as it applies to Section I Property Coverages reads as follows: Under SECTION I-Property Coverages, with respect to all "insureds" covered under this policy, we provide no coverage for loss under Section I-Property Coverages if, whether before or after a loss, one or more "insureds" have: (1) Intentionally concealed or misrepresented any material fact or circumstance; (2) Engaged in fraudulent conduct; or (3) Made false statements; relating to this insurance. All insureds are barred from coverage if, under Section I, any insured conceals or misrepresents any material fact, commits fraud, or makes false statements. Section II Concealment or Fraud The condition as it applies to Section II-Liability Coverages reads as follows: Under SECTION II-Liability Coverages, we do not provide coverage to one or more insureds who, whether before or after a loss, have: (1) Intentionally concealed or misrepresented any material fact or circumstance; (2) Engaged in fraudulent conduct; or (3) Made false statements; relating to this insurance. Only the insured who conceals or misrepresents, commits fraud, or makes false statements is barred from coverage under Section II, other innocent insureds would not be precluded from coverage by this condition.

Liberalization Clause

The Liberalization Clause describes how certain changes to policy provisions that broaden coverage will affect existing policies. According to the liberalization clause, if the insurer, during the policy period or within sixty days before or during the policy period, adopts a revision that broadens the coverage without an additional premium charge, the increased coverage will automatically apply to all other existing policies on the date it is implemented within the state even if the insured is unaware of the change.


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The liberalization clause does not apply to changes introduced in subsequent editions of a policy nor does it apply to policy changes that reduce coverage.

Waiver Or Change Of Policy Provisions

The term "waiver" refers to giving up a right that is known to exist. A waiver or change of a policy provision is only valid if made in writing by the insurer. During a claim requests for appraisal or examination do not waive any of the insurer's rights. Nevertheless, courts have permitted oral waivers by claims adjusters made during the adjustment of a loss since claims adjusters are considered agents of the insurer with the apparent authority to modify policy conditions. The insured can usually waive rights against others before a loss occurs but no waiver of recovery rights may be made after a loss and if the insurance company requires the insured to assign recovery rights, the insured may not refuse.

Cancellation

All policies describe how cancellation of a policy may take place. Most such provisions are designed to protect the insured. The insured may cancel at any time, but the insurer's right to cancel or nonrenew the policy is limited to the state requirements described in the applicable state endorsement. Note: State law often dictates how and when insurers can cancel and nonrenew policies. Whenever policy language and the state laws conflict, state law takes precedence and overrides policy language. While this condition appears in the standard contracts, some state laws may require special cancellation procedures for policies issued in those states. In California, for example, an insurer is not permitted to cancel or nonrenew a homeowner’s policy solely because the insured has accepted an offer of earth-quake coverage, or solely because corrosive soil conditions exist on the premises. The Insured cancels The policyholder or spouse may cancel the homeowner’s policy at any time by returning the policy to the insurer or by contacting the insurer in writing and advising the insurer of the date that cancellation is to take effect. The Insurer cancels Much more stringent rules apply when the insurer cancels a policy. During the first 60 days of coverage, the insurer can cancel for any reason but must give the insured a minimum of 10 days notice. The insurer may cancel the policy only for the following reasons with written notice to the policyholder at the mailing address shown in the declarations:

The insurer may cancel at any time for nonpayment of premium if the policyholder is given at least ten days’ notice before the effective date of cancellation.

When a new policy has been in effect for less than sixty days, the insurer may cancel the policy for any reason if the policyholder is given at least ten days’ notice before the effective date of cancellation.


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When the policy has been in effect for more than sixty days (or is a renewal), the insurer may cancel the policy by giving at least thirty days’ notice to the policyholder before the effective date of cancellation if:

There has been a material misrepresentation of fact.

The risk has changed substantially since the policy was issued Nonrenewal Nonrenewal is not the same as cancellation. Cancellation always takes place during the policy term, while nonrenewal always occurs at the time the policy expires. The insurer may elect not to renew the policy by mailing notice to the policyholder (at the address shown in the declarations) at least thirty days before the policy expiration date. Insurance companies have many different reasons for deciding not to renew a policy. A decision not to renew a particular policy may have nothing to do with the particular persons or property insured. The company may have just decided to write fewer policies in that geographic area, or have changed its underwriting philosophy in some other way. Returning unearned Premium When a policy is canceled before its original expiration date, the insurance company has earned only the portion of the premium that pays for coverage up to the date of cancellation. The remainder of the premium the insured has already paid is unearned, so the insurance company returns it to the insured. A pro rata refund is a return of the exact amount of unused premium (based on the number of days remaining in the policy) to the insured when a policy is canceled. Some types of insurance allow insurers to refund using "short-rate” tables under which a small additional charge is retained by the insurer when the policy is cancelled mid-term by the insured to offset the costs of underwriting and issuing the policy. A pro rata refund of a one-year policy is calculated by dividing the premium by 365 days and multiplying that number by the number of days that would have remained in the policy period. For example, if the one-year policy premium is $365, and the policy is cancelled after 200 days, the pro rata refund to the insured would be $200 ($365/365 = $1. $1 x 200 days remaining = $200).

Assignment

The policy is a personal contract between the insurer and the policyholder. Therefore, no assignment of the policy, or any of its rights or obligations, is valid without the insurer's written consent.

Subrogation

"Subrogation" is the right of the insurer to pursue recovery from a third party who is responsible for damages, after the insurer has paid the named insured under the policy for a loss. Not only does subrogation protect the rights of the insurer, It also keeps the insured from realizing any profit by receiving payment twice - once from the company and once from the party causing the loss. The subrogation condition permits the insured to waive the insurer's rights only if the waiver is in writing and is executed prior to the loss. An insured can waive in writing his or her rights of recovery against any person before a loss occurs, provided it is done in writing. The waiver must be made in writing, and before a loss occurs. Otherwise, rights may not be waived and the insured must assign those rights to


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the insurer if it so requests. Notice that the insurer receives the rights only to the extent it makes payment. The insured retains the right to proceed against the negligent third party to recover any amounts in excess of the insurer’s payment.

Legal Representative of Deceased Insured

If the insured named in the declarations or the insured's spouse dies, the insurer will insure the legal representative (usually the executor or administrator of the estate) of the deceased person but only with respect to the premises and property covered under the policy at the time of the insured’s death. In the event of the death of the named insured or spouse, the definition of insured is changed to include any member of the household at the time of the insured's death, but only while that household member is a resident of the residence premises. With respect to property of the named insured, the definition of insured includes the person who has temporary custody of the property until a qualified legal representative is appointed.


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COMPARISON OF COVERAGE UNDER HOMEOWNERS FORMS

HO 3-SPECIAL FORM (HO 00 03)

One of the most widely used homeowners policy forms is ISO's HO 3 Special Form (HO 00 03). Although some insurers develop their own policy forms, they are usually based upon the ISO format. Although the HO 3 is the most frequently used homeowners form, it does not fit everyone's needs. This section describes other ISO homeowner’s forms and compares them to the HO 3. Also refer to the charts in the Appendix of this text.

COVERAGES AND AMOUNTS

The coverage under an HO 3 is divided into two major parts, with further subdivisions. Homeowner’s policies include four major property coverages and a number of extensions of coverage, called "additional coverages".

Coverage A -- Dwelling

Coverage B -- Other structures

Coverage C -- Personal property

Coverage D -- Loss of use

Coverage E -- Personal Liability

Coverage F – Medical Payments to Others

Additional coverages An amount of insurance is selected for Coverage A subject to certain minimum limits. The limits for coverages B, C, and D are determined as percentages of the Coverage A amount. All forms automatically provide a minimum of $100,000 per occurrence for Coverage and $1,000 per person for Coverage F. The HO package automatically includes all of these coverages, and none may be deleted. These amounts may be increased through options or endorsements. The HO 3 is designed for a broad range of homeowners, but often it must be tailored to a particular homeowner's needs. Attaching


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endorsements to the homeowner’s policy can tailor the policy to meet special needs. They might be used to add or delete coverage, or change the contract language.

PERILS COVERED—SPECIAL FORM (HO 3)--OPEN PERILS

HO 3 provides the most comprehensive coverage for the dwelling and other structures. The special form provides Coverages A and B on an all-risk basis means any perils not specifically excluded are covered. Under Coverages A and B if any excluded loss is followed by a loss which is not excluded, payment for the amount attributable to the peril which is not excluded is covered by HO 3. In the HO 3 the special or open perils coverage applies to the dwelling and other structures. The perils insured against for Coverage C, Personal Property, are "named perils," which means that only losses caused by perils specifically listed in the policy are covered. In order to deny coverage under an "all-risks" policy, the insurer must cite an exclusion that applies to the loss. In named (or specified) perils coverage, the insured must show that the loss was caused by one or more of the listed perils. No covered perils are listed for Coverage D Loss of Use. For Coverage D, the loss of use benefit follows a covered direct loss to the dwelling or personal property. If the dwelling is uninhabitable because of damage to the structure, Coverage D is "all-risks"; if it results from damage to personal property only, the coverage is specified perils. The remaining additional coverages individually describe when coverage applies.

OTHER HOMEOWNERS FORMS

We will look primarily at the section I property coverages because, with very few exceptions, the Section II liability coverages and all other Section II provisions are identical in every version of the Homeowners policy. In addition, the section I and II conditions are the same in all versions. Several charts appears in the Appendix of this text summarizing the differences between the various HO forms. Forms HO 1, HO 2, HO 4, HO 6 and HO 8 provide "named perils" coverage on

all insured property, as does Coverage C of Form HO 3. Coverages A and B of Form HO 3 are "all risk" coverage. Forms HO 1, HO 2, HO 3, and HO 8 can be issued only to the owner-occupant of a one- or two-family dwelling. Form HO 4 can be issued to a tenant who maintains a residential premise in any kind of structure. Only owners of condominium units and cooperative apartment shareowners are eligible for the HO 6, although the insured is not required to be an occupant of the unit.

PERILS COVERED—COMPREHENSIVE FORM (HO 5 OR HO 3 PLUS HO 15)

Some insurers offer an HO 5 Comprehensive form. Other insurers achieve this coverage by attaching the Special Personal Property Coverage endorsement HO 15 to the HO 3 to insure personal property on an open peril basis along with the dwelling. This endorsement may only be used with the HO 3. Another similar endorsement is available for HO 6 policies. (Refer to endorsement section of this text).


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Comprehensive coverage insures the dwelling, other structures, and personal property against loss by the "special" perils. HO 15 (Special Personal Property Coverage) puts Coverage C on the same basis as Coverages A and B on form HO 3, with only minor variations. Coverage is provided for "risk of direct physical loss" to the property except for the listed limitations, which duplicate all of the entries on HO 3. The coverage for personal property is actually broader than the coverage for the dwelling and structures.

The limitation suspending V&MM and glass coverages after 30 days of vacancy applies only to Coverages A and B.

Coverage for theft of personal property is expanded to apply to "loss by theft, misplacing, or losing" incorporating coverage for personal property items against loss by what is known as "mysterious disappearance". The special sub-limits of coverage for theft of jewelry, watches, furs, precious stones, silverware, goldware, pewterware, and firearms remain the same, but the coverage is broadened.

Certain fragile personal items, such as eyeglasses, glassware, statues, bric-a-brac, and porcelain items, are covered for losses caused by the specific perils of fire, lightning, EC, V&MM, theft, earthquake, collapse of a building, water risks which are not excluded, and sudden or accidental tearing, cracking, burning, or bulging of a steam or hot water heating system, air conditioning or fire sprinkler system, or an appliance for heating water.

The earth movement exclusion is made to apply only to Coverages A and B but not to personal property. This means that personal property includes Earthquake Coverage.

The water damage exclusion does not apply to all personal property—water damage to personal property away from any premises or location owned, rented, occupied, or controlled by an insured is covered.

If any excluded loss is followed by a loss that is not excluded, the comprehensive form (HO 3 plus HO 15) will cover the loss resulting from the covered peril.

HO 1 BASIC FORM (HO 00 01)

Eligibility And Minimum Limits

The HO 1 Basic form provides the minimum in terms of Homeowners property coverages. HO 1 has the fewest covered perils and the most restrictions. This form is only available in a few jurisdictions. Where the HO 1 Basic form is available, the minimum coverage A limits are often in the range of $15,000. As with the other forms, state rules govern the exact minimum permitted. Basic Form HO 1 is the foundation on which the other homeowner’s forms are built. The basic homeowner’s policy insures the dwelling, other structures, and personal property, Coverages A, B and C, against direct loss by:

Basic Form Named Perils

Fire

Lightning


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Windstorm or hail - interior damage covered only if wind or hail first makes an opening. Watercraft, out board motors and related equipment are covered only while inside of fully-enclosed buildings

Explosion

Riot or civil commotion

Aircraft

Vehicles - but not vehicle damage caused by any vehicle owned or operated by any resident of the residence premises

Smoke damage - but not smoke from fireplaces or from agricultural smudging or industrial operations

Vandalism or malicious mischief - but not loss to property on the residence premises if the dwelling has been vacant for 30 consecutive days or more

Theft - The theft peril includes loss of property from a known place when it is likely that the property has been stolen. Theft coverage for property away from the residence premises is subject to limitations. It also includes attempted theft. It does not include:

Theft by the insured

Theft from a dwelling under construction

Theft from a portion of the premises that the insured rents out

Theft of watercraft or equipment, trailers or campers

Since the theft peril applies only to theft of property from a known place when it is likely that the property has been stolen, it also excludes something called mysterious disappearance.

Volcanic eruption other than loss caused by earthquake, land shock waves or tremors

HO 2 BROAD FORM (HO 00 02)


After the HO 3 special form, the HO 2 Broad form is one of the most popular coverage forms. This form provides specified peril coverage on the dwelling, other structures, and the insured's personal property, plus liability protection for claims arising from the residence and the insured's personal activities. The primary difference between HO 2 and HO 3 is that the same named perils apply to coverage for the dwelling, other structures, and personal property under the Broad Form; whereas, under the Special Form, they apply only to personal property and "all risk" coverage applies to the dwelling and other structures.


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HO 2 is subject to the general eligibility requirements. In addition, certain minimum limits for coverage A required for the HO 2 Broad form are found in the State Rate Pages of the Homeowners Policy Program Rules manual. The limits for HO 2 are generally the same as those for HO 3.

Coverage B is 10% of Coverage A.

Coverage C is 50% of Coverage A.

Coverage D is 20% of Coverage A. ISO's HO 2 Broad Form (HO 00 02) is designed for the owner-occupant of a house. The HO 2 might be used instead of the HO 3 when:

An insured wants a homeowner’s policy and feels that the Broad Form named perils provided by the HO 2 are sufficient to cover their exposures. They might select the HO 2 to save money.

An insured who has had several small claims involving careless acts that were covered under the current HO 3 policy. Rather than nonrenewing the HO 3 policy, the insurer might offer to issue an HO 2 policy form since the type of losses previously incurred would not be covered under the HO 2.

Perils Covered—Broad Form (HO 2)

The HO 2 is strictly a named perils form. The same 16 perils apply to the insured’s buildings as well as personal property. These 16 perils are known as the broad form perils. The HO 2 provides more limited coverage for dwellings and other structures than the HO 3. In the HO 2 Broad form, coverages A, B, C and D are identical to those of HO 3, and with one exception, the additional coverages are also identical. A slight variation occurs in the landlord’s furnishings additional coverage, reflecting that the HO 2 does not provide open perils coverage. The HO 2 expands two of the basic coverages found on HO 1:

Vehicle damage to a building is covered even when caused by a resident (but vehicle damage to a fence, driveway, or walk caused by a resident is still excluded).

Smoke coverage on HO 2 does not exclude smoke from fireplaces. The HO 2 adds the following six additional perils beyond the perils provided by the Basic Form.

Damage caused by falling objects (but damage to a building's interior or its contents is covered only if the falling object first damages the roof or exterior wall). Damage caused by falling objects does not exclude damage to awnings, fences, outdoor equipment, and antennas (as the HO 1 does.)

Damage to a building or its contents caused by weight of ice, snow, or sleet (this peril does not cover damage to an awning, fence, patio, pavement, swimming pool, foundation, retaining wall, bulkhead, pier, wharf or dock)

Accidental discharge or overflow of water or steam from a plumbing, heating, air conditioning system or automatic fire protection sprinkler system, or from a household appliance (this peril does not include loss caused by freezing, or loss to the system or appliance from which water or steam escaped) The coverage for discharge or overflow is suspended whenever the dwelling has been vacant for more than 30 consecutive days.


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Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning system or automatic fire protection sprinkler system, or an appliance for heating water, but not loss caused by freezing.

Freezing of plumbing, heating, or air conditioning system or automatic fire protection sprinkler sys-tem, or of a household appliance. The freezing peril is suspended whenever the dwelling is vacant, unoccupied, or being constructed, unless reasonable care was taken to maintain heat in the building, or to shut off the water supply and drain systems and appliances.

Sudden and accidental damage from artificially generated electrical current (but not damage to a tube, transistor, or similar electrical component)

The following exclusions that appear in HO 3 are not necessary in the HO 2 because it does not provide open perils coverage.

Ordinance or law

Earth movement

Water damage

Power failure

Neglect

War

Nuclear hazard

Intentional loss

PERILS COVERED—TENANT BROAD FORM (HO 4) & CONDO UNIT OWNER FORM (HO 6)

Both HO 4 and HO 6 insure personal property against all of the perils found on the broad form (HO 2). On HO 6, coverage against these perils also applies to the limited dwelling coverage for alterations and other owned building items. On HO 4, breakage of glass or safety glazing material must be part of a building, storm door, or storm window, and must also be covered as part of the tenant's "building additions and alterations," before any resulting loss is covered. On HO 6, the same glass items must be part of the unit owner's building items that are insured under Coverage A before any resulting loss is covered. Otherwise, the perils covered by the two forms are identical—fire, lightning, EC, V&MM, theft, glass, volcanic eruption, and the six additional broad form perils.

HO 4 CONTENTS BROAD FORM (HO 00 04)

ISO's HO 4 Contents Broad Form (HO 00 04) is often referred to as a "tenant homeowners policy" or a "renters policy" because it is a homeowners policy form designed specifically for the needs of an insured who rents a house or an apartment. The HO 4 provides the same named perils for Coverage C-Personal Property as the HO 2 and HO 3.

Eligibility and Minimum Limits

This form is designed for tenants and other occupants of residential premises (such as apartments) who are not eligible for one of the preceding forms because they do not own the building they occupy or the building represents an ineligible category of construction. Except for coverage on structures, it is fundamentally the same as HO 2.


