Property and Casualty - Chapter 6 - Homeowners Policy

Owner-Occupant

Most homeowner forms require the named insured to be ___ of the insured dwelling, which serves as the named insured residence.

What are the eligible residential dwellings for a homeowners policy?

Dwellings are those constraining 1 to 4 residential units and no more than 2 roomers or boarders per family. Most dwellings are insured by a homeowner’s policy are the primary residence of the insured, but secondary residences are also eligible. As long as the home is used as a primary residence, it can also cover incidental business (beauty shops, schools, home offices)

What do all Homeowners forms have?

They are all package policies that contain coverages listed in Section I and Liability coverages in second II. The difference between forms is the covered perils AND how the policy losses settle.

Section I - Property Coverages contain:

Coverage A - Dwelling

Coverage B - Other Structures

Coverage C - Personal Property

Coverage D - Loss of Use

Section II - Liability coverages contain

Coverage E - Personal Liability

Coverage F - Medical Payments to others

Broad Form (HO-2)

Provided named perils coverages for the dwelling (Coverage A) and other Structures (Coverage B) and Personal Property (Coverage C). There are 16 Named Perils.

What are the 16 named perils for Broad Form (HO-2)

• Fire or Lightening

• Windstorm or Hail

• Aircraft

• Riot/Civil commotion

• Vehicles (except for damages to fence/walkway)

• Volcanic Eruption

• Explosion

• Smoke

• Vandalism or Malicious MIscheif

• Theft

• Falling Objects

• Weight of ice/snow/sleet (Except to fence, awning, patio or swimming pool, foundation)

• Accidental discharge or overflow of water/steam from plumbing, heating or air condition

• Sudden and accidental tearing apart, cracking burning or bulging of heating or air condition systems

• Freezing of a plumbing, hearing or air condition as long as the insured used reasonable care to maintain heat in building

• Sudden and accidental damage from artificially generated electrical currents, not including losses to tubes, transistors, home appliances or computers/TVs

What does the Windstorm/Hail Peril include in the Broad Form?

Losses to watercraft/trailers/equipment if they are located inside a fully enclosed building. IF the interior gets damaged by another element, coverage only applies if it was wind/hail that made the opening first.

What does the smoke peril exclude in the Broad Form?

Coverage is not provided for smoke resulting from industrial operations or agricultural smudging

What does the theft peril exclude in the Broad Form?

Coverage is not provided if the theft is committed by any insured, if the theft occurs while dwelling is under construction and if the theft is a part of the premises that is rented to other. Off-Premises theft is not provided for trailers, campers, watercraft.

When do coverages for Vandalism and Accidental Discahrge/Overflow of water do not apply?

The coverages do not apply if the dwelling was vacant for more than 60 days immediately before the loss. This applys to all forms

How are Loss Settlement calculated for Broad Form (HO-2)?

Losses under coverages A and B are settled on a replacement cost basis. Losses under Coverage C are settled on an actual cash value basis.

Special Form (HO-3)

The dwelling and other structures are insured on an Oper Perils basis covering all direct loss except for any excluded causes of loss.

What are the Specific Peril Exclusions on HO-3 Special Form

• Freezing of household appliances, heating, plumbing, air conditioning and sprinklers unless the insured has taken reasonable care to maintain heat in the building or shut off the water supply and drained the appliances and water systems.

• Freezing, Thawing, pressure, or weight of water/ice on patios, fences, swimming pools, foundations, piers, docks or retaining walls

• Theft in or to a dwelling under construction, including the materials for the construction

• Vandalism, including loss, if the dwelling has been vacancy for more than 60 consecutive days immediately before the loss

• smoke from agricultural smudging or industrial operations

• mold, fungus, or wet rot (Unless the mold is hidden from view and was the result of a water overflow)

• Collapse, except as provided by the collapse additional coverage

• wear and tear or deterioration

• mechanical breakdown, latent defect or inherent vice

• smog, rust, corrosion, or dry rot

• pollution, including discharge, migration or release of smoke vapor, fumes acids or other chemicals unless caused by a broad form named peril

• Settling, cracking, bulging, or expansion of foundations walls floors, pavements and patios

• brids, rodents, insects

• animals owned by the insured.