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Persons who want to buy the HO 4 contents Broad form must meet the general eligibility requirements. In addition, they may be either:

Renters or tenants, or

Owner-occupants of a cooperative unit, or

Owner-occupants of a building not otherwise eligible for a Homeowners policy The third situation could occur when co-owners own and live in a two-family dwelling. Only one owner can cover the building, but the second co-owner can purchase HO 4 to cover their personal property and personal liability exposures. In the HO 4 form, “residence premises” is defined the same as all the Homeowners forms other than HO 6. HO 4 requires that the residence premises occupied by the insured be:

Used only for residential purposes

Occupied by no more than one additional family

Occupied by no more than two boarders or roomers Because HO 4 covers only personal property or contents, the minimum limits apply to Coverage C, with Coverage D expressed as a percentage of that amount. Like the other Homeowners forms, Coverage D may be increased.

Section I – Property Coverages

The HO 4 differs from the HO 3 in the following ways:

Coverages A and B are eliminated from Section I-Property Coverages because an insured who rents does not typically need coverage on the dwelling or other structure.

Coverage C is written at a limit the insured selects as adequate to cover the insured's personal property (rather than the limit being a percentage of Coverage A, as in the HO 2 and HO 3).

Coverage D is automatically provided at 20 percent of the Coverage C limit (rather than 20 percent of the Coverage A limit, as in the HO 2 and HO 3).

An additional coverage, "building additions and alterations," is provided in the HO 4 but not in the HO 3. Although a tenant does not have an insurable interest in the building in which he or she resides, there are times when renters make changes to the building portion where they live. The tenant might add fixtures such as built-in bookshelves, wallpaper, paneling or special light fixtures to the house. If the building was destroyed the owner would not likely rebuild including the alterations made by the tenant and they would lose the value of these improvements.

This coverage provides up to an additional 10 percent of the limit of Coverage C for these additions and alterations. In other forms, coverage A would protect this type of property. HO 4 recognizes the possibility of a tenant’s having such an investment that would not otherwise be covered. The automatic coverage included in the policy may not be enough to cover the additions and alterations made to the insured's apartment. An endorsement, HO 04 51 Building Additions and Alterations: Increased Limit Form can be used to increase the amount of coverage.


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The coverage for Glass or safety Glazing Material in the HO 4 differs from the other Homeowners forms. In order for there to be coverage under the HO 4 form, the glass or safety glazing material must be part of a building, storm door or storm window installed at the expense of the insured.

The additional coverage "landlord's furnishings" (covering the insured's furnishings in a rented apartment on the residence premises), which is provided in the HO 3, is not included in the HO 4.

The additional coverage "ordinance or law" is provided in the HO 4 for a limit up to 10 percent of the building additions and alterations limit.

Section II – Liability Coverages

Two liability issues are of special importance to HO 4 clients:

Coverage is provided for damage to the rented apartment or house by smoke, fire, or explosion due to the insured's negligence.

If the insured is actually the owner of a three or four family dwelling, residing in one part, liability coverage may be extended to the entire premises with endorsement HO 24 74, Three or Four Family Dwelling Premises Liability.

HO 6 UNIT OWNERS FORM (HO 00 06)

ISO's HO 6 Unit-Owners Form (HO 00 06) is a homeowners policy tailored to cover the unique exposures created by the ownership of a condominium or a cooperative unit. Owners of condominium or cooperative units jointly own a building with other co-owners and individually own or are responsible for a specific unit within the building. A condominium is a building or complex with joint ownership of the common areas and facilities. Each individual unit-owner has a separate title and exclusive right to occupy a specific unit. A cooperative unit is a housing unit in a complex owned by a corporation, the stockholders of which are the residents of the building. The corporation owns the title to the real estate, and each unit-owner owns stock in the corporation and has the right to occupy a specific unit. The unit owner also has an undivided joint interest with the members of the association in the common elements. A co-op unit owner actually occupies the premises under a proprietary lease through ownership of shares in the co-op corporation. This form is similar to the HO 4 but includes some special provisions for exposures inherent in the ownership of condominium units and cooperative apartment shares. The HO 6 also insures personal property against these same perils, with one exception. In the HO 6, the Accidental Discharge Or Overflow Of Water Or Steam peril includes coverage for the costs to tear out and replace any part of the building necessary to repair the system or appliance from which the water or steam escaped.


In addition to the general eligibility requirements, insureds who want the HO 6 form must meet these requirements:

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Owner of condominium or cooperative unit

Residential use

Incidental business permitted

One additional family

Two boarders or two roomers

An endorsement is available for condominium owners who regularly rent the condo to others, but have some of their own personal property on the premises. Different amounts of coverage are required when a renter lives in the condo rather than the owner. Like all of the forms, HO 6 limits will be specified by individual insurers. As is true for HO 2 and 3, HO 6 coverage D may be increased. With endorsement HO 17 33, Unit-Owners Rental to Others, an HO 6 may be extended to cover rental with no restrictions on regularity or frequency. Certain coverage limits are required and, since the HO 6 form covers contents, this minimum applies to coverage C. Then, the available limits for coverage D, loss of use, and for personal property at a secondary residence under coverage are expressed as percentages of C coverage.

Unit-Owners' Coverage Needs

One challenge facing agents who arrange insurance for condominium unit owners is how to evaluate the property exposure. First, it must be determined just what property is at the insured's risk (from the declarations and by-laws). Then, the cost of replacing those items such as cabinets, fixtures, tile, and similar items must be determined. Some developers provide valuation suggestions to unit purchasers; if not, estimates may have to be secured from suppliers, contractors, or others. Review of the appropriate documents, by-laws, association agreements, Covenants, Conditions and Restrictions (CC&Rs), and so forth, is essential to arranging proper coverage for a unit owner. Because a producer might not be completely familiar with the terms of these contracts, expert help should be requested, such as from a lawyer, an insurance company representative, or a real estate professional. What the condo buyer owns outright varies by law and the declarations and by-laws of each condominium association. The ownership deed for a condominium (the "master deed") establishes the ownership and rights of the unit-owners. This ownership deed usually contains a section relating to insurance requirements which describes the insurance provided for the property that the unit-owners jointly own. Any property not covered by this insurance (often called "condominium association policy" or a "condominium master policy") is usually the responsibility of the individual unit-owners to insure. Cooperative associations also have similar legal documents that dictate the rights and responsibilities of unit-owners. The condominium association insurance might cover a unit-owner's entire unit, including the fixtures, plumbing, wiring, or partitions. This is often called “all-in” coverage. Alternatively the condominium association insurance might only provide "bare walls" coverage for only the building structure and walls that support the structure. The unit-owner would be responsible for insuring other walls, plumbing fixtures, cabinets, appliances, tile, carpeting and other building items that are inside the unit. Other variations may be found.

The HO 6 Differs From The HO 3 In The Following Ways:

The definition of residence premises in the HO 6 is narrowed to cover only the individual condominium or cooperative unit owned by the named insured.


Coverage A - Dwelling in the HO 6 policy automatically provides a limit of $1,000. (The limit varies in some states.) However, this limit might not be adequate if an insured has extensive property exposures that are not covered by the condominium association insurance. Endorsement HO 17 32 can be used to increase the coverage A limit on the HO 6.

The HO 6 description of Coverage A under Section I Property Coverages includes:

The alterations, appliances, fixtures, and improvements that are part of the building contained within, and pertaining solely to, the insured unit (such as kitchen cabinets, partitions, and wallpaper)

Items of real property that pertain exclusively to the insured unit (such as awnings or shutters)

Property that is the unit-owner's insurance responsibility under a property owner’s agreement of a condominium or cooperative association.

Structures other than the residence premises owned solely by the insured at the location of the residence premises (such as a storage shed or garage owned by the insured)

Coverage B-Other Structures is eliminated from the HO 6. Coverage that a unit-owner might need for another structure is provided under Coverage A. Coverage B is not provided by the HO 6.

Coverage C-Personal Property is written for a limit selected by the insured (rather than a percentage of Coverage A, as in the HO 3).

Landlord's furnishings coverage is not provided in the HO 6.

Coverage D-Loss of Use is automatically provided at a limit that is 40 percent of the Coverage C limit (rather than 20 percent of the Coverage A limit).

Section I-Perils Insured Against in the HO 6 provides named perils coverage for Coverages A and C.

Section I -- Conditions in the HO 6 specifies that Coverage A losses are settled on a replacement cost basis as long as the insured makes the repairs "within a reasonable time." There is no requirement that the Coverage A limit be written in an amount that equals a percentage of the replacement cost as is required in the HO 3.

Trees, shrubs, and other plants coverage is provided in the HO 6 for a limit up to 10 percent of Coverage C (in contrast to the HO 3, which provides a limit up to 5 percent of Coverage A). In the HO 6, this coverage applies to plants on grounds appurtenant to the insured unit (such as those in the yard of a townhouse-style condominium.

Glass or safety glazing material coverage is limited in the HO 6 to only that glass that is part of the insured's unit.

The mortgagee clause in the HO 6 form refers only to coverage A-Dwelling, whereas other forms we’ve discussed refer to losses payable under coverage A or B.


Perils Covered

The HO 6 provides Broad Form named peril coverages, but endorsements HO 17 32, Unit-Owners Coverage A Special Coverage, and HO 17 31, Unit-Owners Coverage C Special Coverage are available to convert the applicable coverages to Special Form.

Loss Settlement

The loss settlement condition of the HO 6 form is similar to the loss settlement condition described in the HO 2 and 3 forms, but considerably briefer and less complex since the type of property covered is much more limited. When the insured’s personal property is damaged, losses are settled at ACV or a maximum of the amount required to repair or replace the property, whichever is lower. The loss settlement condition gives replacement cost coverage on Coverage A property if the insured actually repairs or replaces the property. All HO 6 Coverage A losses are settled for ACV if the insured does not make repairs.

Other Insurance

Since there usually is insurance coverage under another policy owned by the condominium association for the real property, the Section I other insurance condition is different from all other forms. Instead of specifying the pro rata contribution with all other insurance, it provides that the HO 6 is always excess over any coverage provided by the association.

Loss Assessment

When a condominium association requires funds, it must look to its member unit owners. The process of obtaining funds from association members is called assessment. Each of the members is required to contribute their prorata share of the total sum needed. The following three situations are examples of why members might be assessed in an insurance context:

Damage to property under common ownership from an uninsured peril.

A large deductible applying to the association's coverage.

An uncovered or inadequately covered liability claim.

The HO 6 automatically contains $1,000 of loss assessment coverage for each property and liability. With HO 04 35, Loss Assessment Coverage, the insurer will increase the coverage in the basic policy up to a selected limit. Regardless of the limit of loss assessment coverage purchased, no more than $1,000 will be paid for an assessment resulting from the application of a deductible on the association's insurance. The endorsement excludes earthquake losses, which may be separately covered by endorsement HO 04 36, Loss Assessment Coverage for Earthquake. A significant loss assessment is a very real possibility for many condominium insureds. Recommend the highest limits your insureds can obtain for this coverage. The liability exposure is of particular


importance, since the rising cost of lawsuits may easily exceed the condominium association's limits, leading to a large assessment against the unit-owners.

HO 8 MODIFIED COVERAGE FORM (HO 00 08)

ISO's HO 8 Modified Coverage Form (HO 00 08), known as the "HO 8 is more limited form of coverage for owner-occupants of dwellings. It has been tailored to cover owner occupied dwellings that might be ineligible for another homeowner’s policy. The HO 8 insures against the basic perils contained in the HO 1, but is more restrictive in terms of its loss valuation clauses.

Eligibility And Minimums

Eligibility, minimum coverage requirements, policy conditions and exclusions, and all Section II coverages are identical on HO 1 and HO 8. The same basic eligibility requirements discussed previously apply to the HO 8 Modified coverage form. Like the HO 1 Basic form, HO 8 is not available in every state. Where it is available, the minimum limits of liability for coverage A are often the same as for HO 1. The amount of coverage D available in the HO 8 Modified coverage form is 10% of coverage A-the same as HO 1. Unlike the other Homeowners forms, which have a $250 standard deductible, the HO 8 standard deductible is $100. As with all Homeowners forms, the deductible amount may be increased.

ACV Settlement On The Dwelling

The HO 8 Modified coverage form is used primarily for older homes with ornate details or structures that could cause replacement value to exceed market value. Usually built prior to 1950, such houses are often considered inappropriate risks for any of the other Homeowners forms, in which loss settlement is at replacement cost. An older house containing obsolete features might have a market value that is less than the replacement cost of the house. A homeowner who obtains an HO 3 policy based on the replacement cost could destroy the house and obtain more money by collecting the insurance than by selling the house. Some insurers feel that this situation creates a potential moral hazard, and they are unwilling to insure some older houses on an HO 3. In addition, the insured might be unwilling to pay the high premium necessary to adequately insure an older house for its replacement cost. Moral hazard is a condition that exists when a person might intentionally cause a loss or exaggerate a loss that has occurred. Actual cash value property valuation is applicable to all property-replacement cost is not available; building losses may be settled at market value if less than ACV. Market value is the price at which a particular property item could be sold. Under the HO 8 form, repair cost settlement (repairing or replacing damaged property using functionally equivalent materials) applies to property that is buildings. Actual cash value is the basis upon which HO 8 settles losses for specified property that is not a building. When repair cost basis is used for loss settlement, no deduction is taken for depreciation as with ACV settlement. There is no requirement for the insured to carry insurance at 80% of value as there is with replacement cost settlement.


In states which do not permit the type of loss settlement for damaged buildings described previously, a special endorsement called Loss settlement, HO 04 81, must be used whenever the HO 8 Modified coverage form is written.

The HO 8 Differs from the HO 3 in the Following Ways:

Modifications occur only in terms of property coverage, and HO 8 departs from basic coverage in three ways:

The HO 8 provides limited named perils coverage for all Section I losses. The named perils covered by the HO 8 are fewer and less broad than those found in the HO 3 and other homeowner’s policies.

The HO 8 does not provide the additional coverages of collapse and ordinance or law that are included in the HO 3.

Under the Section I-Conditions, loss settlement for Coverages A and B in the HO 8 is significantly different from the loss settlement provisions in the HO 3. Under the HO 8, if the insured makes repairs after a loss, the insurer will not pay more than the cost of "common construction materials and methods" that are "functionally equivalent to and less costly than obsolete, antique, or custom construction." If the insured does not make repairs, the insurer will not pay more than "market value at the time of loss."

The HO 8 contains some significant coverage limitations in comparison to the HO 3, including the following:

The HO 8 covered perils are fire, lightning, the extended coverage perils (windstorm, hail, explosion, riot and civil commotion, aircraft, vehicles, and smoke), vandalism and malicious mischief, theft, and volcanic eruption. For those perils, the HO 8 contains the following limitations not found in the HO 3:

Windstorm and hail exclude damage to the building interior by rain, snow, sleet, sand, or dust, unless the wind or hail first causes structural damage.

Coverage for damage caused by vehicles excludes any loss caused by a vehicle owned or operated by a resident of the insured's premises.

The smoke peril excludes loss caused by smoke from fireplaces.

Debris removal expense is included as part of the policy limit for damaged property at all times, and there is no 5% extension of additional coverage when a combined damage and removal expense exceeds the limit as there is on the HO 3.

Personal property away from the dwelling is covered for only 10 percent of Coverage C or $1,000, whichever is greater. In contrast, the HO 3 provides coverage for personal property worldwide up to the Coverage C limit. Absolutely no coverage applies off premises for temporary residences, student residences, watercraft, trailers or campers.


Property of others is covered only while on the residence premises the insured occupies rather than also in any residence an insured occupies. The HO 8 does not give the insured the option of having the personal property of guests or residence employees covered by the policy.

The additional coverage for landlord’s furnishings is not included.

Theft coverage is limited to $1,000 and provides coverage only at the residence premises. Endorsement HO 04 30, Theft Coverage Increase, is available to increase the on-premises limit to $3,000 or $5,000, and to add $1,000 coverage for off premises.

Three specific theft limits that do not apply to HO 8, but appear in the HO 3, are:

$1,000 on jewelry, furs and similar items

$2,000 on firearms

$2,500 on silver and goldware and similar items

Since all theft losses are limited to $1,000 per occurrence under HO 8, the absence of these sub-limits does not broaden the coverage.

Maximum coverage for any one tree, plant, or shrub is only $250 instead of $500

Breakage of building glass is subject to a limit of $100 per occurrence, unless the breakage is caused by a named peril, such as windstorm.

Property coverage options, including increasing individual coverage limits, are not available on HO 8. However, the insured may increase all limits by purchasing more of Coverage A, to which other limits are linked. All normal Section II (liability) options may, however, be used.


HOMEOWNERS ENDORSEMENTS

The 1991 Homeowners policies are designed for use by “average” homeowners and renters and the six standard forms have been carefully designed to meet the average insured’s requirements. Many homeowners, however, have specialized needs. To meet these needs, numerous endorsements can be attached to the Homeowners policy to modify coverage. Through the use of endorsements, standard Homeowners forms can be altered to meet most specialized insurance requirements. The Waiver or Change condition in the policy states that the only way that the terms of a policy can be changed is in writing by the insurance company. An insured who wants to make a modification to the coverage provided by standard Homeowners form may do so by adding an endorsement form that alters the standard policy in some way, either to expand or restrict coverage. Endorsements can add or delete coverage, alter policy language, clarify the policy intent, or modify coverage limits. An endorsement can result in a premium increase, decrease, or no change in premium at all. Following are many of the endorsements commonly used to modify ISO Homeowners forms. Please check with your insurers regarding their availability and whether or not they have modified the standard language.

Additional Limits of Liability for Coverages A, B, C, and D (HO 04 11)

The additional limits of liability for Coverages A, B, C, and D endorsement can be attached only to the HO 2 or the HO 3 policy forms. If a covered loss occurs to the dwelling, the limit for Coverage A that appears on the declarations page will be amended to equal the current replacement cost of the dwelling. Coverages B, C, and D will be increased as percentages of Coverage A. In exchange for this coverage, the insured agrees to maintain insurance to the full replacement cost of the dwelling and to report any alterations that increase the dwelling's value by 5 percent or more. This endorsement provides valuable protection for insureds who might otherwise discover after a total loss that their limit for Coverage A is inadequate to replace their house. The endorsement maintains coverage adequate to replace the dwelling.


Increased Limit on Business Property (HO 04 12)

Special limits under Coverage C-Personal Property apply to business property on the premises ($2,500) and off the premises ($250). By attaching the increased limit on business property endorsement these limits can be increased, however, the increased limits do not apply to business property in storage, held as a sample for sale or delivery after a sale, or to property pertaining to a business conducted on the premises. This endorsement might be useful for an insured who works for an employer but has an office at home. The office furniture, computer equipment, and business supplies with values in excess of the Coverage C special limits could be covered by showing the increase in the limit of coverage on the this endorsement. Other endorsements may be more appropriate for insureds who own and operate their own home businesses. (HO 04 42, HO 04 43 HO 05 90)

Incidental Motorized Land Conveyances (HO 24 13)

The incidental motorized land conveyances endorsement can be attached to any of the homeowners forms to extend Coverages E and F to cover motorized vehicles that have maximum attainable speeds of less than fifteen miles per hour and that are not subject to motor vehicle registration. This endorsement is generally used to extend liability coverage to miniature automobiles or to other motorized land vehicles designed for use off public roads while the vehicles are away from an insured location. Mopeds, motorized bicycles, and motorized golf carts are specifically excluded.

Special Computer Coverage (HO 04 14)

The special computer coverage endorsement can be attached to a homeowner’s policy to provide Special (“All-risk”) coverage for computers and computer equipment. Computer equipment is defined as follows:

Electronic data processing hardware and related peripheral equipment, including CRT screens, disc drives, printers and modems; and

Discs, tapes, wires, records or other software media used with the equipment listed above. The excluded perils are similar to those appearing in the HO 3 for Coverages A-Dwelling and B-Other Structures.

Special Personal Property Coverage (HO 00 15)

The HO 3 already provides "Special Coverage" for dwellings and structures. The HO 00 15 adds "Special Coverage" for personal property as well. The effect of HO 00 15, therefore, is to change Coverage C of Form HO 3 from a "named perils" to an "all risk" basis. The special personal property coverage endorsement can be used only with the HO 3 policy form. This endorsement modifies the Coverage C special limits and perils in the following ways:

The special theft limits of $1,000 for jewelry, $2,000 for firearms, and $2,500 for silverware also apply to the perils of misplacing or losing the items. These two perils are not covered under the HO 3 without this endorsement.


The peril of breakage does not apply to eyeglasses, glassware, statuary, marble, fragile articles, or cameras if the breakage occurs as a result of carelessness. However, breakage as a result of certain named perils (fire, lightning, windstorm, hail, smoke, explosion, aircraft, vehicles, vandalism, earthquake, collapse, theft, and so forth) is covered.

Coverage for the peril of collapse is not provided for Coverage C items.

Coverage for the peril of earth movement is provided for Coverage C items.

Coverage for the peril of water damage is provided for Coverage C items that are away from a premises or location owned, rented, occupied, or controlled by an insured.

Under HO 00 15 for personal items under Coverage C, the standard homeowners deductible applies to personal property damaged by earthquake rather than the larger earthquake deductible. So even if the customer purchases earthquake coverage, it is wise to add this endorsement.

Damage to household contents from a falling object is covered when the object does not first damage the roof or an outside wall of the house.

Functional Replacement Cost Loss Settlement Endorsement (HO 05 30)

This endorsement allows insurers to repair or replace damaged antique, ornate or custom construction with materials that are less expensive than, but functionally equivalent to, the original. By using this endorsement, the insured can select lower limits of coverage than those ordinarily required by ISO, which in turn reduces the premium.

Unit-Owners Coverage C (HO 17 31)

The HO 6 policy form provides named perils coverage for personal property. The unit-owners Coverage C endorsement can be attached to an HO 6 policy to change the Section I-Perils Insured Against to provide special coverage for Coverage C-Personal Property. This endorsement is very similar to the special personal property coverage endorsement (HO 00 15) that is used with the HO 3 policy form.

Unit-Owners Coverage A (HO 17 32)

The HO 6 policy form insures against named perils for Coverage A. The unit-owners Coverage A endorsement can be attached to an HO 6 policy to change the Section I-Perils Insured Against to provide special coverage that is identical to the dwelling coverage provided under the HO 3 form.

Unit-Owners Rental to Others (HO 17 33)

When a condominium unit is rented, the unit-owners rental to others endorsement can be used to amend the HO 6 policy coverages in the following ways:

Coverage C is extended to include coverage for the insured's (not the tenant's) personal property contained in a rented unit; however, loss caused by theft of money, silverware, precious metals, securities, jewelry, and furs is not covered.

Section II coverages are extended to cover the insured's (not the tenant's) liability exposures for the unit while it is rented.


If the owner does not intend to reside in the unit at all, and intends to rent it full-time, some companies may not wish to write the HO 6 with HO 17 33 attached. An alternate method of obtaining insurance would be to write the coverage under the Dwelling Property Program with the "Unit-Owners Coverage Endorsement".

Loss Assessment Coverage (HO 04 35)

Loss assessment coverage with a limit of $1,000 is provided by the homeowner’s policies in the Additional Coverages section for both Section I and Section II. The loss assessment coverage endorsement can be attached to a homeowner’s policy to increase the limit of coverage available under both Sections I and II. Although this endorsement can be attached to any of the ISO homeowner’s forms, the additional limit of coverage provided by the endorsement is especially important to the condominium or cooperative unit-owner insured by the HO 6. These unit owners have property and liability exposures in the common areas of the property that can easily exceed the $1,000 coverage automatically provided by an unendorsed homeowner’s policy. Many insureds today who own single family residences, are members of homeowners associations and need increased limits for loss assessment under HO 2 or HO 3 policies, especially for liability.

Structures Rented to Others (HO 04 40)

Under Section I of a Homeowners Policy, other structures are not covered if they are rented for any purpose other than as a private garage. There is also a Section II exclusion under Coverage E and Coverage F for the rental of an "insured location". If a structure on an insured location is rented to others, there is no coverage for damage to the other structure, liability of the insured, or medical payments to others. Coverage can be purchased for structures on the residence premises that are rented to others by attaching the structures rented to others endorsement (HO 04 40) to the homeowners policy. This endorsement adds the structure listed on the endorsement as an "insured location.” The structure must be described and a limit of coverage listed for it on the endorsement.

Additional Insured-Residence Premises Endorsement (HO 04 41)

Sometimes more than one individual has an ownership interest in a dwelling insured under a Homeowners policy. Homeowner’s policies may be endorsed to extend the personal liability and medical payments coverages to include insurance for people, property, situations or activities that are not normally covered. The additional insured endorsement can be used to include the persons or organizations named on the endorsement as insureds with respect to the following coverages:

Coverages A-Dwelling and B-Other Structures

Coverages E-Personal Liability and F-Medical Payments to Others, but only with respect to the "residence premises"


Permitted Incidental Occupancies Endorsement For Residence Premises (HO 04 42)

Homeowner’s policies contain several exclusions that apply to an insured's business activities. The Permitted Incidental Occupancies-Residence Premises Endorsement (HO 04 42) deletes or modifies the business exclusions affecting both property and liability coverages. The business must be "conducted by an 'insured' on the 'residence premises"' and must be described on the endorsement. This endorsement, which can be used with any of the policy forms, changes the policy in the following ways:

Coverage B-Other Structures can be endorsed to cover other structures used for business purposes for a limit specified in the endorsement.

The endorsement deletes the special limit of $2,500 under Coverage C Personal Property for property on the residence premises used for business purposes. It allows the insured use the full limit of Coverage C for business property on the residence premises.

Section II liability coverage exclusion is eliminated this exclusion for the business described on the endorsement. Coverage is still excluded for bodily injury to an employee of the insured, or to a pupil of the insured, if the injury is a result of corporal punishment by or at the insured's direction.

The Permitted Incidental Occupancies endorsement is only available for certain businesses allowed under the Homeowners rules. For example:

Service businesses

Business or professional offices

Private schools

Instructional studios Be sure to check with your insurers to determine which businesses are eligible for this endorsement.

Permitted Incidental Occupancies At An "Other Residence" (HO 24 43)

A different endorsement may be used if the insured conducts a business at another residence. This endorsement is similar to HO 04 42, but it covers only the insured's Section II liability exposures at the other residence, Property - Section I.

Residence Premises-Three Or Four Family Dwelling (HO 04 44)

In the definitions section of the HO 2 and HO 3 policies, the term "residence premises" is defined in part as the one-family dwelling where the insured lives or a two-family dwelling where the insured resides in at least one of the family units. This endorsement changes the definition of residence premises to include the three or four family dwelling described on the declarations page. It does not change any of the policy coverages.

Inflation Guard (HO 04 46)

Inflation is constantly increasing the replacement cost of homes. Quite often, the homeowner doesn't realize how rapidly the value is increasing, and is content to leave the amount of insurance at the value of the home when Homeowners coverage was originally written. Even when the market price of a home has remained constant or decreased, the cost to rebuild the home has increased.


The inflation guard endorsement provides automatic increases in the limits of liability for Coverages A, B, C, and D by a fixed annual percentage (usually 4%, 6%, or 8%). This endorsement can help an insured avoid underinsurance because of rising replacement costs due to inflation. The coverage is increased on a pro rata (proportional) basis during the policy period. This helps to keep the amount of insurance-to-value for the dwelling at a level adequate to comply with the replacement cost requirements.

Guaranteed Replacement Cost (GRC)

When a company uses the Guaranteed Replacement Cost endorsement, it will automatically increase the limit of coverage on the policy at renewal, based on a figure to match inflation. The insured must pay an additional premium for this endorsement. Whenever the replacement cost of the dwelling at the time of a loss is greater than the limit of insurance, the Guaranteed Replacement Cost endorsement will provide an unlimited amount of recovery (not restricted to the limit of the policy). When the policy is first issued, the dwelling must be insured for its full (100%) replacement cost, and the insured must report any additions or improvements made to the dwelling which are over a stated amount (like 5% of the value), and increase the Coverage A limit to include the additional replacement cost value. If the insured does not satisfy these conditions, the Guaranteed Replacement Cost coverage is void.

Extended Replacement Cost (ERC)

A variation of Guaranteed Replacement Cost is called Extended Replacement Cost wherein the insured will receive an additional amount of coverage which is limited by a percentage of the Coverage A amount such as 125% or 150% of Coverage A (or 1 ¼ or 1 ½ times Coverage A limit). These percentages vary by insurer. The same requirements to be insured to value at inception of the policy and to report any additions or alterations to the structure are included as in GRC.

Other Structures-Increased Limits (HO 04 48)

Under the Basic, Broad and Special Homeowner Policies the basic limit of coverage for Other Structures (Coverage B) is automatically 10% of the limit for the Dwelling (Coverage A) which applies in addition to the Coverage A limit. In some situations, this 10 percent might not be enough to cover an insured's other structures. The Other Structures-Increased Limits Endorsement can be attached to the homeowner’s policy to provide additional coverage. Individual structures can be scheduled on the endorsement with a designated amount of insurance applying to each.

Increased Limit on Personal Property in Other Residences (HO 04 50)

Under the HO 2, HO 3, HO 4, and HO 6 personal property at a secondary residence is limited to the greater of $1,000 or 10 percent of Coverage C. The Increased Limit On Personal Property In Other Residences endorsement can be attached to a homeowner’s policy to increase this limit for personal property at a secondary residence. The location and limit of additional coverage must be listed on the endorsement. This can be especially useful if an insured family member has personal property away at college.


Credit Card, Fund Transfer Card, Forgety and Counterfeit Money Coverage (HO 04 53)

Under Section I of the unendorsed homeowner’s policies, the Credit Card, Fund Transfer Card, Forgery And Counterfeit Money Additional Coverage provides coverage up to a limit of $500 for losses resulting from the unauthorized use of an insured's credit card, bank transfer card, check forgery, or acceptance of counterfeit money. This endorsement can be used to increase the limit of coverage provided for this additional coverage to a maximum of $10,000.

Earthquake (HO 04 54)

Homeowner forms exclude loss caused by earthquake, but earthquake coverage may be added by endorsement. When earthquake coverage is purchased, an additional charge is made for the coverage. The endorsement provides coverage for direct physical loss caused by earthquakes, including land shock waves during or after a volcanic eruption. All earthquake shocks that occur within a 72-hour period are considered to be a single earthquake, subject to one limit of coverage and one deductible. The earthquake endorsement does not increase the limits of liability for coverages A, B and C, it simply adds earthquake as a covered peril. However, earthquake losses will be subject to a special percentage deductible. In areas where there is a high risk of earthquake losses, the deductible can be substantial (i.e. 15%) Unlike the flat dollar amount deductible that applies to other property losses, the earthquake deductible shown in the endorsement is a percentage of the limit of insurance for covered property, not a percentage of the loss amount, and the percentage will apply separately to each of the property coverages under the policy. A minimum $250 deductible will apply in case of loss, however, regardless of the limit of insurance. Exterior masonry veneer, a thin layer of brick that is applied to the outer surface of a building for decorative, not structural, purposes, is easily destroyed in an earthquake. Therefore, companies charge a higher premium for this coverage. If an insured does not wish to pay this higher premium, the insurer will exclude coverage for the masonry veneer. Stucco is not masonry veneer, and would be covered. The last paragraph of the Earthquake endorsement says that this endorsement does not apply to Coverage C if the policy includes the Special Personal Property Coverage endorsement. Earthquake damage for Coverage C is provided by the Special Personal Property Coverage endorsement HO 00 15. Coverage may be attached to a dwelling or homeowner’s policy by endorsement. Coverage may also be purchased as a separate policy. Generally, this is not advantageous to an insured however because earthquake coverage is likely to be much more expensive when purchased alone. Additionally, an earthquake policy might not cover ensuing losses, such as fire damage—if an earthquake caused partial damage and a fire resulted, it could be difficult to establish how much damage was caused by the earthquake and how much was caused by the fire. If a separate earthquake policy is written with a single limit of insurance, the limit might be inadequate due to the high cost of the coverage. With a homeowner’s policy, the insured is more likely to insure at least 80% of the dwelling's value due to the replacement cost provision. Also, a single limit policy would have a single deductible that might be higher than it would be under an endorsement to a homeowner’s policy that usually provides a separate limit (and deductible) for each coverage. In addition to covering earthquake damage alone, this form also covers certain results of volcanic eruption, including:

Land shock waves


Land tremors

Occurring before, during or after the eruption

Special Loss Settlement Endorsement (HO 04 56)

It may be possible to insure older homes with ornate details or structures under an HO 8 by covering buildings at repair cost settlement rather than replacement value. That form, however, is not available in many areas, and the premium for that type of coverage can be quite high. As an alternative, the Special Loss Settlement endorsement may be attached to the HO 3 under which buildings insured under Coverages A and B are covered for replacement value, but according to the percentage in the endorsement. This allows the insured to reasonably recover from a loss by repairing the damage or rebuilding, but not using exactly the same style and materials as the original structure.

Scheduled Personal Property Endorsement (HO 04 61)

Insureds who own certain types of personal property may find the standard coverage amount insufficient to meet their needs. An endorsement is available to specifically schedule or list certain types of property along with the amount of insurance desired and the additional premium required to buy this additional insurance. Even though an amount is shown with each classification, with the exception of fine arts, losses are still settled on the basis of the cost to repair or replace the item, the ACV of the item at the time of loss, or the amount shown on the schedule, whichever is less. Since the premium for the endorsement is based on the amounts listed on the schedule, insureds should be discouraged from requesting inflated appraisals believing that they are insuring items for a specific loss amount. The insurer can usually repair or replace the item at much less than the scheduled amount and under the policy conditions has the option to do so rather than pay the insured in cash. The following categories of property can be written on the scheduled personal property endorsement: 1. Jewelry 2. Furs 3. Cameras 4. Musical instruments 5. Silverware 6. Golfer's equipment 7. Fine arts 8. Postage stamps 8. Rare and current coins Coverage is provided "against risks of direct loss to property described," subject to a list of losses that would not be covered. Special coverage applies to the items scheduled on the endorsement; in other words, such items are covered for "risks of direct loss to property" with only a few exclusions:

Wear and tear, gradual deterioration, or inherent vice

Insects or vermin

War including civil war, insurrection, rebellion, or discharge of a nuclear weapon

Nuclear hazards


For scheduled fine arts, breakage of glass and other fragile items and damage that occurs during restoration are also excluded. For stamps and coins, the perils of fading, tearing, loss during shipping (other than by registered mail), and theft from an unattended automobile are excluded. In addition to broader covered perils, the insured receives the following benefits for property scheduled on this endorsement:

Coverage is worldwide (except fine arts, which are covered only in the United States and Canada).

Coverage C does not apply to scheduled items.

The Section I deductible does not apply to scheduled items. Coverage provided under the Scheduled Personal Property Endorsement can eliminate coverage for the same property under Coverage C of the Homeowners policy. When individual articles are listed and described in the schedule, no coverage exists for those articles under Coverage C. An adequate limit of coverage should be chosen under the endorsement for such articles, because the Coverage C limit will no longer apply to them. When a loss occurs to property listed on the scheduled Personal Property endorsement, special loss conditions apply.

A loss to a scheduled item (other than a fine art) is settled at the lesser of actual cash value, the cost to repair the item, or the amount for which the item could be replaced with one substantially identical to the lost or damaged item. Fine arts are often unique and their value is difficult to determine after a loss or disappearance. Therefore, fine arts are written on an agreed value basis.

When coins and stamps, are covered on a blanket basis, limits of $1,000 and $250 apply.

If a scheduled item, other than fine arts, is composed of several parts and loss occurs to only one part, the insurer pays for the value of the one damaged or lost part only.

Newly acquired property is covered for thirty days (ninety days for fine arts) for 25 percent of the amount of insurance for that category of property (or $ 10,000, if less, for property other than fine arts).

Snowmobile (HO 24 64)

The Snowmobile endorsement can be attached to any of the homeowner’s forms to extend Coverages E and F to scheduled snowmobiles while they are off an insured location (snowmobiles on the insured location are covered by the unendorsed homeowner’s policy). Coverage does not apply to a snowmobile that is subject to motor vehicle registration, used to carry paying passengers, used for a business purpose, rented to others, or operated in any prearranged or organized competition.

Coverage C Increased Special Limits Of Liability (HO 04 65)

Under Coverage C certain categories of Personal Property are covered only for very limited amounts. Many insureds find these limits of coverage on valuable items to be insufficient protection.


For an additional premium, endorsement HO 04 65 may be used to increase the Special Limits of Liability under Coverage C. The "Increase in Limit of Liability" is the amount of coverage required above that given under the Special Limits of Liability in order to equal total value of the items to be insured.

The $200 limit for money, bank notes, etc. may be increased to a maximum of $1,000 in increments of $100.

The $1,000 limit for securities, accounts, deeds, etc. may be raised in increments of $100 to a maximum of $2,000.

The $1,000 limit for loss by theft of jewelry, watches, furs and precious stones may be increased in $1,000 increments to a maximum of $5,000, but not exceeding $1,000 for any one article.

The limit of $2,500 for loss by theft of silverware, goldware and pewterware may be increased to a maximum of $10,000 in increments of $500.

The limit of $2,000 for loss by theft of firearms may be increased in increments of $100 to a maximum of $6,000.

The increased limit of coverage desired is listed on the endorsement next to the special limits category that is being increased. This endorsement raises the limits but does not change the perils for which the property is covered.

Additional Residence Rented To Others (HO 24 70)

The additional residence rented to others endorsement can be attached to any of the homeowner’s forms to extend Coverages E-Personal Liability and F-Medical Payments to others to one to four family residences that are owned by the insured and rented to others. The location of the additional residences must be listed on the endorsement along with an indication of the number of families that occupy each. Any premises listed would then be included in the definition of "insured location". Some companies restrict the number of locations that they will insure under this endorsement. If an insured owns more properties than can be covered by addition of HO 24 70 to a Homeowners Policy, liability coverage can be added to separate Dwelling Property Policies covering other locations. Because a loss at a rental location could jeopardize the insured’s coverage for their own home, it is often advisable to cover the liability exposure on the dwelling policy covering the rental property, rather than extending it from the homeowner’s policy, regardless of the number of units owned.