Do HO-3 Special Forms cover losses resulting from accidental discharge or overflow of water?

Yes, the open perils coverage includes coverage for loss resulting from accidental discharge or overflow of water. This coverage also includes the cost to tear our and replace any part of a covered building when necessary to repair the system or appliance.

Coverage C for Special Form HO-3

Protection for personal property insures against the same named perils insured against by the broad form. Under the Vehicle Peril, the special form removes the exception, meaning coverage is given back, for losses to a fence, driveway or walk caused by a vehicle owned or operated by the insured.

How is loss settlement calculated for Special Form HO-3?

Dweeling and Other structures are valued on a replacement cost basis, and losses to personal property are settled on an Actual Cash Value Basis (ACV)

Contents Broad Form (HO-4)

Also known as the renter’s or tenant’s form. Unlike other forms, coverage is not provided for real property as the insured is only a tenant of the dwelling and not responsible for insuring the structure itself. Coverage C will insure personal property against the Broad Form Named Perils and losses are settled on an actual cash value basis

Comprehensive Form (HO-5)

Offers the broadest coverage of any of the homeowner’s forms/ Provides open peril basis for Coverages A, B, and C. Losses to the dwelling and other structures are values on a replacement cost basis. Personal property is valued on an actual cash value basis.

Unit-Owners Form (HO-6)

Designed for people who own apartments/condos. The insured may be a renter of the unit but some other insurers consider them ineligible for this form. Coverage A is provided for the part of the dwelling the insured owns. Coverage C is provided for insured personal property while anywhere in the world. Though Coverage B does not appear on the form, if the insured owns other structures on the premises and wants to insure them, the value may be included in the coverage A limit.

How is loss settlement calculated for HO-6 Unit-Owners form

Losses to the dwellings are valued on a replacement cost basis, and losses to the personal property are settled on an actual cash value basis.

What are the dwelling and personal property insured against for a Unit-Owners Form (HO-6)?

They are insured against the broad form named perils.

Modified Form (HO-8)

Used to insure older homes that do not meet the underwriting requirements applicable to the other homeowners’ forms and whose replacement value may be disproportionately higher than its market value.

What does HO-8 Modified Form insure against?

Provided insurance against the basic named perils. Fire, Lightening, Windstorm, hail, riot, aircraft, vehicles, volcanic action, explosion, smoke, VMM, and theft. Most of these have the same limitations as HO-2.

How is Theft Covered for HO-8 Modified Form

Theft peril limits coverage to $1000 for any one loss and will not cover off-premises theft

How does HO-8 Modified Form settle loss?

Settles personal property and certain other types of property on an actual cash value. For losses to dwelling or other structures, insurer will pay up to the functional replacement cost of the damage, meaning the necessary amount to repair or replace the damage with their functional equivalent when common methods and materials are less costly than custom/antique/obsolete materials.

Insured in Homeowners Policy

Refers to:

• The named individual and spouse

• Other residents of the household who are

  • relatives of the named insured by blood, marriage or adoption

  • Under the age of 21 and in the care of any insured

• A student enrolled in school full time who was a resident of the named insured household before moving out to attend school, provided the student is a relative under the age of 24 or under 21 and in an insured care.

How is insured referred to under Section II - Liability Coverages?

The person using a vehicle on an insured location with the insured consent and persons while engaged in the employment of the named insured or a relative of the insured.

Any person or organization legally responsible for covered animals or watercraft owned by an insured unless custody of animals or watercraft is in the course of business as defined by the policy or the person or organization has custody without the owners consent.

Bodily Injury

Includes bodily harm, sickness and disease including any required care, loss of services and deaths that result

Property Damage

Includes physical injury to, destruction of or loss of use of tangible property

Residence Premises

defined as the 1 to 4 family dwelling where the insured resides, including other structures and grounds at that location. On the HO-6 (Condo-Owners form) the residence premises is the unit in which the insured resides.