Business Pursuits (HO 24 71)

The Business Pursuits endorsement can be added to any Homeowners form to extend Section II liability coverages to a business pursuit listed on the endorsement. However, this endorsement does not apply to the following:

A business owned or financially controlled by the insured (or the insured as a member in a partnership)

Professional liability

Injury to a fellow employee


Even though coverage provided by this endorsement is limited, it can be useful for persons involved in sales, clerical, and instructional occupations. It is not the proper endorsement to use for insureds who own and operate their own businesses in their homes. When the insured is a teacher, coverage is eliminated for losses arising from saddle animals, aircraft, motor vehicles, watercraft, or corporal punishment of a student. Coverage for teachers may be written to include or exclude liability for the corporal punishment of students.

Watercraft (HO 24 75)

Some types of watercraft excluded under the homeowner’s policy can be covered under Section II by attaching the Watercraft endorsement and scheduling the watercraft on the endorsement. Liability for bodily injury and property damage arising out of the ownership, maintenance, or use of some types of watercraft that are usually excluded may be covered by this endorsement. With the Watercraft endorsement, an insured can purchase coverage for:

Watercraft up to 26 feet long powered by outboard engines or motor exceeding 25 horsepower

Watercraft powered by inboard or inboard-outdrive engines or motors

Sailboats 26 feet or longer, with or without auxiliary power The endorsement does not extend coverage to the following:

Watercraft, other than sailboats, used for racing or competitions

Injuries to employees whose principal duties are the maintenance or use of the watercraft

Watercraft used to carry persons for a fee or watercraft rented to others

Ordinance Or Law-Increased Amount Of Coverage (HO 04 77)

Sometimes the laws regarding building construction change so that damage cannot be repaired or replaced with like kind and quality as specified in the policy. Homeowner forms do not allow additional payments to cover increased costs associated with the tearing down of parts of the structure that were not damaged by a covered peril or the costs to rebuild the structure with different materials and construction methods than were originally used in the construction of the home. For an additional premium, the Ordinance Or Law endorsement may be attached to a homeowner’s policy to cover the additional cost to repair or rebuild a dwelling or other structure to conform to applicable building and land use codes. This endorsement cannot however be attached to the HO 8.

Actual Cash Value Loss Settlement Endorsement (HO 04 81)

In general, the Homeowners policy pays losses to personal property on an actual cash value basis and losses to buildings and other structures on a replacement cost basis. With this endorsement, all covered property losses, including those under Coverages A and B, are settled at actual cash value. However, the insurer will not pay more than the amount required to repair or replace the damaged property. Like


the Functional Repair Cost Loss Settlement endorsement, this endorsement allows the insured to reduce his or her premium by selecting lower limits of coverage.

Personal Injury (HO 24 82)

Under a Homeowners Policy, Coverage E (Personal Liability) provides liability coverage for "bodily injury" and "property damage". For an additional premium, the Personal Injury Endorsement (HO 24 82) may be attached to a policy to extend the coverage to include injury arising out of one or more of the following offenses:

False arrest, detention or imprisonment, or malicious prosecution;

Libel, slander or defamation of character; or

Invasion of privacy, wrongful eviction or wrongful entry. Coverage provided by this endorsement does not apply to:

Contractual liability that does not relate to the insured's premises

Injury caused by the insured's conscious violation of criminal law

Employment-related injuries

Business related and professional liability injuries

Civic or public activities performed for pay

Injury to an insured This endorsement is relatively inexpensive and should be added to all Homeowners Policies, if possible. It may also be a requirement of an insurer to provide excess liability limits under an Umbrella or Personal Excess Policy.

Personal Property Replacement Cost (HO 04 90)

The Personal Property Replacement Cost endorsement can be attached to provide replacement cost coverage on personal property, awnings, carpeting, household appliances, and outdoor equipment. According to this endorsement, replacement cost coverage is not extended to the following property:

Antiques, fine arts, paintings and similar articles of rarity or antiquity that cannot be replaced.

Memorabilia, souvenirs, collectors’ items and similar articles whose age or history contribute to their value.

Articles not maintained in good or workable condition.

Articles that are outdated or obsolete and are stored or not being used.


If a loss occurs to an item that is covered for replacement cost by this endorsement, the insurer will pay no more than the least of the following amounts:

Replacement cost at the time of loss without deduction for depreciation;

The full cost of repair at the time of loss;

The limit of liability that applies to Coverage C, if applicable;

Any applicable special limits of liability stated in this policy; or

For loss to any item separately described and specifically insured in this policy, the limit of liability that applies to the item.

For losses with a replacement cost of more than $500, the insured must actually repair or replace the lost or damaged items before the insurer will pay the replacement cost. The insured can make a claim based on ACV at the time of loss and then make claim within 180 days after the loss for any additional amount based on replacement cost. Many companies automatically increase the Coverage C limit to 70% of the Coverage A limit when Personal Property Replacement Cost is written to compensate for the difference in the value of the property at replacement cost instead of ACV.

Home Business Insurance Coverage Endorsement (HO 05 90)

The permitted incidental occupancies endorsement previously described provides limited coverage for an insured's business activities that are usually conducted from the home. That endorsement might be appropriate for a business with limited property and liability exposures. The Home Business Insurance Coverage Endorsement is also designed for a business that is usually conducted from an insured's home and might be appropriate for a home business with a broader range of property and liability exposures. It provides a wider range of coverages normally found only in a commercial package policy When attached to a homeowner’s policy, this endorsement covers home businesses that generate annual receipts of $250,000 or less, and extends the homeowners coverages for these business considerations:

Property used for home business

Business liability, including products-completed operations

Business income and extra expense

Crime related to home business Four types of business classifications are eligible for coverage:

Services

Office

Sales

Crafts


Excluded from coverage are professional services, such as legal, medical, and other healthcare services, as well as the manufacture, sale or distribution of food and personal care products, such as perfume. To qualify for the endorsement, the business must be owned by one of the insureds named on the homeowner’s policy and any partnership, joint venture, or organization must be made up of the named insured’s resident relatives. The business may have no more than three employees. The coverage B part of the endorsement extends coverage to include other structures listed in the endorsement’s schedule. These other structures are covered against the same perils specified in the coverage policy The coverage C section of the endorsement extends the coverage of the homeowner’s policy as follows:

The limit for money is increased from $200 to $1,000

For business property named in the endorsement, the full personal property limits of the policy apply rather than the $2,500 on-premises and $250 off-premises stated for business property in the homeowners policy item

Property of others in the insured’s care, as well as leased property the insured has contractual obligation for, are covered by the endorsement item

Business property away from the insured residence, except for money and securities, is covered up to $5,000 rather than the $250 specified in the homeowners policy item

The section I Additional coverages are extended by the endorsement as follows:

Trees, shrubs, and plants grown for business purposes are now covered

The limit for credit coverage is increased from $500 to $1,000 and, per the endorsement, also includes business credit cards, transfer cards, and counterfeit money

Accounts receivable are covered for up to $5,000 on-premises and $2,500 off-premises under the heading Accounts Receivable, described in the paragraph following

Valuable papers and records that haven’t been duplicated are covered up to $2,500 Loss of business income, as well as additional business expenses that are incurred because of damage to the insured home or structure used for business, are covered for up to 12 months. Also covered is actual loss of business income and extra expense (for up to three weeks) caused by a civil authority action that prevents access to the business property. In section II of the endorsement, business liability coverage is extended for both coverages E and F. Professional services, such as legal and medical services, as well as pollution liability, are excluded from coverage. The coverage is similar to a Commercial General Liability CGL policy, but much less broad. The specific conditions and exclusions of the coverage are not described here, but should be reviewed carefully. Aggregate limits of liability must be specified. Amounts for products-completed operations and all other business liability must be entered, as well as an amount for medical payments to others. Personal liability coverage E for bodily injury and property damage is covered for the products-completed operations hazard only if the damage is caused by an occurrence within the coverage territory during the policy period coverage E is also extended to include personal injury and advertising injury, subject to certain exclusions and conditions. Coverage F, medical payments to others, covers bodily injury caused by an accident related to business activities, within the business territory and during the policy period.


Coverage B - Off Premises (HO 04 91)

This endorsement is used to add Coverage B for other structures that are owned by the insured but located away from the residence premises, if used by the insured in connection with the residence premises. But coverage does not apply to other structures being used as a dwelling, being used for business, or rented to a person who is not a tenant of the dwelling. This form does not specify an amount of insurance - it simply includes such other structures within the Coverage B limit shown on the policy, therefore the Coverage B limit must be reviewed carefully.

Specific Structures Away From the Residence Premises (H0 04 92)

This is a variation of HO 04 91 above. The insuring agreement and exclusions are the same, but here specific amounts of insurance are scheduled for each described structure located away from the premises. These are additional amounts of insurance and do not affect the Coverage B limit for structures on the residence premises.

Water Back Up And Sump Overflow (HO 04 95)

The Water Back Up And Sump Overflow endorsement can be added to cover direct physical losses to covered property caused by water backup through sewers and drains or from sump overflow, including damage that occurs when mechanical breakdown of the sump pump causes an overflow. It does not provide coverage for any loss caused by an insured's negligence. A special deductible of $250 applies to this endorsement and replaces any other deductible that might apply to the policy. This deductible does not apply to Coverage D-Loss Of Use.

Home Day Care Coverage (HO 04 97)

Home day care centers represent a special kind of incidental occupancy. Caring for other people’s children in one’s home subjects an individual to liability not contemplated by standard Homeowners forms. In recent years, increased litigation involving home day care centers has made this exposure difficult to insure. The home day care coverage endorsement can be used to extend coverage to a home day care business if an insurer is willing to provide this coverage. The number of persons receiving day care services is listed on the endorsement. As is information about the location of the day care center, whether it is in the dwelling or in another structure on the residence premises. The endorsement extends the Coverage C limit to cover personal property used in the day care business. Therefore, the $2,500 limit for personal property on the residence premises used for a business purpose does not apply to the property used in the day care business. Section II liability coverages are extended under the endorsement to include bodily injury and property damage arising out of home day care services. The limit of liability for Coverage E is changed from an occurrence limit to an annual aggregate limit of coverage. An occurrence limit is a specific limit on the amount an insurer will pay for all covered losses from a single occurrence. An aggregate limit is a specific limit on the amount an insurer will pay for all covered losses during the policy period. An aggregate limit is not found in the typical personal lines insurance policy.


The Home Day Care Coverage endorsement excludes coverage for bodily injury or property damage arising out of sexual molestation, corporal punishment, or physical or mental abuse inflicted by or at the direction of an insured or an insured's employee, or arising out of the maintenance, use, loading or unloading of draft or saddle animals, vehicles for use with such animals, motor vehicles, aircraft or watercraft. It is the intent of the endorsement to cover the typical exposure of a day care business resulting from having children on the premises, but not to insure intentional acts of an insured or additional exposures arising from high-risk activities (such as riding horses) which are not essential to day care.

Refrigerated Property Coverage (HO 04 98)

Section I of a Homeowners policy excludes loss caused by power failure, and even when special "all risk" coverage is written for personal property losses caused by mechanical breakdown are excluded. This form may be used to provide $500 of coverage for property stored in freezers or refrigerators on the residence premises by interruption of electrical power, or mechanical failure of the unit storing the property.

MISCELLANEOUS OTHER ENDORSEMENTS

Various other endorsements are available to insure specific exposures that are either not covered by the terms of a Homeowners Policy or are excluded by the policy forms. In addition, some companies will prepare "manuscript" endorsements for situations which are insurable, but for which no standard endorsement exists (this means they will draft a form specifically providing a particular coverage). When it appears that an endorsement is not available for a particular exposure, an agent has nothing to lose by asking the insurance company if the risk can be insured.

State-Specific Endorsements

States individually regulate insurance operations within their borders. Policy forms and endorsements that are developed for countrywide use must be approved by each state. Frequently, a state will require that a policy form be modified before approving it. A policy can be modified by creating a special version of the form for use within that state. More frequently, an endorsement is developed that modifies the standard policy form. Some state endorsements provide optional coverages that can be used within the state. In other cases, an endorsement might provide a coverage that is mandatory for all policies issued in that state. For instance, in California, workers compensation benefits for injuries to a residence employee must be added to a homeowner’s policy by endorsement (two coverages are provided—statutory workers compensation benefits, and employers liability). Various state laws pertain to EQ coverage. For Instance under California law, no policy of residential property insurance may be issued or delivered unless coverage is offered to the named insured. The offer may be made prior to, concurrent with, or within 60 days following the policy effective date. If the offer is accepted, the coverage will be provided. If the offer is not accepted, the insurer must notify the insured that the policy does not include earthquake coverage. Insurance professionals should become familiar with the endorsements that are required or available within their states of operation.


1984 HOMEOWNERS POLICY

The 1984 Homeowners policy is still used by a small number of insurers. It contains the same basic coverages as the 1991 Homeowners policy, with some important modifications. The Supplemental Provisions (HO 350) endorsement must be attached to the 1984 Homeowners policy. This endorsement changes the 1984 policy in a number of different areas, many of which are included in the 1991 Homeowners forms, as you'll see as you review the key differences in the 1984 forms. In the 1984 Homeowners forms:

A $1,000 Coverage C special limit of liability for grave markers is included.

The $1,000 Coverage C special limit of liability for loss to electronic apparatus is not included.

The $1,000 Coverage C special limit of liability for securities, accounts and deeds does not include restoration of lost information from personal records. (It is provided by the Supplemental Provisions endorsement.)

The exclusion for loss to paper or electronic records containing business data does not include the exception for prerecorded programs available on the retail market. (This exception is provided by the Supplemental Provisions endorsement.)

The Glass Or Safety Glazing Material is a peril insured against instead of an Additional Coverage.

The HO 2 and HO 3 forms do not include the Landlord's Furnishings Additional Coverage.

The Accidental Discharge Or Overflow Of Water Or Steam peril in the HO 2 and HO 3 forms does not cover loss caused by constant or repeated seepage or leakage over a period of time.

In the HO 4, and HO 6 forms, the definition of "plumbing system" in the Accidental Discharge Or Overflow Of Water Or Steam peril includes a sump and related equipment. (The Supplemental Provisions endorsement changes this definition to exclude a sump and related equipment.)

The Earth Movement exclusion does not include mine subsidence.

The Water Damage exclusion does not include overflow from a sump. (The Supplemental Provisions endorsement changes this definition to exclude overflow from a sump.)

Prejudgment interest in Coverage E—Personal Liability is not part of the limit of liability; it is an Additional Coverage. (The Supplemental Provisions endorsement provides that prejudgment interest is part of the limit of liability.)

The Section II exclusions for communicable diseases, sexual molestation, corporal punishment or physical or mental abuse, or liability arising out of the use, sale, manufacture, delivery, transfer, or possession of nonprescription drugs are not included.


UNDERWRITING & RATING HOMEOWNERS COVERAGE

Most homeowner’s policies are issued by insurers on a simplified basis, with the application focusing on certain key information. If the occupants meet the eligibility requirements, the three key underwriting considerations are:

The territory in which the home is located

The home's construction

The protection class assigned to the town in which the home is located Pictures of the insured property can be helpful to an underwriter. The housekeeping appearance of the property might also be an indication of physical, moral, and morale hazards. Pictures can also help to uncover potential exposures

HOMEOWNERS INSURANCE PREMIUMS

The premium for a Homeowners policy is based on four key factors:

The fire protection available

The construction of the dwelling

The dwelling's location

The amount of coverage selected For all forms except the HO 4 and HO 6, the base rating factor is based on the policy's coverage A-Dwelling limit of liability. For the HO 4 and HO 6, it is based on the Coverage C-Personal Property limit of liability. Of course, optional coverages and increased limits of coverage will also affect the premium.


How Insurance Companies Use Premium Dollars

Insurance companies collect premiums to pay two types of costs. A premium dollar is typically divided between expected losses and company expenses, with the largest percentage used to pay losses. The loss portion of the premium pays for claims and expenses specifically associated with handling them. The expense portion includes other costs incurred by the company, such as overhead, commissions and taxes. It also includes allowances for contingencies (unexpected events or expenses) and profit. Loss Costs A company must collect enough premium to cover the losses of its insureds, as well as the other costs of claim handling, such as providing a legal defense for an insured. Most insurers use loss costs determined by ISO and other rating organizations based on statistical data collected and analyzed from member insurance companies and adjusted by insurance companies based on their own loss experience. Some insurance companies do not belong to a rating organization and, instead, develop their own loss costs. These loss costs are called “prospective” loss costs because they are based on historical data on losses that have already occurred which is then adjusted to account for inflation and other trends to establish the amount needed to pay for average expected losses. Each insurance company adjusts these loss costs based on its own loss experience. Expenses, Contingencies And Profit In addition to covering loss costs, rates must anticipate three other cost categories:

Expenses

Contingencies

A modest profit

DEVELOPING A HOMEOWNERS PREMIUM

Rating a homeowner’s policy according to ISO rules is a relatively simple process. First a base premium is developed. The base premium is determined by the location of the dwelling, the fire protection afforded in that area, the type of construction, the amount of coverage, and the policy form. This base premium is then modified if there are unusual construction factors, an increased deductible, or endorsements that increase or decrease the coverage provided. Factor Rating Premiums for Homeowners insurance policies are calculated by a system called factor rating. With this method, finished rates are organized in a company rate manual according to varying class and risk characteristics. The appropriate rate is then selected and modified by the rating factor and the various rules governing the rate manual.


In some companies, loss costs are first selected from charts in a manual published by ISO, then an expense base rate is applied to determine the base premium. The base premium is then modified to account for any optional endorsements or coverages, deductibles or changes in coverage amounts that the insured has selected.

DEVELOPING A BASE PREMIUM

The main factors used in developing a base premium for a homeowner’s policy:

Territory

The property's location may entail both susceptibility to loss (near coastal hurricane zones or in high-theft neighborhoods) and availability of protection services (for example, the proximity, training, equipment, and water supply of the responding fire departments). Every location rated on a Homeowners policy is assigned a territory code. The assignment of territory codes is a method of classification of towns and counties based on loss experience. Homes located in areas with high loss experience cost more to insure than homes located in areas with lower loss experience. The territory is a geographical division within a state. Sometimes the territory is defined by the borders of a city or a county. Other territories are defined by geographical locations such as major highways or waterways.

Protection Class

The protection class assigned to the town in which the insured home located is also considered in the base premium. Protection class is determined by the quality and location of fire-fighting and other protective services (including available water and water pressure) supplied by the community in which the home is located. Each protection class is assigned a number according to its protection ranking. The numbers range from 1 through 10, with 1 being the best protection class. Protection class 10 usually has no responding fire department within ten miles and no fire hydrant within 1,000 feet.