Insured Location

Refers to:
- The residence premises listed on the Declarations page

• Any other premises used as a residence by the insured, but only if it is either shown in the Declarations or acquired during the policy period

• Any premises used in connection with a residence premises, such as a boat slip

• Any non-owned premises where the insured is temporarily residing, such as hotel rooms or summer vacation rentals

• Vacant land, other than farmland, owned by or rented to an insured

• Land owned or rented by an insured where a residence is being built for the insured

• Individual and family cemetery plots or burial vaults of an insured

• Any part of a premise occasionally rented to an insured for non-business use, such as a banquet hall where a wedding reception is hosted

Residence Employee

An Employee of the insured whose duties are related to the maintenance or use of the residence premises including household and domestic services like a Gardner or nanny

Business

Policy understands that a business to be trade profession or occupation engaged in on a full-time, part-time or occasional basis or any other activity engaged in for money or other compensation. Does not include a profession for which the insured received $2,00 or less in the 12 months before the policy period began and does not include volunteer activities.

Deductible

When Loss Occurs, insured pays an amount equal to the amount of the deductible shown in the declarations and the insurer pays the balance of the loss that exceeds the deductible amount. subject to policy limits. Unless noted otherwise, all property losses are subject to a deductible. If two or more apply to the same loss, the highest deductible will apply.

Coverage A - Dwelling

Policy covers the dwelling located on the residence premises as shown in the declarations, including structures attached to the dwelling such as porches, breezeways, attached garages and decks. Also applies to materials located next to a residence used to contruct or repair the dwelling/structures. Does NOT cover the land.

Coverage A on the HO-6 (Unit-Owners Form)

Applies to

• alterations, appliances and fixtures that are a part of the covered unit

• Property the insured must insure under agreement with property owner corp

• other structures located in the residence premises and owned solely by the insured.

What does Coverage A for HO-6 (Unit-Owner Form) NOT apply to?

Land on which the residence premises is located

Structures rented or held for rental to any persons who is not a tenant, except a private garage

structures used to conduct business operations

Coverage A Limit of Liability

When a limit of liability is chosen for a dwelling coverage, the other three property coverages are automatically issued at limits equaling a specific percentage of the Coverage A limit of Liability. If the limits are too low, the insured may purchase higher limits by endorsements.

Coverage B - Other Structures

Applies to other Structures on the residence premises that are set up apart from the dwelling by a clear space, including structures connected to the dwelling only by fence, utility line or similar connection.

What is the limit of insurance for Coverage B?

The limit is 10% of the Coverage A limit and does not reduce the coverage a limit of liability

Coverage C - Personal Property

Applies to the personal property owned or used by the insured. Coverage is provided while the personal property is anywhere in the world. At insured request, it can also include property of employees at the residence, excluding renters.

What is the limit of liability for Coverage C

The limit of liability is 50% of the Coverage A. Certain types of personal property have limitations. If the persona property is usually located at the 2nd residence, its coverage is limited to 10% of the type C coverage or 1000, whatever amount is greater. This also applies to a college students personal property while at school OR personal property located in a self-storage facility.

Money, bank notes, bullion, coins, medals, etc.

200 special limit of liability

Securities, deeds, evidences of debt, notes other than bank notes, personal records, manuscripts, passports, tickets, and stamps.

1500 Special Limits of Liability

Watercraft of all types, including their trailers, furnishings, equipment, engines, and outboard motors. Losses to watercraft caused by collision or sinking are excluded.

$1500 special limit of liability

Trailers or semi-trailers not used with any watercraft.

$1500 special limit of liability

Theft loss to jewelry, watches, furs, and precious or semiprecious stones. On the HO–5 only, loss by misplacing or losing is also covered.

$1500 special limit of liability

Theft loss to firearms and related equipment, such as holsters and ammunition. On the HO–5 only, loss by misplacing or losing is also covered.