Construction

Building construction plays a major role in how rapidly a home burns and, subsequently, how much premium is needed to cover a loss. The two major classifications for home construction are frame (dwellings that have exterior walls made of a combustible material such as wood, including stucco on wood or plaster on combustible supports) and masonry (dwellings that have exterior walls made of noncombustible materials such as brick or stone). Frame dwellings cost more to insure than masonry dwellings because they are more likely to be damaged by fire. Variation in Construction Type Dwellings with "superior construction," such as buildings with exterior walls, floors, and roof constructed of metal, gypsum, masonry, or other noncombustible materials, are rated by developing a base premium for masonry construction and applying a factor that lowers the base premium.


Coverage Amount

Proper valuation of both the dwelling and personal property is often the weak point of property insurance, being susceptible to inaccurate methods and sometimes pure speculation. The insurer is concerned only with repair and replacement costs of the property, not sales values or land values. Real estate sales values are misleading factors in proper building insurance valuation. In recent years the impact of building ordinances and laws have added significantly to the costs of repairing and replacing damaged homes. These ordinances often relate to the type of material used in repairs or reconstruction (such as fire-resistive roof coverings) or to the way a dwelling is rebuilt (such as including earthquake or wind-resistive features). As the years pass after a home is originally purchased, these changing laws can tremendously increase insurable values, without the insured (or the producer) knowing. Along with proper analysis of the building values, personal property valuation must not be overlooked, particularly when scheduling items on endorsements and/or floaters. Producers should always ask their insureds for details about any personal property that could have significant values (musical instruments, art, collectibles, antiques, and so on), whether scheduled or not. Where the values are significant, appraisals are of great value in both determining proper insurance coverage and in settling losses. For all Homeowners forms except the HO 4 and HO 6, the base factor is based on the Coverage A limit of liability; for the HO 4 and HO 6, the base rate is based on the Coverage C limit of liability. The greater the limit of liability, the higher the premium charged.

Policy Form

The policy form also affects the homeowner’s base premium. Generally, the broader the coverage form – the higher the premium. ISO is not the only source of policy forms. AAIS also provides homeowners forms, which differ from ISO forms in various ways and which can be customized to meet the needs of insurers and their customers. In addition, some companies design their own forms and file them for approval by the state insurance departments.

Adjusting The Base Premium

Not all homeowners have the same loss exposures, and policy forms are frequently altered by changing the deductible or the coverage or by adding endorsements. Alterations made to the standard policy forms usually result in an adjustment to the base premium. If the coverage or the loss exposure is increased, the base premium is increased; if the coverage or the loss exposure is reduced, the base premium is reduced. The methods for adjusting the base premium vary.

Change In Deductible

The standard deductible for all ISO policy forms for Section I Property Coverages is $250. The deductible can be increased up to $2,500 or decreased to $100. Separate deductibles that apply to the perils of theft or windstorm and hail can also be increased or decreased. In general, the higher the deductible, the lower the premium and vice-versa.


AGENT’S RESPONSIBILITIES

Far from being a generic commodity, a homeowner’s policy, in the hands of a knowledgeable producer, can be tailored into a nearly limitless variety of coverage programs. Coverages and endorsements are the insurance producer's sales tools. Numerous options are available from ISO to tailor homeowner’s policies to an insured's needs. There are also numerous additional options available from individual carriers. The producer should approach a potential homeowner’s sale by asking questions and analyzing the answers to help the client determine:

Policy form

Policy limits for Coverages A, B & C and liability

Inflation guard

Coverage C special limits

Special exposures or hazards

Property that should be separately scheduled

Occasionally rent a residence to others

Watercraft or aircraft exposures

Business use of dwelling or other structures

Options or endorsements

Deductible


DWELLING POLICIES

INTRODUCTION

Although the Homeowners policy is widely used to insure residential dwelling and their contents, however it is not appropriate in certain situations. Some dwellings are not eligible for homeowner’s forms and some insureds do not wish to purchase the broad package of coverage in the homeowner’s policy. In such cases the Dwelling Policy may be used to provide protection for individuals and families against loss to their residential structure (dwelling) and/or contents (personal property). Dwelling policies are often used to insure dwellings that do not qualify for Homeowners insurance. For example, a home that is rented to tenants. Dwelling policies are also frequently used to insure seasonal and vacation homes. Dwelling policy forms filed by the Insurance Services Office (ISO) are in use in nearly every state. Some insurers sell policies, which deviate slightly from the standard ISO forms. This text will review the standard 1989 edition of ISO dwelling property policy forms. Please refer to the charts in the Appendix.

POLICY MODERNIZATION

At one time, all dwellings were insured by attaching a dwelling building and contents form to a standard fire policy. Endorsements were then used to add coverage for additional perils and to make other changes in coverage according to the needs of the insured. Dwelling coverages gradually evolved into homeowners coverages, which included property insurance and liability coverages. Many early homeowner forms were also attached to a standard fire policy. In recent decades, various modifications have been made in the policy language and structure of forms designed to insure dwellings. Dwelling and homeowner coverage forms evolved into complete, stand-alone insurance policies. With the latest policy revisions, the gap between dwelling and homeowner coverages has closed. Personal liability insurance and other coverages that are associated with homeowner policies have now become options under dwelling policies in the majority of states.


COMPONENTS OF A DWELLING POLICY

Declarations page

Dwelling property coverage form (three forms available)

Optional theft coverage

Optional personal liability supplement

Various endorsements

DWELLING PROPERTY COVERAGE

Eligibility

Many residential dwellings are ineligible for homeowner’s coverage because of the building's age, location or value. Other dwellings are ineligible because of the number of living units involved. Still others are ineligible because they are tenant occupied. Dwelling policies are available for a wider range of risks but there are still some risks ineligible for dwelling coverage as well.

Dwelling forms may only be written for property that is used principally for private residential purposes, and the named insured must usually be an individual or a married couple. To be covered under a Dwelling policy, a dwelling must be a residential structure that contains no more than four apartments, and is occupied by no more than five roomers or boarders. Townhouses or row houses are eligible. Dwellings in the course of construction are also eligible. The dwelling does not have to be occupied by the owner; in fact dwelling policies are primarily issued to cover non-owner occupied buildings.

A Dwelling policy may also be used to insure a mobile home meeting certain qualifications. Mobile homes may only be covered under the Basic form. Permanently located mobile homes are eligible, but can only be insured under the basic coverage form. Farm dwellings are not eligible, as they must be written on special farm coverage forms.

Permitted Incidental Occupancies

Eligible dwelling property need not be exclusively residential. Certain incidental business and professional occupancies are allowed if these operations are conducted by the insured, provide service rather than sales, and involve no more than two people working on the premises at any one time. Examples of permitted occupancies include beauty parlors, photographic studios, and professional offices.

Persons Insured

Insurance on the dwelling and any other structures is provided for the named insured, and for the named insured's spouse if a resident of the same household. If personal property is insured, the named insured and all members of the insured's family residing at the described location are covered for property that they own or use. The personal property of guests and servants may be covered at the option of the named insured. If the named insured dies, coverage continues for the insured's legal representatives. Until a legal representative is appointed, a temporary custodian of the insured's property would also be covered.


THREE DWELLING FORMS

Like the Homeowners policy, the Dwelling policy is available in the forms: Basic form (DP-1)

Broad form (DP-2)

Special form (DP-3) The coverages are similar to the equivalent Homeowner form, however in all cases, the HO forms provide broader coverage than the DP forms. Several charts appears in the Appendix of this text summarizing the differences between the various DP forms.

COVERAGES

A total of five insuring agreements are found on dwelling forms. The wording of the agreements is identical on all forms. Three describe property covered, and two describe specific types of covered losses. The available coverages are:

Coverage A—Dwellings

Coverage B—Other Structures

Coverage C—Personal Property

Coverage D—Fair Rental Value

Coverage E—Additional living expense Coverages A, B, C, and D are available on all forms. Coverage E is found only on the Broad and Special forms, but it may be added to the basic form by endorsement. All or any of the property coverages (A, B. C) may be purchased in any combination. Coverages D and E are available only if at least one of the property coverages (A, B or C) is purchased. Each coverage is effective only when a limit of liability for it is shown on the policy and a premium is stated. Coverages D and E provide coverage for indirect losses, but only if property insured by Coverages A, B. or C becomes unfit for normal use due to damage by a peril insured against. The date of initial property damage triggers the coverage, and payments under Coverage D and E are not limited by policy expiration. Payments will be made for the shortest time required to repair or replace the property or, if sooner under Coverage E only, until the date the insured permanently settles in a new residence. If a civil authority prohibits use of the insured property because a peril insured against has damaged a neighboring location, Coverages D and E limit payments to a maximum period of two weeks.

OTHER COVERAGES

All of the dwelling forms include "other coverages," which are extensions of the major coverages. The basic form includes eight other coverages. The broad and special forms make some modifications to these 8 coverages and include three additional coverages, for a total of 11.


BASIC FORM COVERAGES

The Dwelling Basic form (DP 1) can be used to provide coverage for these property items:

Coverage A--Dwelling

Dwelling coverage applies to the residence shown in the declarations, includes structures attached to the dwelling, materials and supplies for use in the construction or repair of the dwelling or other structures at the location, and building or outdoor equipment used to service the premises.

Coverage B--Other Structures

Other structures on the described location that are separated from the dwelling by a clear space, or connected only by a fence, utility line, or similar connection, may be insured under Coverage B. Buildings on the premises, but not in contact with the dwelling, which are not used for commercial, manufacturing or farming purposes. Ten (10) percent of the insurance on the dwelling applies to other structures.

Coverage C--Personal property

Coverage C applies to personal property at the described location, which is usual to dwelling occupan-cy, and is owned or used by the insured or members of the insured's family. At the insured's request, the personal property of guests or servants may be covered. Coverage also applies to property moved from the described location to another residence of the insured within the same state. The amount of insurance that applies is divided between the described location and the new location, according to the proportion of property at each location. This coverage is sometimes known as automatic removal. This coverage will automatically apply at the new location for 30 days, but not beyond the policy expiration date. These items of personal property are not covered: Money, securities, manuscripts, bullion, currency, accounts, deeds, evidences of debt

Bank notes, coins, gold other than goldware, letters of credit, medals, personal records, platinum, silver other than silverware, tickets, stamps

Books of account, drawings and other paper records, electronic data processing tapes, wires, records, discs, or other software media (does not apply to blank recording or storage media or prerecorded media)

Credit cards and fund transfer cards Animals, birds or fish

Aircraft

Motor vehicles, other than motorized equipment used to maintain the premises

Boats, other than rowboats and canoes


Coverage D--Loss Of Fair Rental Value

When a direct loss due to a covered peril leaves a rental dwelling uninhabitable, the insured can no longer receive the rent they would have been able to collect had the loss not occurred. Coverage D will pay the fair rental value of that part of the described location rented to others or held for rental at the time of damage. "Fair rental value,” means the rental value minus expenses which do not continue while the property is unfit for use, such as heat and electricity.

PERILS COVERED—BASIC FORM

Fire, Lightning, And Internal Explosion

The basic dwelling property form provides the most limited dwelling coverage. Under the Basic form, only fire, lightning and internal explosion are insured against.

Internal explosions are those that occur within a covered dwelling, other structure, or within a structure containing covered personal property, but electric arcing, breakage of water pipes, or breakage or operation of pressure relief devices are not covered. Typical covered losses would include the explosion of a furnace, stove or hot water heater. The explosion of steam boilers or steam pipes owned, leased, operated, or controlled by the insured is excluded.

EXTENDED COVERAGE (EC) & VANDALISM OR MALICIOUS MISCHIEF (V&MM)

If desired, to the insured can add additional covered perils: the "Extended Coverage" (EC) perils and "Vandalism or Malicious Mischief" (V&MM) coverages. The additional EC and V&MM perils are printed on the basic form, but insurance against them is not provided unless a premium for EC, or EC and V&MM, is shown in the policy declarations.

Extended coverage is a package of additional covered perils including:

Riot and Civil Commotion

Riot and Civil commotion

Explosion

Explosion, under extended coverage, replaces the internal explosion peril that is automatically a part of every Dwelling policy. This peril is slightly broader than "internal" explosion, because the explosion does not have to occur "in" the dwelling or structure. This explosion peril encompasses both internal explosions and other types of explosions are covered.

Vehicles

Vehicles, but not vehicle damage to fences, driveways, and walks, and not damage caused by any vehicle owned or operated by the insured or any resident.

Smoke

Sudden and accidental damage from smoke, but not smoke from fireplaces or from agricultural smudging or industrial operations.


Aircraft

Aircraft, including self-propelled missiles and spacecraft and things that fall from them.

Windstorm Hail

Windstorm or hail but Interior damage covered only if wind or hail first makes an opening. Awnings, signs, and antennas are not covered when outside of buildings.

Volcanic Eruption

Volcanic eruption other than loss caused by earthquake, and land shock waves or tremors

Vandalism and Malicious Mischief (V & MM)

If Extended Coverage is purchased, the insured may also add coverage against Vandalism and Malicious Mischief (V&MM) for an additional premium. V&MM does not cover glass parts of a building other than glass building blocks, or losses by theft (but building damage caused by a burglar is covered), or damage by vandals after the building has been vacant for 30 consecutive days or more.

OTHER COVERAGES

In addition to the listed perils, the Dwelling policy includes certain Other Coverages, which are often called extensions of coverage:

Property Removed

Removal coverage covers loss to property that occurs while the property is being removed to protect it from a peril insured against. Coverage applies to direct loss from any cause while the property is removed (all-risk). Coverage is provided for only a short period (5 days on the basic form, 30 days on the broad and special forms). This coverage does not change the limit of insurance for the property removed. Items with sublimits would still retain those limits.

Other Structures

The insured may use up to 10% of the Coverage A limit for loss to other structures by a covered peril. This coverage is identical to that provided by Coverage B so an insured with a minor exposure may not need to purchase a specific amount of Coverage B. Under the basic form, application of this payment for loss reduces the remaining insurance on the dwelling by an equal amount for the same loss. Under the broad and special forms, this coverage is additional insurance, without charge, and does not reduce dwelling coverage.

Debris Removal

All Dwelling forms cover reasonable expenses for removing debris resulting from a property loss that is covered by the policy. This coverage also applies to the removal of ash, dust and particles from a volcanic eruption that has caused a direct loss to a building or property contained in a building. Debris removal coverage is not additional insurance. Any payment for debris removal is subject to the policy limit for the particular coverage that applies to the loss.


Reasonable Cost For Repairs

When property is damaged by a covered peril, all forms cover the reasonable costs for repairs made to protect the property from further damage. This is not additional insurance, and the loss and the expenses will be subject to the policy limit for the particular coverage.

Tenant's improvements, alterations, and additions

When the insured is a tenant, up to 10% of the Coverage C limit may be used for loss by a covered peril to improvements, alterations, and additions made or acquired at the insured's expense for the insured's own use. Under the basic form, such payment for loss reduces Coverage C by an equal amount. Under the broad and special forms, this coverage is provided automatically, without cost, as an additional amount of insurance.

Fire Department Service Charges

If firefighters are called to save or protect covered property from a peril insured against, all forms provide up to $500 of coverage for fire department service charges for which the insured has assumed liability under contract or agreement. The charges are not covered, however, if the property is located within the city, municipality or fire protection district furnishing the service. This coverage is additional insurance and is not subject to any deductible.

Worldwide Personal Property Coverage

Under all forms, up to 10% of the Coverage C limit for personal property (other than rowboats and canoes) while it is anywhere in the world. Under the basic form only, this coverage is not available for the property of guests and servants. Payment under this coverage is part of the Coverage C limit and does not provide additional amounts of insurance under any of the forms.

Rental Value Or Combined Rental Value And Additional Living Expense

The basic form allows the insured to use up to 10% of the Coverage A limit (limited to 1/12 of the 10% monthly) for fair rental value coverage is identical to Coverage D, so an insured with a small exposure may not have to purchase a specific amount of Coverage D. Payment under the Basic form reduces the Coverage A limit by an equal amount. Under the Broad and Special forms, up to 10% of the Coverage A limit is provided as additional insurance, which may be applied against loss of fair rental value and additional living expenses (identical to Coverages D and E), and the payment will not reduce the Coverage A limit. Insureds whose exposure exceeds the 10% extension should purchase sufficient amounts of Coverages D and E.

CONDITIONS

The conditions set the rules for the policy for both the insurer and the insured. Dwelling forms include conditions that are common to property insurance coverages.

Loss Settlement

Covered property losses are valued at actual cash value, but not to exceed the amount necessary to


repair or replace.

Our Option

The insurer has the right to repair or replace damaged property with equivalent property within 30 days of receiving the insured's statement of loss.

Deductible Clause

The deductible clause is actually contained in the Declarations and states that only the amount of loss over the deductible will be paid, up to the limit of liability.

Pair Or Set

In the case of loss to an item that is part of a pair or set, the insurance company is not obligated to pay the value of the entire set. The company may either repair or replace part of the set or pay the difference between the actual cash value of the property before and after the loss.

Loss Payment

Payment of the loss will be made within 30 days after reaching an agreement with the insured.

Other Insurance

If a loss is also covered by other insurance, the insurance company will pay only its proportion of the loss.

Recovered Property

If either the insured or insurer recovers property after the insurer has made loss payment, the other party must be notified. The insured may have the property returned, in which case the loss payment will be adjusted, or allow the company to keep it. The decision is up to the insured.

Cancellation and Nonrenewal

The cancellation clause of a dwelling form requires only 10 days advance notice from the insurer when the policy is being cancelled for nonpayment of premium, or for any reason during the first 60 days that initial coverage is in effect. After a policy has been in effect for at least 60 days, or after a policy has been renewed, the insurer must give at least 30 days advance notice of cancellation. The insurer may cancel only for limited reasons such as nonpayment of premium, conviction of a crime that increases the hazard, fraud or misrepresentation, grossly negligent acts or omissions which substantially increase the hazard, or physical changes in the property which result in it becoming uninsurable. In all cases where the insurer decides not to renew a policy, it must give at least 30 days advance notice of nonrenewal. Some states require different periods of advance notice.

Liberalization Clause

If the insurer makes any change in the current edition of a policy that broadens the coverage without additional premium, during the policy period or within 60 days prior to the effective date, such change will automatically apply to current policies that are in force.