$2,500 special limit of liability

Theft loss to silverware, goldware, pewterware, platinum ware, including tea sets, trays, trophies, and flatware made of any of those materials. On the HO–5 only, loss by misplacing or losing is also covered.

$2,500 special limit of liability

Portable electronic equipment that reproduces, receives, or transmits audio, visual, or data signals, and that can be operated by more than one power source, including a motor vehicle’s electrical system. Examples would include a phone, tablet, and computer (as long as they are not permanently installed in a vehicle). This limit applies only if the electronics are located in or on a motor vehicle; otherwise, coverage is provided under Coverage C’s regular limit.

$1,500 special limit of liability

Accessories for electronics that are located in or on a motor vehicle. This includes antennas, tapes, wires, records, disks, and other media used with electronics.

$250 special limit of liability

Property on the residence premises used primarily for business purposes, such as a computer used by the insured in a home-based business. The limit does not apply to a personal computer used by the insured occasionally when bringing work home from the office that is otherwise used primarily for personal and household purposes.

$2,500 special limit of liability

Property away from the residence premises used primarily for business purposes. This limit does not apply to antennas, tapes, wires, etc. that are used with electronic equipment and located in or on a motor vehicle.

$1500 special limit of liability

Coverage C property does NOT cover:

• Property specifically described and insured elsewhere or in a different part of the homeowners policy

• Animals, Birds or Fish

• Motor Vehicles, including their equipment and parts

• Aircraft, including its parts

• Hovercraft, including its parts

• Property of roomers, boarders and other tenants who are NOT related to the insured

• Property in an apartment regularly rented or held for rental to others by an insured

• property rented or held for rental to ithers off the residence premises

• Property rented or held for rental to others off the residence premises

• Business Data stored on paper records or on computers

• Credit cards and electronic fund transfer cards, except when coverage is provided by an additional coverage

• water or steam, such as the increased water bill when a toilet breaks, and water fills the basement

Coverage D - Loss of Use

There are three types of coverage provided for this coverage: Additional Living Expenses, Fair Rental Value, Civil Authority Prohibits Use. Does not cover expenses resulting from a lease cancellation.

Additional Living Expenses (ALE)

If property loss covered by Section I makes the resident unfit to live in, this pays for any necessary increases in expenses incurred by the named insured to maintain the holds normal standard of living. EX: Hotel stay, cost of food due to eating out, laundromat fees. It is paid for the shortest time required to repair or replace the damage, or to settle in a new place if they must permanently relocate.

Fair Rental Value

If the property that is rented is unfit to live in, this pays the rental value of the property while it is being repaired or replaced.

Civil Authority Prohibits Use

If the government displaces the insured from the residence due to the damage of a neighboring premises, the insurer will cover the additional living expenses and fair rental value of the insured property for no more than 2 weeks.

Coverage D Limits Coverage for HO-2, HO-3 and HO-5

30% of the Coverage A limit

Coverage D limits for HO-4

30% of the Coverage C limit for HO-4

Coverage D limits for HO-6

50% of the Coverage C limit

Coverage D limit for HO-8

10% of the Coverage A limit for HO-8

Special Coverages - Debris Removal

Applies to all Homeowners forms. They will pay 5% of the applicable coverage limit. It will also pay up to $1000 if a tree block covered structure, driveway or ramp. the limit per tree is $500

Reasonable Repairs - Special Coverage

Pays for the costs to protect a property from further damage when it has been damaged by a named peril. Ex: The cost of tarps to cover a hole on the roof

Trees. Shrubs and Other Plants - Special Coverage

Provides coverage for losses caused by fire, lightening, explosion, riot/civil, aircraft, vehicles not owned by insured and VMM. Pay up to 5% of the Coverage A limit. HO-4 and HO-6 only provide up to Coverage C limit. Provided as additional insurance and no more than 500 per plant. DOES NOT INCLUDE DAMAGE FROM WEATHER

Fire Department Service Charge - Additional Coverages

Will provide up to $500 without a deductible if the service charged were responding to an insured peril.

Property Removed - Additional Coverages

If property is taken off the property because it could be damaged by another covered peril, this provides coverage to damage on that property for up to 30 days on an open peril basis.