BROAD FORM, SPECIAL FORM

Coverages And Perils Insured Against

For insureds who want broader Dwelling coverages, two other Dwelling forms are available: Broad form (DP-2) Special form (DP-3) Besides providing coverage against a greater number of perils, the Broad and Special forms also provide one major additional coverage and several additional coverages not found on the basic form. All three Dwelling forms include coverage for Coverage A—Dwellings, Coverage B—Other Structures, Coverage C—Personal Property, and Coverage D—Fair Rental Value. Broad and Special Form add:

Coverage E--Additional Living Expense

Like Fair Rental Value, Additional Living Expense covers indirect loss. Coverage E will pay additional living expenses incurred by the insured while the property is unfit for use. "Additional living expenses" means any necessary increase in living expenses incurred so that the household can maintain its normal standard of living such as reasonable motel, dining, laundry, and transportation expenses. These are covered for the time needed to repair or replace the damaged property or become settled in permanent quarters elsewhere. Coverage E (Additional living expense) may be added to the Basic Form (DP 1) by endorsement.

OTHER COVERAGES

The DP-2 and DP-3 forms include all of the additional coverage found in the DP-1. In addition three additional Coverages are found on broad and special forms:

Lawns, Trees, Shrubs, And Plants

The Broad and Special forms provide coverage for loss of lawns, trees, shrubs and plants only when caused by the specific perils of fire, lightning, explosion, riot or civil commotion, aircraft, vehicles not owned or operated by a resident of the described location, vandalism or malicious mischief (but not theft). This coverage is provided as additional insurance. The maximum coverage for any one tree, shrub or plant is $500, and total coverage is limited to 5% of the amount of insurance for Coverage A.

Collapse Of A Building

The Broad and Special forms provide coverage for direct property loss involving the collapse of a building or any part of one. This coverage is not additional insurance. Collapse is covered only when caused by certain specified perils: any of the broad form perils, or hidden decay, hidden insect or vermin damage, the weight of contents (including equipment, animals, or people), weight of rain collected on a roof, or use of defective building materials or methods when the collapse occurs during the course of construction, remodeling or renovation. "Collapse" does not include the settling, cracking, shrinking, bulging or expansion of a building.


Breakage Of Glass Or Safety Glazing Material

The Broad and Special forms provide coverage for the breakage of glass or safety glazing material which is part of a covered building, storm door or storm window, and any damage to other covered property which is caused by the breakage of such glass or safety glazing material. However, this coverage does not apply if the dwelling has been vacant for more than 30 consecutive days immediately before the loss. This coverage is not additional insurance. Loss for damage to glass will be settled on the basis of replacement with safety glazing material when required by law.

REPLACEMENT COST CLAUSE

Both the DP-2 and DP-3 include Replacement Cost coverage in the Loss Settlement condition. In return for agreeing to maintain a certain level of insurance, the insured will receive the benefit of having a damaged building restored at its replacement cost, with no deduction for depreciation, rather than at actual cash value. For this replacement cost provision to apply, the insured must maintain an amount of insurance equal to 80% or more of the full replacement cost of the building structure. To determine the actual reimbursement when the insured carries less than 80% of replacement cost, the company will use whichever of the following methods that yield the largest payment to the insured:

The ACV of the part of the building damaged

A proportion of the cost to repair or replace the damaged property equal to the amount the insurance coverage bears to 80% of the building's replacement cost

But in no case will the insurance company pay more than the policy limit.

PERILS COVERED—BROAD FORM

Like the Basic form, the Broad form is also a named perils policy and lists the perils that both buildings and personal property are insured against. However, it expands coverage by broadening certain perils covered under the Basic form and including additional perils as well. The broad form automatically includes all of the standard and optional perils available on the basic form—fire, lightning, EC and V&MM. It broadens the following three perils in the following ways:

Explosion

The broad form does not exclude steam boilers or steam pipes as the basic form does, and one of the additional perils specifically covers steam system losses

Vehicle

The broad form only excludes damage to fences, driveways and walks when caused by a vehicle owned or operated by an insured or resident, and does not exclude such damage when caused by a nonresident nor does it exclude damage to other types of property caused by an insured or resident (the basic form excludes all damage to fences, driveways and walks, and all damage caused by vehicles owned or operated by an insured or resident)


Vandalism Or Malicious Mischief

Under V&MM, the Broad form does not exclude loss to glass parts of a building, because one of the other coverages specifically insures glass or safety glazing material; nor does it exclude all damage caused by burglars other than damage to buildings, because one of the broad form perils specifically addresses damage by burglars.

The Broad form also adds coverage for the following seven perils that are not covered by the basic form:

Damage To Covered Property Caused By Burglars,

Damage by burglars includes damage done to covered property during a burglary, but excludes property taken during a burglary. The basic form only covers building damage done by burglars.

Falling Objects

Damage caused by falling objects, but not damage to awnings, fences, outdoor equipment, or outdoor radio and television antennas and aerials including their lead-in wires, masts and towers. Damage to a building's interior or its contents is covered only if the falling object first damages the roof or an exterior wall.

Weight Of Ice, Snow Or Sleet

Damage to a building or its contents caused by weight of ice, snow, or sleet. This peril does not cover damage to an awning, fence, patio, pavement, swimming pool, foundation, retaining wall, bulkhead, pier, wharf or dock.

Accidental Discharge Or Overflow At The Described Location Of Water Or Steam

Accidental discharge of water or steam from within plumbing, heating, air conditioning, or automatic fire protective sprinkler systems and household appliances. This peril does not include loss caused by continuous or repeated leakage or seepage, loss caused by freezing, loss to the system or appliance from which water or steam escaped, or loss caused by an accidental discharge or overflow which occurs off the described location.

Sudden And Accidental Tearing Apart, Cracking, Burning, Or Bulging

Sudden and accidental tearing apart, cracking or burning of a steam or hot water heating system, an air conditioning or automatic fire protective sprinkler system, or an appliance for heating water, but not loss caused by freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system, or of a household appliance.

Sudden And Accidental Damage From Artificially Generated Electrical Current,

Sudden and accidental damage from artificially generated electrical current but not damage to a tube, transistor, or similar electrical component.

Sudden And Accidental Damage From Smoke From Fireplaces

Sudden and accidental damage from smoke from fireplaces.


Collapse

Collapse of buildings.

Freezing

Freezing of plumbing, heating, air conditioning, or automatic fire protective sprinkler systems and household appliances. The freezing peril is suspended whenever the dwelling is vacant, unoccupied, or being constructed, unless reasonable care was taken to maintain heat in the building, or to shut off the water supply and drain systems and appliances. The burglar and discharge or overflow perils are suspended whenever the dwelling has been vacant for more than 30 consecutive days.

PERILS COVERED—SPECIAL FORM

The Special form, DP 3, provides the most complete coverage available under the dwelling program. It is slightly more complicated than the Basic or Broad form because in some respects it is an open peril form and in others a named perils form. The open perils apply only to the dwelling and other structures. Personal property is insured against named perils, the same perils contained in the DP 2.

Dwelling And Other Structures (A And B)

Under Coverages A and B, coverage is provided for the dwelling and other structures against any risk of direct physical loss which are neither excluded nor limited.

Personal Property (C)

Perils covered are the same as those on the Broad Form.

EXCLUSIONS -- PROPERTY AND LOSSES NOT COVERED Only the Basic form excludes coverage for outside lawns, plants, shrubs, and trees, because the Broad and Special forms provide limited coverage for that property as an extension of dwelling coverage. On the dwelling forms, types of property and losses that are not covered are described by the wording of the insuring agreements and by the General Exclusions section of the policies. The Dwelling policy Special form only includes the following exclusions for loss to the dwelling or other structures (but any resulting loss which is not excluded will be covered):

Land

Land including the land on which the dwelling or other structures are located.

Other Structures Used For Business

Other structures used in whole or in part for commercial, manufacturing, or farming purposes.


Other Structures Rented Or Held For Rental

Other Structures rented or held for rental, except as a private garage, to any person who is not a tenant of the dwelling.

Cancellation Of A Lease Or Agreement

Under coverages for fair rental value and additional living expense, any loss or expense due to cancellation of a lease or agreement.

Accounts, Bank Notes, Bills, Bullion, Coins

Accounts, bank notes, bills, bullion, coins, currency, deeds, evidences of debt, gold other than gold ware, letters of credit, manuscripts, medals, money, notes other than banknotes, passports, personal records, platinum, securities, silver other than silverware, tickets and stamps.

Animals, Birds, Or Fish

Animals, birds, or fish

Aircraft And Parts

Aircraft and parts other than model or hobby aircraft.

Boats

Boats other than rowboats or canoes.

Credit Cards And Fund Transfer Cards

Credit cards and fund transfer cards.

Motor Vehicles

Motor vehicles other than motorized equipment that is not subject to motor vehicle registration and which is used to service the described location, or is designed to assist the handicapped.

Motor Vehicle Equipment And Accessories

Motor vehicle equipment and accessories and any device for the transmitting, recording, receiving or reproduction of sound or pictures which is operated by power from the electrical system of a motorized vehicle, including tapes, wires, discs, or other media for use with such device, while in or upon the vehicle.

Data


Data including data stored in books of account, drawings or other paper records, electronic data processing tapes, wires, records or other software media (however, the cost of blank recording or storage media, and pre-recorded computer programs available on the retail market, are covered.

Power Interruption

Losses caused by power failure that occurs away from the insured location.

Earth Movement

Losses resulting from, except for direct loss by fire or explosion resulting from earth movement. While all forms exclude loss due to earth movement (earthquake, land shock waves from a volcanic eruption, landslide, mine subsidence, mudflow, and earth sinking, rising or sliding), all forms also cover any direct loss by fire or explosion that results from earth movement. Additionally, the broad and special forms cover any breakage of glass or safety glazing material that is part of a building, storm door or storm window, which results from earth movement.

Water Damage

Water damage in general, including flooding, water backing up into a building and water leaking or seeping from below the ground.

Neglect

Losses caused by the insured's neglect to save and preserve property following a loss, or when property is endangered by a covered peril.

War

War

Nuclear Hazard

Nuclear Hazard

Losses Caused By The Insured

Intentional loss arising out of any act committed by or at the direction of the insured, or any person or organization named as an additional insured, with intent to cause loss.

Ordinance Or Law

Losses resulting from laws or building codes that require more elaborate or expensive reconstruction or demolition than was used in the original structure, except for safety glass in place of regular glass.

Weather Conditions

Losses caused by weather conditions to the extent that weather contributes to causes found in the general exclusions (i.e., power failure, flood, etc.).


Faulty, Inadequate, Or Defective

Losses caused by faulty, inadequate, or defective planning, zoning, surveying, siting, design, speci-fications, workmanship, repair, construction, renovation, remodeling, grading, repair or construction materials used, or maintenance.

Acts, Decisions, Or The Failure To Act Or Decide

Losses caused by acts, decisions, or the failure to act or decide by any person, group, organization, or government body.

DWELLING ENDORSEMENTS

A variety of endorsements may be used to modify policy provisions and coverages to meet the needs of particular insureds. Some of the most commonly used are:

Inflation Guard—Automatic Increase in Insurance

An insured may purchase an inflation guard endorsement, which will automatically raise the limits of insurance at periodic intervals. The insured may select a specific percentage for the automatic increase (such as 4%, 6% or 8%). This helps keep the amount of insurance at an adequate level. When Broad form or Special form coverage is written, inflation guard may also help to maintain the required level of insurance-to-value for replacement cost coverage.

Dwelling Under Construction

Dwellings under construction are eligible for dwelling policy coverage when the intended occupant of a dwelling under construction is the named insured. However an endorsement must be attached to modify some of the policy provisions, particularly provisions concerning the amount of insurance and the premium. The amount of insurance shown for a dwelling under construction is based on the expected completed value. Since the initial value at a construction site is low and increases over time, the premium charged for a dwelling under construction is based on the average amount of insurance in effect during construction.

Condominium Unit Owners Coverage

Several endorsements are designed to provide coverage for condominiums. One endorsement may be attached to cover various building items owned by condominium unit owners such as alterations, appliances, fixtures and improvements which are part of the building contained within the insured unit, property which the insured is responsible for insuring under an agreement between property owners, and other structures which are owned solely by the insured.

Sinkhole Collapse

For an additional premium, coverage for sinkhole collapse adds coverage for losses arising from sudden settlement or collapse of the earth resulting from subterranean voids created by the action of water on limestone or similar rock.

Ordinance Or Law Coverage


This endorsement covers any additional expenses resulting from the enforcement of building codes that regulate the construction, repair or demolition of the property requiring the use of improved materials or safety systems that differ from those required when the original structure was built.

The Water Back Up And Sump Overflow

This endorsement provides up to $5,000 coverage for direct physical loss to covered property caused by water which backup through sewers and drains or which overflows from a sump pump, including damage that occurs when mechanical breakdown of the sump pump causes an overflow. It does not provide coverage for any loss caused by the insured's negligence. A special deductible of $250 applies to this coverage.

Theft Coverage

Broad and Limited Theft endorsements are available. Both cover theft and attempted theft as well as vandalism and malicious mischief resulting from theft. The Broad form can be written for an owner occupied dwelling or an apartment occupied by a tenant who is the named insured. It provides coverage on and off premises. The Limited form is written for nonowner occupied dwellings or apartments occupied by a tenant other than the named insured. It provides on premises coverage only.

Personal Liability And Medical Payments To Others

The insured may also purchase liability coverage as an endorsement or as a separate policy. These coverages are very similar to the Liability section of the Homeowners. Coverage L—Personal Liability covers the liability needs of individuals and families. The insurance company agrees that if a claim is made or suit brought against the insured for damages because of bodily injury or property damage caused by an occurrence to which the coverage applies, the insurer 'will pay up to the limit of liability for damages for which the insured is legally liable. The insurer will also provide a defense at the insurer's expense, even if the suit is groundless or fraudulent. There is a policy limit of $100,000, which may be increased. Under Coverage M—Medical Payment To Others, the insurance company will pay the necessary medical expenses that are incurred within three years from the date of an accident for any person who sustains bodily injury to which the coverage applies while on the insured location with the insured's permission, or elsewhere if the bodily injury arises out of a condition on the insured location or is caused by the activities of the insured or by an animal in the care of the insured. There is a limit of $1,000 per person under this coverage, which may be increased. Under Coverage M, there is no requirement that the insured be legally liable for the coverage to apply. The coverage does not apply to any injury sustained by the insured or a family member of the insured.


THEFT COVERAGE

BROAD THEFT COVERAGE

The broad theft coverage endorsement may be added to a dwelling policy to provide theft coverage for a named insured who is an owner occupant of the dwelling. For an additional premium, the endorsement covers personal property owned or used by an insured, or owned by a residence employee, against direct physical loss from the perils insured against.

Perils Insured Against

Broad theft coverage provides insurance against loss by the following two perils:

Theft, including attempted theft

Vandalism and malicious mischief as a result of theft or attempted theft (this does not include loss at the described location if the dwelling has been vacant for more than 30 consecutive days immediately before the loss)

Definitions

The broad theft coverage endorsement contains three definitions that affect the coverage:

Business means any trade, profession or occupation.

Insured means the named insured and residents of the named insured's household who are either relatives of the named insured or under the age of 21 and in the care of any insured person.

Residence employee means an employee of any insured who performs duties related to maintenance or use of the described location, including household or domestic services, or similar duties elsewhere which are not related to the business of any insured.

On-Premises Coverage

A limit of liability must be shown for on-premises coverage. This limit is the most the insurer will pay for any one covered loss at the described location. On-premises coverage applies while the property is:


At the part of the described location occupied by an insured or in other parts of the described location not occupied exclusively by an insured if the property is owned or used by an insured, or owned by a residence employee

Placed for safekeeping in any bank, trust or safe deposit company, public warehouse, or occupied dwelling not owned, rented to or occupied by an insured

Off-Premises Coverage

Off-premises coverage is available only if on premises coverage is written. A separate limit of liability must be shown for off-premises coverage. This limit is the most the insurer will pay for any one covered loss away from the described location. Off premises coverage applies while the property is away from the described location if the property is either:

Owned or used by an insured, or

Owned by a residence employee while in a dwelling occupied by an insured, or while engaged in the employ of an insured

Off-premises coverage does not apply to property that an insured moves to a newly acquired principal residence.

Newly Acquired Principal Residence— Automatic Removal Coverage

If the named insured moves during the policy term to a newly acquired principal residence, the limit of liability for on-premises coverage will apply at each residence and in transit between them for a period of 30 days after the insured begins to move the property. When the moving is completed, on-premises coverage applies at the new described location only.

Special Limits of Liability

Although limits of liability are shown for the maximum amount of insurance for any one loss, special sub-limits of liability apply to specific categories of insured property. Each limit is the most the insurer will pay for each loss for all property in that category. The special limits of liability are:

$200 for money, bank notes, bullion, gold and silver other than goldware and silverware, platinum, coins and medals

$1,000 for securities, accounts, deeds, evidences of debt, letters of credit, notes other than bank notes, manuscripts, passports, tickets and stamps

$1,000 for watercraft including their trailers, furnishings, equipment and outboard motors

$1,000 for trailers not used with watercraft

$1,000 for jewelry, watches, furs, precious and semiprecious stones

$2,000 for firearms


$2,500 for silverware, silver plated ware, goldware, gold plated ware, and pewterware, including flatware, hollowware, tea sets, trays, and trophies

Similar limits are found on homeowners policies. The intent of the policies is to provide some basic coverage for these special items of value that may be subject to theft losses. If an insured has greater exposures, higher limits may be available for an additional premium charge, or a separate personal property floater may be purchased.

Property Not Covered

Broad theft coverage does not apply to the following types of property:


Credit cards and fund transfer cards Property while in the mail

Aircraft and parts, other than model or hobby aircraft

Property held as a sample or for sale or delivery after sale

Property separately described and specifically insured by any other insurance

Property of tenants, roomers and boarders not related to an insured

Business property of an insured or residence employee on or away from the described location

Property while in the custody of any laundry, cleaner, tailor, presser or dyer except for loss by burglary or robbery

Property while at any other location owned, rented to or occupied by any insured, except while an insured is temporarily residing there

Motor vehicles, other than motorized equipment which is not subject to motor vehicle registration and which is used to service the described location, or is designed to assist the handicapped

Motor vehicle equipment and accessories, and any device for the transmitting, recording, receiving or reproduction of sound or pictures which is operated by power from the electrical system of a motorized vehicle, including tapes, wires, discs, or other media for use with such device, while in or upon the vehicle

Theft Conditions

The broad theft coverage endorsement adds two conditions to those that are found on the dwelling forms:

In addition to the insured's "duties after loss," theft coverage requires the insured to notify the police when a theft loss occurs.

For theft coverage only, the "other insurance" condition of the dwelling form is replaced. If a theft loss is covered by other insurance, the insurer is only obligated to pay the proportion of the loss that


the limit of liability under the theft endorsement bears to the total amount of insurance covering the loss (on a dwelling form, the insurer's obligation for a loss by a peril insured against is based on the proportion that the limit of liability under the policy bears to the total amount of "fire insurance" covering the property).

LIMITED THEFT COVERAGE

The limited theft coverage endorsement may be added to a dwelling policy to provide theft coverage for a named insured who is not an owner occupant of the dwelling. For an additional premium, the endorse-ment covers personal property owned or used by an insured, or owned by a residence employee, against direct physical loss from the perils insured against. The perils insured against are identical to those found on the broad theft endorsement— theft, attempted theft, and theft-related V&MM (suspended after 30 days when the location is vacant). The same additional theft conditions apply under the broad and limited theft coverages. Limited theft coverage does not include a definition of "insured," because relatives and other residents are not covered and the insurance protects only the named insured and residence employees. The types of coverage and classes of property covered are more limited than under the broad form.

On-Premises Coverage Only

A limit of liability must be shown for on-premises coverage (off-premises coverage is not available). This limit is the most the insurer will pay for any one covered loss at the described location. On-premises coverage applies while the property is either:

At the described location if the property is owned or used by the insured, or owned by a residence employee, or

Placed for safekeeping in any bank, trust or safe deposit company, public warehouse, or occupied dwelling not owned, rented to or occupied by the insured.

Special Limits of Liability

The limited theft coverage endorsement includes only three special limits of liability. Each limit is the most the insurer will pay for each loss for all property in that category. The special limits of liability are:

$1,000 for watercraft including their trailers, furnishings, equipment and outboard motors

$1,000 for trailers not used with watercraft

$2,000 for firearms

Property Not Covered

The fewer number of categories of property subject to sub-limits does not mean that limited coverage is less restrictive than broad theft coverage, because the other categories of property are excluded entirely on the limited form. Limited theft coverage does not apply to the following types of property:


Money, bank notes, bullion, gold, goldware, silver, silverware, silver plated ware, pewterware, platinum, coins and medals

Securities, accounts, deeds, evidences of debt, letters of credit, notes other than bank notes, man-uscripts, passports, tickets and stamps

Jewelry, watches, furs, precious and semiprecious stones

Loss caused by a tenant, roomer or boarder, members of the tenant's household, or their employees


Credit cards and fund transfer cards

Aircraft and parts, other than model or hobby aircraft

Business property

Property held as a sample or for sale or delivery after sale

Property separately described and specifically insured by any other insurance

Motor vehicles, other than motorized equipment which is not subject to motor vehicle registration and which is used to service the described location, or is designed to assist the handicapped

Motor vehicle equipment and accessories, and any device for the transmitting, recording, receiving or reproduction of sound or pictures which is operated by power from the electrical system of a motorized vehicle, including tapes, wires, discs, or other media for use with such device, while in or upon the vehicle.


PERSONAL LIABILITY SUPPLEMENT

KEY LIABILITY DEFINITIONS

The following definitions are important for understanding the application of personal liability coverages.

Occurrence means an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results during the policy period in bodily injury or property damage.

Bodily injury means bodily harm, sickness or disease, including required care, loss of services and death that results. Bodily injury means bodily harm, sickness or disease, including required care, loss of services and death.

Property damage means physical injury to, destruction of, or loss of use of tangible property. Property damage means physical injury to or destruction of tangible property. This includes loss of use.

Business means any trade, profession or occupation.

Residence premises means the dwelling, other structures and grounds, or that part of any other building where the named insured lives, and which is identified as the residence premises in the declarations. In the case of a two-, three- or four-family dwelling, the named insured must reside in at least one of the family units.

Insured location is a much more sweeping definition which frequently applies to liability coverages. It includes all of the following:

The residence premises

That part of any other premises, other structures and grounds, used by the named insured as a residence which is either shown in the declarations or acquired during the policy period

Any premises used by the named insured in connection with the residence premises or a newly acquired premises

Any part of a non-owned premises where an insured temporarily resides


Vacant land owned by or rented to an insured (but not farm land)

Land owned by or rented to an insured on which a one-to-four family dwelling is being built as a residence for any insured

Individual or family cemetery plots or burial vaults of any insured

Any part of a premises occasionally rented to any insured for other than business use

Residence employee means an employee of any insured who performs duties related to maintenance or use of the residence premises, including household or domestic services, or who performs similar duties elsewhere which are not connected to the business of any insured.

Prejudgment interest means an additional amount of damages awarded to a plaintiff to compen-sate for the delay between the time of injury or damage and the time a judgment is made. Because liability claims may take months or years until an award is made, this amount is designed to replace the amount of interest the plaintiff would have earned had the damages been awarded at the time of injury or damage.

Postjudgment interest applies when a decision is made in favor of the plaintiff, but an appeal delays payment of damages. Postjudgment interest is money the plaintiff would have earned if the judgment had been paid at the time of the first judgment, before the appeal.

Insured means the person named in the Declarations and residents of the same household, provided they are relatives or are under 21 and in the care of a resident relative.

Liability insurance is provided for the named insured (which includes a spouse if a resident of the same household) and all residents of the same household who are relatives of the named insured, and any residents who are under age 21 and are in the care of any member of the named insured's family. In addition to insured resident, an "insured" includes any person or organization legally responsible for animals or watercraft owned by an insured household member, but not when the other party has custody in the course of any business or without permission. Any person using a covered vehicle on the insured location with permission, or while employed by any insured, is also an "insured." If the named insured or the spouse dies, coverage continues for legal representatives but only with respect to the premises and property of the deceased. Until a legal representative is appointed, a temporary custodian of the named insured's property would also be covered. All household members who are insured at the time of the named insured's death will continue to be covered while they continue to live at the residence premises.

PERSONAL LIABILITY COVERAGES

The personal liability coverage form includes two major coverages and three additional coverages. The major coverages and the minimum limits of insurance are:

Coverage L—Personal liability ($100,000 per occurrence)

Coverage M—Medical payments to others ($1,000 per person) Higher limits may be purchased if desired.


Personal Liability – Coverage L

If a claim is made or a suit filed against an insured because of bodily injury or property damage caused by a covered occurrence, the insurer will pay up to the policy limit for damages for which an insured is legally liable. "Damages" include prejudgment interest awarded against the insured. Personal liability insurance applies separately to each insured, but the total liability coverage resulting from any one occurrence may not exceed the Coverage L limit stated in the policy.

At its own expense, the insurer will provide a legal defense against claims, even if the suit is groundless, false or fraudulent. The insurer may make any investigation or settlement deemed appropriate. Obligations of the insurer end when it pays damages equal to the policy limit for any one occurrence.

Medical Payments -- Coverage M

Medical payments to others covers necessary medical expenses incurred within three years of an accident causing bodily injury. An accident is covered only if it occurs during the policy period. This coverage does not apply to expenses related to injuries of the named insured or any regular resident of the insured's household, except residence employees.

At the insured location, coverage applies only to people who are on the insured location with the permission of an insured. Away from the insured location, coverage applies only to people who suffer bodily injury caused by an insured, caused by an animal owned by or in the care of an insured, caused by a residence employee in the course of employment by an insured, or which arises out of a condition in the insured location or the ways immediately adjoining it.

ADDITIONAL COVERAGES

The personal liability supplement provides three additional coverages, all of which are in addition to the stated limits of liability:

Claim Expenses

Claim expense coverage includes the costs of defending a claim, court costs charged against an insured in any suit the insurer defends, and premiums on bonds which do not exceed the Coverage L limit and which are required in a suit defended by the insurer. When the insurer requests the assistance of an insured in investigating or defending a claim, reasonable expenses of the insured, including loss of earnings up to $50 per day, are covered. Claim expense insurance also covers postjudgment interest that accrues prior to actual payment.

First Aid To Others

Expenses for first aid to others are covered when the charges are incurred by an insured, and when the charges result from bodily injury that is covered by the policy. Expenses for first aid to an insured are not covered.

Damage To The Property Of Others

If damage to the property of others is caused by an insured, the policy will provide replacement cost coverage of up to $500 per occurrence. This coverage is also called voluntary property damage coverage because the payment will be made without having to prove the legal liability of an insured, if not otherwise excluded.


EXCLUSIONS—LOSSES NOT COVERED

Under Coverages L and M, personal liability and medical payments to others, personal liability insurance does not cover bodily injury or property damage arising out of any of the following:

War Or Warlike Action

An Occurrence Expected Or Intended By An Insured

Rendering Or Failure To Render Professional Services

Any Business Engaged In By An Insured

Transmission Of A Communicable Disease By An Insured

Sexual Molestation, Corporal Punishment, Or Physical Or Mental Abuse

Controlled Substances

The use, sale, manufacture, delivery, transfer or possession by any person of controlled substances (illegal drugs), other than legitimate use of prescription drugs ordered by a physician.

Rental Or Holding For Rental

The Rental or holding for rental of any part of a premise by an insured for any purpose that violates use and occupancy rules of the policy.

Not an Insured Location

A premises owned by or rented to an insured, or rented to others by an insured, which is not an insured location.

Excluded Vehicle, Watercraft, or Aircraft

Ownership, maintenance, use, loading or unloading of an excluded vehicle, watercraft, or aircraft

Entrustment By An Insured Of An Excluded Vehicle, Watercraft, Or Aircraft

Entrustment by an insured of an excluded vehicle, watercraft, or aircraft to any person, or vicarious parental liability (whether or not statutorily imposed) for the actions of a minor using any of these items

Excluded vehicles means most motor vehicles, motorized land conveyances, and trailers towed by or carried on motorized vehicles, which are owned or operated by, or rented or loaned to, an insured. Exceptions are made for the following non-registered vehicles, which are covered:

Vehicles in dead storage on an insured location

Vehicles used to service an insured's residence

Vehicles designed to assist the handicapped

Motorized golf carts while used to play golf on a golf course

Recreational vehicles designed for use off public roads, which are either owned by an insured and on an insured location or are not owned by an insured


Excluded vehicles should be covered using a personal auto policy, or recreational vehicle policy.

Excluded watercraft means inboard or inboard-outboard motor-powered boats owned by an insured, inboard or inboard-outboard power boats rented to an insured and having more than 50 horsepower, sailing vessels of 26 feet or more in length owned by or rented to an insured, and any boat powered by an outboard motor of more than 25 horsepower if the motor is owned by an insured. This watercraft exclusion does not apply to boats that are in storage, and the exclusion is designed only to limit the coverage that is provided automatically. Coverage for watercraft excluded due to length, motor type, or horsepower may be added by endorsement for an extra charge, or may be written on a separate watercraft policy.

Excluded aircraft means any device used or designed for flight, other than model or hobby aircraft that are not designed to carry people or cargo. Aircraft coverage is provided only by specialty insurers, usually through the Excess and Special Lines marketplace.

Exclusions Which Apply to Coverage L -- Personal Liability

Damage to property owned by an insured

Damage to property rented to, occupied or used by, or in the care of, an insured and having any cause other than fire, smoke, or explosion (damage caused by these perils is covered)

Bodily injury to any person eligible to receive any benefits voluntarily provided, or required to be provided, by an insured under any workers compensation law, occupational disease law, or non-occupational disability law

Bodily injury or property damage for which an insured under the policy is also an insured under a nuclear energy liability policy

Bodily injury to the named insured or any relative or minor who reside in the same household (this is interpreted to mean that lawsuits between people covered by the same policy are excluded)

Liability for any loss assessment charged against the named insured as a member of an association, corporation, or community of property owners

Contractual liability of an insured, other than that under written contracts related to the ownership, maintenance, or use of an insured location, or written contracts where liability is assumed prior to an occurrence

Exclusions Which Apply to Coverage M -- Medical Payments to Others

Resulting from any nuclear hazard

To a residence employee if the injury occurs off the insured location and does not arise out of or in the course of employment by an insured

To any person other than a residence employee who regularly resides on any part of the insured location

To any person eligible to receive benefits voluntarily provided, or required to be provided, under any workers compensation law, occupational disease law, or non-occupational disability law


Exclusions Which Apply to Damage to the Property of Others

To property owned by an insured

Arising out of a business engaged in by an insured

Caused intentionally by any insured who is at least 13 years of age

To property owned by or rented to a tenant of any insured or resident of the insured's household

Arising out of any act or omission in connection with a premises owned, rented, or controlled by an insured, other than the insured location

Arising out of the ownership, maintenance, or use of aircraft, watercraft, or motorized land vehicles other than non-owned, non-registered, recreational vehicles designed for use off public roads

CONDITIONS

The personal liability form includes a number of conditions that apply to the coverages provided.

Bankruptcy

Bankruptcy of an insured does not relieve the insurer of its obligations under the policy.

Other Insurance

The other insurance Clause states that Personal Liability coverage will be treated as excess over any other valid and collectible insurance, unless the other insurance is written specifically to be treated as excess over the personal liability coverage, such as a personal umbrella liability policy.

Insured's Duties in the Event of a Covered Occurrence

The insured's duties in the event of a covered occurrence includes providing written notice identifying the insured, the policy, names and addresses of claimants and witnesses, and information about the time, place, and circumstances of the accident or occurrence. The insured is also required to promptly forward every notice, demand, or summons related to the claim and, when requested, to assist in the process of collecting evidence, obtaining the attendance of witnesses, and reaching settlement. The insured is not supposed to assume any obligations or make any payments (other than first aid to others following a bodily injury), except at the insured's own expense.

Payment of Medical Payments

Payment of medical payments to others is not an admission of liability by an insured. When medical payments are made, the insured or someone acting on the behalf of the injured person is required to provide written proof to support the claim, and to authorize the insurer to obtain medical reports and records. The injured party must submit to a physical examination, if it is requested by the insurer.


ALLIED LINES

Allied lines is a term that has evolved over the years to refer to coverages that are closely associated with fire insurance but are generally handled separately from the major personal and commercial property forms. Following is a brief overview of the major Allied Lines forms used with Dwelling and Homeowners policies. By combining one or more of these forms with a properly designed Dwelling or Homeowners policy, an agent can provide the best possible package of coverages to fit the client’s needs.

FLOOD INSURANCE

Until the federal government became involved in planning for flood insurance, this coverage was generally unavailable. With the passage in 1968 of the National Flood Insurance Act, flood insurance became available to eligible communities through federal subsidization. A Standard Flood Insurance policy is now available from the Federal Insurance Administration (FIA) or from private insurance companies. Under the FIA's "Write Your Own" program, private insurers issue policies, collect premiums and adjust losses. The insurer retains a

portion of the premium to cover commissions and other expenses, and remits the remainder to the government. In turn, the government reinsures the insurer for 100% of losses. Before any community becomes eligible for the Standard Flood Insurance policy, its officials are required to demonstrate a need for this type of insurance and be willing to develop land use and control measures for flood prone areas. The requirements for planning help insure that the peril of flooding will be recognized and minimized as areas are developed with new construction. The effective date of coverage is normally 30 days after the date of application for insurance. The Standard Flood Insurance policy can be used to insure both personal and commercial risks. The standard deductible is $500. Flood generally refers to:

An overflow of inland or tidal waters

Unusual and rapid accumulation or runoff of surface water from any source, unless general flooding exists


Mudslides caused by accumulations of water on the ground or underground

Collapse of land as a result of excessive erosion due to flood

Sewer backup into a dwelling. Specialized insurance that would not normally be available unless special provisions were made, such as the federal government's flood insurance program, is sometimes known as residual market insurance. Residual market insurance may be provided at both the state and federal levels. Other types of insurance coverage available as residual market insurance include Federal Crime insurance, auto assigned risk plans, FAIR plans, and beach and windstorm programs.

EARTHQUAKE INSURANCE

The Dwelling policy does not cover the earthquake peril. Many insureds have no need for such coverage; however, many companies are willing to offer earthquake insurance separately to those insureds who want it, either as an endorsement to their Dwelling or Homeowners policy or as a separate policy. Earthquake insurance generally covers damage to a structure, its contents or both as the result of an earthquake.

FAIR PLANS

The extensive inner city rioting that took place in the United States in the mid 60s led to the withdrawal from those areas of much of the availability of property insurance. This made it very difficult for mortgage companies and lenders to operate in those areas and thus, difficult for individuals to meet insurance requirements and remain in those areas. This compounded the downward trend of inner city areas. In response, the government acted in 1968 to provide riot insurance

under a federal reinsurance plan. In order to obtain this insurance, states were required to develop plans through which inner city property could be insured and for the insurance to be made available at reasonable rates. These plans are called FAIR (Fair Access To Insurance Requirements) Plans. While technically not an allied line, the FAIR concept addresses the entire issue of availability of fire and allied line coverages. Essentially, the FAIR Plan makes insurance available to risks that were previously considered uninsurable because of environmental hazards." These are defined as conditions surrounding the property of an insured that might increase the chance of a loss, but that are not within the control of the property owner or tenant occupying that property. The two general categories of environmental hazards are:


Deficiencies in buildings or contents, such as poor construction or housekeeping, congestion or

hazardous occupancies Conditions that make riot, vandalism, theft or other perils more likely to occur, such as the

presence of gangs, poverty and poor police protection Under a FAIR Plan, no application for insurance may be rejected simply because of environmental hazards that are beyond the insured's control, though the insurance may be sold at a surcharged rate. A surcharge would result if the insurance company's required inspection of the applicant's property exposed deficient conditions that made the company unwilling to sell at the regular rate. In some cases, the company will refuse to insure the property until improvements are made.

PERSONAL INLAND MARINE INSURANCE

The Homeowners policy can cover many of the risks to which an average household is exposed. But there are certain risks for which the insured will require additional coverage outside of a Homeowners policy. The Homeowners forms contain exclusions and limitations for certain types of property that are particularly susceptible to loss, difficult to value or of extremely high value. In some cases, an individual who has no Homeowners insurance may need coverage for personal property. Broader coverage for personal property can be obtained through Personal

Inland Marine forms, or floaters as they are sometimes called. Now, inland marine insurance is not insurance for bathtub boats. It originally developed from Ocean Marine insurance, which provides very broad coverage for property being transported over water. Inland marine insurance provides the same type of broad, flexible coverage for portable personal property worldwide. The broad Personal Inland Marine floaters provide open peril coverage. Of course, a few exclusions apply such as:

War

Nuclear hazard

Wear and tear

Gradual deterioration

Insects

Vermin

Inherent vice Like many other property policies, Inland Marine floaters contain a Pair Or Set condition that states that the insurance company will not be liable for the entire value of a set when only a part of it is damaged. Inland Marine floaters give the company two reimbursement options in this situation:


Repair, replace or restore the set

Pay the insured the difference between the actual cash value of the full set and the actual cash value of the undamaged part

Personal Inland Marine Forms

There are three Personal Inland Marine forms:

Personal Articles form

Personal Property form

Personal Effects form In order to form a policy, each of these forms must be attached to the Personal Inland Marine form, a skeleton policy that contains basic conditions that apply to all personal inland marine coverages. Personal Articles Form The Personal Articles form is a policy that provides coverage for nine optional classes of personal property—the same nine categories covered under the Homeowners Scheduled Personal Property endorsement: jewelry, furs, cameras, musical instruments, silverware, golf equipment, fine arts, stamps, and coins. Generally, an appraisal is required when the Personal Articles floater is issued to aid in developing an accurate description of covered property and to arrive at the proper value for which the property should be insured. However, the Personal Articles form is not a stated value contract. For purposes of loss settlement, the value is determined at the time of loss. In general, the company agrees to reimburse the insured for the lesser of:

Actual cash value

Cost to repair

Cost to replace with a substantially identical item Amount of insurance specified in the policy Another important feature of the Personal Articles form is that it provides automatic coverage on newly acquired property when the property is in a category of property that is already insured. Coverage applies for 30 days; the property is covered for a maximum of 26% of the applicable limit of insurance or $10,000. Coverage for newly acquired property ceases after this 30-day period unless the insured notifies the insurance company about the property during this time period. Personal Property Form The Personal Property boron provides open peril coverage on a blanket basis for most kinds of personal property found in a typical home. It is similar to the coverage provided for personal property under Coverage C in a Homeowners policy endorsed to provide open peril coverage for personal property. The Personal Property floater is most frequently issued to insure condominium or apartment dwellers who


cannot obtain this open peril coverage for personal property under the HO 4 or HO 6. Property is divided into 13 basic categories (including an "all other personal property" category), and a separate limit of insurance is assigned to each category. Particularly valuable property can be scheduled separately. Personal Effects Form The Personal Effects form is designed for individuals and families who want to insure their personal belongings while traveling or vacationing. Open peril coverage on an unscheduled basis is provided for the types of property usually carried by tourists, such as clothing, cameras, sports equipment, and souvenirs. Specifically excluded are valuable papers, tickets, passports, currency, contact lenses, artificial limbs, salesperson's samples, and a few other items. Property is excluded from coverage while on the insured's premises or while in storage. Insureds who travel frequently might carry this coverage on a permanent basis. Often, however, the coverage is taken out for a short term to cover a specific trip or vacation.