Credit Cards, Electronic Funds Transfer Card or Forgery/Counterfeit Money - Additional Coverage

Will pay up to $500 without a deductible IF:

• The legal obligation of an insured to pay because of theft/unauthorized use of a credit card

• Loss resulting from theft or use of the insured ATM card

• Loss caused by a forgery

• Loss caused by good-faith acceptance of counterfeit money

This coverage does not apply if a credit card/ATM card was used by someone in the household, someone who had access to the card or for business purposes.

Loss Assessment - Section I Additional Coverages

If the property is a part of a group such as HOH or condo association, meaning all members are partially liable for the loss on a commonly owned property. Provides coverage up to $1000 for the insured share of the partially liable loss. This amount is additional.

Glass or Safety Glazing Material - Section I additional Coverages

Provides coverage for:

• Breakage of glass that is part of covered building due to covered perils or earth movement

• Direct physical loss caused by the glass

Other than losses from earth movement, coverage does not apply if the property was vacant for more than 60 days before the loss.

Collapse - Section I Additional Coverages

Provided for abrupt falling down or caving in of a building that renders the building unfit for its intended use. The direct loss must be caused by one of the following perils:

• Named Peril insured against (Broad Form Perils)

• Hidden Decay

• Hidden insect/vermin damage

• weight of contents

• the weight of rain on roof

• the use of defective material/method of Contruction

Coverage is NOT provided to collapse of awnings, fences, patios, septic tanks, swimming pools, foundations or similar items EXCEPT if the collapse is a direct result of the covered property collapse.

Ordinance or Law - Section I Additional Coverages

Provided for costs due to the government requiring:

• Construction, demolition, remodeling, renovation or repair that a apart of the covered building got damaged by an insured peril

• The demolition or reconstruction of the undamaged part of a covered building, when that building must be totally demolished because of the damage by an insured peril to another part of that covered building

• the remodeling, removal or replacement of the undamaged part of a covered building in order to complete the repair of the damaged part caused by a peril.

Most forms use up to 10% of Coverage A limit. HO-4 DOES NOT have coverage A, so they may use up to 10% of the limit applying to building additions and alterations.

Grave Markers - Section I Additional Coverages

Policy will pay up to $5000, for a loss caused by a peril insured against under Coverage C. The limit of insurance is applicable to the damaged property.

Landlord’s Furnishings

Applies only to HO-2, HO-3 and HO-5, provides up to $2,500 for additional insurance from the insured appliances, carpeting and other furnishings in the rental unit. Applies to the named perils on the Broad Form, not including theft.

Building Alterations and Additions

Applies only to HO-4, if a tenant insured makes any building improvements, they are covered under coverage C. Provides 10% of the Coverage C limit as additional insurance.

Ordinance or Law

Section I exclusion. Does not cover loss from enforcement of a law except as covered by the additional coverage for Ordinance or Law.

Earth Movement

Section I Exclusion. Does not cover losses from earth movements. If the loss is caused by a named peril that resulted from the earth movement, then the loss is covered. Ex: Fire caused by an earthquake

Water

Section I Exclusion. Does not include damaged caused by water, whether caused by human, animal or natural forces. However, the exclusion does not apply to the coverage around accidental discharge or waterflood from a household system. Direct Loss Caused by a named peril that resulted from water damage is covered. Ex: Water caused water heater to explode, the explosion is covered

Power Failure

Section I Exclusion. Does not cover if loss of power takes place off residence. However, does cover if the power loss off residence results in a named peril.

Neglect

Section I Exclusion. Applies if the Insured failed to use all reasonable means to protect the insured property at or after time of the loss

Intentional Loss

Section I Exclusion. Coverage not provided if the insured committed acts with the intent to cause the loss. Ex; setting the house on fire in arson.

War

Section I Exclusion. Coverage is not provided for losses caused by military action/force

Nuclear Hazard

Section I Exclusion. Damaged caused by a nuclear reaction is excluded from all coverage

Government Action

Section I Exclusion. Coverage from the government destruction/seizure is not provided. Does not apply to action taken at the time of a fire to prevent spread.