MOBILE HOME COVERAGE

Eligibility rules for the standard Homeowners policy specifically exclude mobile homes. Although mobile homes share many characteristics of dwellings, they also have many unique exposures such as high susceptibility to wind and fire damage and exposure to loss by collision or upset while the unit is being transported. Dwelling policies can be used to provide property coverage for mobile homes, but only the Basic form can be used and only mobile homes permanently placed on foundations are eligible. The HO 4 form can be used to cover the contents of a mobile home, but not the mobile home itself.

Many companies and rating organizations have developed a separate Mobile Home package policy. In addition, ISO has developed a Mobile Homeowners endorsement that can be attached to an HO 2 or HO 3 to modify coverage for mobile homeowners. Coverage is provided for:

The mobile home and all equipment and accessories originally built into the unit Equipment, additions and appurtenant structures not originally included with the unit (such as shelters, cabanas, awnings, carports, and water pumps)

Additional living expenses

Collision (available as an optional coverage)

Liability coverage is similar to Section II of the Homeowners policy. Because mobile homes depreciate much faster than other dwellings, reimbursement is always on an actual cash value basis.


WATERCRAFT INSURANCE

The Homeowners policy provides only limited coverage for watercraft. Property coverage is subject to a special limit of $1,000, and coverage may be totally excluded against certain perils. Liability coverage is excluded for boats with motors of more than specified horsepower or boats of more than a specified length. Insureds, especially those who own larger or more powerful boats, typically need more coverage for this exposure than is provided under the Homeowners policy. This coverage can be provided in several ways. Outboard Motor And Boat insurance can be written to cover the physical damage exposure of boats. This insurance is commonly provided under open peril Inland Marine floaters.

Watercraft Package policies, developed by individual insurance companies, combine property, liability and medical payments insurance on an open peril basis. These package policies are sometimes called Boatowners policies. Personal Yacht insurance is also available to cover most types of watercraft. This is Ocean Marine insurance, a type of insurance we will discuss more fully in a later unit. Personal yacht policies vary from company to company, but usually provide two basic coverages:

Physical Loss Or Damage To The Hull. This includes a "running down" clause that provides collision liability insurance for the boat, covering the insured against liability for property damage to other boats or their cargoes resulting from collision.

Protection And Indemnity. This is a type of liability insurance that includes coverage for bodily injury and property damage other than the property damage covered by the "running down" clause, such as damage to wharves and piers.

FARM COVERAGES

Farm coverages are sometimes considered personal insurance, sometimes commercial. On the one hand, farm policies may cover property or liability risks arising from the farmer's personal activities or from the farm dwelling premises. On the other hand, farming is a business that presents its own set of property and liability risks arising from farm buildings or farming operations.

In some states, a personal lines Farmowner’s Ranchowner’s package policy may be available. Most companies treat Farm coverage as a commercial line, using ISO's Farm Coverage Part. Coverage is similar to the Homeowners policy combined with commercial property and liability coverage. It provides coverage for farm dwellings, farm buildings, household personal property, and farm personal property, as well as liability coverage for both personal and farming activities.


PERSONAL UMBRELLA INSURANCE

Excess liability insurance can be purchased to provide higher limits of insurance and broader coverage than may be available under primary liability policies. Excess policies parallel the primary policy in all respects, but provide higher limits of insurance. Personal Umbrella policies provide higher limits as well as expanded coverage. Personal Umbrella policies, which vary in content from company to company, provide broad liability coverage over and above the basic liability provided by the underlying Homeowners, Automobile, Watercraft, or Aviation Liability policy. Coverage limits range from $1 million to $5 million.

Coverage works in two ways. 1. Coverage is provided for liability in excess of what is covered by any underlying policy.

If the insured has a Homeowners policy with a $100,000 limit of liability, an automobile policy with a $100,000 limit of liability and a Personal Umbrella policy with a $1 million limit of liability. For a loss payable under the Homeowners contract, the insured would have an additional $1 million of coverage after the $100,000 limit under the Homeowners contract had been exhausted. On a $300,000 loss, the Homeowners contract would pay $100,000 and the Umbrella policy would pay $200,000.

For a loss under the automobile policy, this same Personal Umbrella policy would pay up to an additional $1 million, but only after the $100,000 limit of the underlying auto policy was used up. Because of the pivotal role played by the underlying policies, the insured must identify any underlying liability insurance to the insurer before an Umbrella policy is issued. Should the insured allow an underlying policy to lapse or be reduced in coverage, the insured would be responsible for paying damages up to the underlying policy's limit before the Umbrella policy would take over.

2. Coverage is also provided for liability arising out of situations or conditions excluded by

underlying contracts. Because of the broad nature of the Umbrella policy, many exposures excluded by underlying contracts will be covered by the Umbrella.

The insured is required to select a retention limit. Retention limits, which vary from $250 to $10,000, work like deductibles. They are sometimes referred to as self-insured retentions because they represent the amount of loss the insured must cover out of pocket. If the insured has a $1 million Umbrella policy with a $1,000 retention limit. The insured suffers a $200,000 liability loss that is not covered under any underlying policy. The insured would pay $1,000, and the insurance company would pay the remaining $199,000.

Even the Umbrella policy has exclusions, such as intentional acts, liability covered under Workers Compensation and liability arising out of business pursuits. When liability is excluded under both the underlying policy and the Umbrella, there is no coverage.


INDEX

A

Abandonment, 71 Absolute Liability, 16 Acts or Decisions, 64 Actual Cash Value, 68, 104, 105, 115, 118, 120,

139 Additional Coverages, 43, 44, 47, 51, 59, 78, 84,

111, 114, 124, 153 Additional Insured, 26, 111 Additional Living Expense, 45, 46, 136, 138 Additions and Alterations, 100 Aggregate, 121 Aircraft, 43, 51, 55, 83, 97, 133, 135, 142, 148,

150, 154, 155 Animals, 42, 61, 133, 142, 148, 150 Apartment, 43 Appraisal, 70 Assignment, 92 Avoidance, 18, 19

B

Bankruptcy, 89, 156 Basic Form, 24, 25, 96, 98, 133, 134, 138 Boat, 162 Bodily Injury, 34, 85, 86 Bonds, 78 Broad Evidence Rule, 68 Broad Form, 24, 25, 26, 47, 97, 98, 99, 104,

138, 139, 141

C

Cancellation, 91, 92, 137, 142 Cause of Loss, 14, 53 Civil Authority, 46 Collapse, 50, 59, 138, 141, 144, 158 Communicable Disease, 84, 154 Comprehensive, 25, 95, 96 Computer, 58, 109 Concealment, 89, 90 Concurrent Causation, 64 Conditions, 23, 48, 63, 64, 66, 67, 87, 89, 102,

103, 106, 136, 143, 148, 156, 159 Condominium, 25, 144 Construction, 27, 60, 127, 144 Contents, 23, 25, 26, 38, 99 Contract, 85

Contractual Liability, 16 Controlled Substances, 84, 154 Counterfeit, 49, 114 Countersignature, 32 Coverage A, 23, 31, 35, 36, 37, 38, 45, 48, 50,

52, 59, 64, 68, 69, 94, 98, 99, 100, 103, 104, 107, 108, 110, 113, 120, 128, 132, 133, 135, 136, 138

Coverage B, 23, 31, 35, 36, 37, 59, 64, 69, 94, 98, 103, 112, 113, 122, 132, 133, 135, 138

Coverage C, 23, 31, 35, 37, 38, 39, 42, 44, 47, 48, 50, 51, 53, 56, 61, 68, 94, 95, 96, 98, 99, 100, 103, 104, 106, 109, 110, 112, 113, 114, 116, 117, 120, 122, 124, 125, 128, 129, 132, 133, 136, 138, 160

Coverage D, 23, 31, 45, 46, 94, 95, 98, 100, 103, 122, 132, 134, 136, 138

Coverage E, 24, 31, 73, 74, 75, 78, 79, 80, 84, 85, 86, 87, 89, 94, 111, 119, 120, 122, 124, 132, 138

Coverage F, 24, 31, 73, 75, 76, 77, 78, 80, 85, 86, 87, 88, 94, 111, 121

Coverage L, 31, 145, 152, 153, 155 Coverage M, 145, 152, 153, 155 Credit Cards, 142

D

Data, 44, 142, 143 Debris Removal, 47, 106, 135 Declarations, 30, 66, 73, 74, 76, 131, 137, 152 Deductible, 31, 128, 129, 137 Defense, 75 Deterioration, 60 Dwelling, 12, 13, 21, 23, 26, 31, 35, 38, 59, 64,

94, 101, 103, 105, 109, 111, 112, 113, 117, 125, 130, 131, 132, 133, 134, 135, 136, 138, 141, 144, 157, 158, 161

Dwelling Policy, 130, 131

E

Earthquake, 62, 124, 143 Electronic Apparatus, 41 Eligibility, 26, 27, 96, 97, 99, 101, 105, 131, 161 Employee, 34, 86 Endorsement, 26, 28, 40, 41, 42, 82, 83, 103,

107, 110, 111, 112, 113, 115, 116, 118, 119 Endorsements, 31, 108, 123, 130 Entrustment, 154


Exceptions, 154 Excess, 119, 155, 163 Exclusions, 59, 64, 80, 84, 86, 141, 154, 155,

156 Expected or Intended, 80 Explosion, 51, 54, 97, 134, 139 Exposures, 12, 18 Extended Coverage (EC), 25, 96, 99, 134, 135,

139

F

Fair Rental Value, 45, 46, 132, 134, 138 Falling Objects, 140 Farm, 21, 27, 131, 162 Faulty Workmanship, 65 Fire, 48, 51, 53, 96, 134, 136 Fire Department Service Charge, 136 Firearms, 42 First Aid, 153 Flood, 21, 62, 157 Forgery, 49, 114 Forms, 26, 31, 62, 95, 132, 160 Fraud, 89, 90 Freezing, 51, 58, 59, 60, 99, 141

G

Glass, 50, 70, 101, 103, 124, 139

H

HO 1, 24, 25, 26, 31, 39, 41, 48, 50, 95, 96, 98, 102, 103, 104, 105, 110, 111

HO 2, 24, 25, 26, 28, 31, 39, 50, 53, 74, 82, 83, 95, 97, 98, 99, 100, 101, 102, 104, 108, 109, 111, 112, 113, 116, 117, 118, 119, 124, 161

HO 3, 24, 25, 26, 28, 31, 32, 36, 39, 43, 45, 46, 50, 52, 53, 59, 62, 76, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 105, 106, 107, 108, 109, 110, 111, 112, 113, 115, 124, 161

HO 4, 23, 24, 25, 26, 27, 28, 31, 35, 36, 48, 50, 51, 53, 95, 99, 100, 101, 113, 124, 125, 128, 161

HO 5, 24, 25, 95 HO 6, 23, 24, 25, 26, 27, 31, 32, 35, 36, 39, 41,

42, 48, 53, 95, 99, 100, 101, 102, 103, 104, 110, 111, 113, 124, 125, 128, 161

HO 8, 24, 25, 26, 31, 95, 105, 106, 107, 115, 118

Homeowners, 15, 21, 22, 24, 25, 26, 27, 28, 29, 30, 31, 32, 34, 36, 37, 45, 47, 61, 62, 64, 66,

68, 70, 72, 73, 77, 83, 84, 89, 94, 95, 96, 98, 100, 101, 105, 108, 111, 112, 116, 117, 118, 119, 122, 123, 124, 125, 126, 127, 128, 130, 132, 145, 157, 158, 159, 160, 161, 162, 163

I

Ice, Snow or Sleet, 47 Inflation Guard, 69, 112, 144 Inland Marine, 159, 160, 162 Insurable Interest, 66 Insured, 30, 32, 33, 42, 43, 47, 53, 59, 76, 81,

85, 86, 88, 89, 91, 93, 103, 110, 131, 138, 143, 146, 151, 152, 154, 156

Intentional, 16, 64, 80, 99, 143 Intentional Tort, 16

J

Jewelry, 41, 115, 150

L

Land, 33, 35, 37, 43, 76, 82, 109, 114, 115, 141, 152

Lease, 142 Liability, 15, 22, 23, 24, 39, 66, 73, 74, 77, 80,

83, 84, 85, 87, 90, 101, 108, 116, 117, 118, 121, 145, 147, 149, 151, 152, 155, 161, 162, 163

Liberalization, 90, 137 Lightning, 53, 54, 96, 134 Limit, 31, 36, 38, 39, 40, 66, 69, 73, 76, 83, 87,

96, 97, 99, 100, 101, 108, 109, 113, 116, 117, 147, 149

Limited, 37, 145, 149 Loss Assessment, 49, 50, 80, 84, 104, 111 Loss Control, 19 Loss Costs, 126 Loss of Use, 23, 31, 45, 46, 95, 103

M

Malicious Mischief, 55, 60, 134, 135, 140 Medical Payments, 24, 31, 73, 75, 77, 80, 86,

87, 88, 94, 111, 117, 145, 153, 155, 156 Mobilehome, 21, 28, 131 Modified Coverage Form, 25, 105 Money, 39, 49, 114, 133, 150 Mortgagee, 32 Motor Vehicle, 41, 43, 81, 142


N

Named Perils, 53, 96 Neglect, 63, 99, 143 Negligence, 15 Noninsurance Transfer, 19 Nonrenewal, 92, 137 Notice, 51, 93 Nuclear, 63, 72, 85, 86, 99, 115, 143, 159

O

Occurrence, 34, 151, 154, 156 Off-Premises, 147 On-Premises, 146, 149 Option, 71, 137 Ordinance or Law, 52, 62 Other Insurance, 70, 89, 104, 137, 156 Other Structures, 23, 31, 36, 38, 59, 64, 103,

109, 111, 112, 113, 132, 133, 135, 138, 141, 142

P

Package, 22, 162 Peril, 47, 50, 53, 59, 61, 95, 98, 99, 103, 104,

110, 134, 138, 139, 141, 146 Personal Injury, 34, 74, 119 Personal Liability, 24, 31, 73, 75, 84, 87, 89, 94,

111, 117, 119, 124, 145, 152, 153, 155, 156 Personal Property, 13, 23, 25, 31, 37, 38, 41,

42, 53, 95, 96, 99, 103, 109, 110, 112, 113, 114, 115, 116, 119, 120, 125, 132, 136, 138, 141, 160

Policy, 21, 22, 24, 27, 28, 29, 30, 31, 36, 37, 45, 47, 62, 68, 69, 72, 73, 77, 83, 84, 89, 91, 98, 111, 113, 117, 119, 123, 124, 128, 129, 130

Policy Period, 30, 89 Postjudgment Interest, 79 Power Failure, 63 Prejudgment Interest, 74 Premises, 36, 37, 81, 86, 101, 122 Premium, 31, 92, 126, 127, 128 Professional, 75, 81, 117, 121, 154 Property, 13, 14, 22, 23, 24, 27, 33, 34, 35, 37,

38, 39, 40, 41, 42, 43, 44, 49, 53, 63, 71, 72, 79, 83, 85, 90, 100, 103, 107, 109, 111, 112, 114, 117, 120, 121, 123, 128, 129, 135, 137, 140, 141, 148, 149, 150, 151, 153, 156, 160, 161, 162

Property Damage, 34 Protection Class, 127

R

Real Property, 13 Reasonable Repairs, 48 Rental, 37, 43, 44, 46, 56, 81, 102, 110, 136,

142, 154 Replacement Cost, 38, 69, 110, 113, 119, 120,

139 Residence Premises, 26, 34, 36, 37, 40, 41, 44,

111, 112, 122 Resident, 33, 49, 86 Retention, 18, 20, 163 Riot and Civil Commotion, 51, 54, 97, 134 Risk Management, 17, 18

S

Safety Glazing Material, 50, 124, 139 Seasonal, 27 Secondary, 27 Securities, 39, 150 Settlement, 66, 68, 104, 105, 110, 115, 118,

119, 136, 139 Severability, 87 Sexual Molestation, 84, 154 Shrubs, 48, 138 Sinkhole, 144 Smoke, 51, 55, 61, 97, 98, 134, 140 Snowmobile, 116 Special, 24, 25, 27, 39, 52, 58, 59, 83, 94, 95,

96, 97, 104, 109, 113, 114, 115, 116, 117, 129, 132, 136, 138, 139, 141, 144, 147, 149, 155

Statutory Liability, 16 Structures, 36, 37, 103, 111, 113, 122 Subrogation, 92 Suit, 71, 89 Sump Pump, 122, 145

T

Tearing Apart, Burning, Bulging, 57, 140 Territory, 127 Theft, 56, 60, 97, 107, 145, 146, 148 Tort, 15, 16 Trailers, 28, 40 Trees, 48, 103, 121, 138

U

Umbrella, 21, 119, 163 Unit-Owner, 27, 101, 102, 104, 110, 111


V

Valuation, 38 Vandalism & Malicious Mischief (V&MM), 25, 51,

55, 60, 97, 134, 135, 140, 146 Vehicles, 51, 55, 82, 97, 134 Verify, 67 Volcanic Eruption, Action, 51, 58, 72, 97, 135 Voluntary Property Damage, 34

W

Waiver, 91, 108 War, 63, 83, 99, 115, 143, 154, 159 Watercraft, 21, 40, 82, 83, 97, 118, 129, 154,

162, 163 Wind or Hail, 47 Worldwide, 38, 136

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