Duties After Loss

Section 1 Condition. In the event of a covered loss, in order to get settlement insured must:

• Give prompt notice to the insurer

• notify the police in case of a theft loss

• notify the money agency in the event of a credit card/money loss covered by additional coverages

• protect the property from further damage and keep accurate report of repair expenses

• Cooperate with the insurer’s investigation

• Prepare an inventory of damaged property that includes the quantity, description, actual cash value, amount of loss and well as any applicable bills. Receipts

• Send a signed, sworn proof of loss within 60 days of the insured request, including time and cause of the loss, the interest of the insured, any other applicable insurance.

Loss Settlement

Section I Conditions. For those covered with ACV basis, the policy pays at the time of the loss BUT no more than the amount required to repair or replace the damaged property. For buildings and structures valued on a replacement cost basis, the insured must maintain an insurance value of 80% of the full replacement cost. The Insurer will pay no more than the actual cash value until the actual repair or replacement is complete.

What is always settled on a ACV basis in Loss Settlement Conditions Section I?

ALWAYS valued at their actual cash value:

• Personal Property

• Awnings, carpeting and household appliances

• Outdoor Antennas and Equipment

• Structures that are not buildings

• Grave Markers

Loss to a Pair or Set

The insurer may repair or replace any part to restore the pair or set to its pre-loss value OR the insurer may pay the difference between the actual cash value of the pair or set before and after the loss.

Appraisal

Section I Condition. If the insured and the insurer disagree on value of the property, either party may demand an appraisal. Each chose one within 20 days of the appraisal request and then the two appraisers select an umpire within 15 days. The appraisers separately set the amount of loss, and if it is agreed upon, it will be the amount of loss payable to the insurer. each party pays for their own appraisal and then split the cost of umpire.

Other Insurance and Service Agreement

The insurer will only pay for their Pro Rate Share of the loss.

Suit against Us

Section I Condition. The insured must have complied with applied policy terms and bring suit within 2 years of the date of loss.

Mortgage Clause

Section I Condition, Loss Payable under Coverages A or B will be paid to the insured AND the mortgagee as interest appear. If the insured claim is denied, the mortgagee can still get paid if

• they notify the insurer in any change of ownership, occupancy or change in risk

• pays any due premium

• submits a signed, sworn statement of loss within 60 days of receiving notice that the insured failed to do so.

Recovered Property

Section I Condition. if the insured OR insurer recovery property for which a claim has already been paid. They must notify the other. The insured may choose if they want the property back or to keep the loss payment.

Other Conditions

• Insurable Interest and Limit of Liability (even if there are multiple insured who have covered property at time of the loss, the loss payment WILL NOT be more than the amount of the insured interest at the time of a loss or the applicable limit of liability.

• Our Option

• Loss Payment

• Abandonment

• No benefit to Bailee

• Volcanic Eruption Period (any volcanic action in 72 hours is counted as one action)

• Policy Period

• Loss Payable Claus

Mobile Home Endorsement

May be attached to a Broad Form (HO-2) OR a Special Form (HO-3) policy. The Coverage A limit protects the mobile home, any tanks/structures attached to it, itemsd that are used to construct/alter/repair the mobile home

The Coverage B limit is no more than then 10% of the Coverage A limit. There is a minimum of $2000. The insurer will pay for reasonable expenses for removal up to $500 with no deductible

Earthquake Endorsement

Provides coverage for direct physical loss due to earth quake/shock wave. One or more earth movements in 72 hour period is counted as 1 earth movement. Excludes flood damage caused by an earthquake. It requires a deductible, represented as a percentage of the limit of either coverage A or the Coverage C, whichever is greater, the deductible must be at least $500. Damage to masonry is not included but can be added back for an additional fee

Scheduled Personal Property Endorsement.

Increases the insurance limits and broadens the perils insured against items that are:

• Jewelry

• Furs

• Cameras

• Musical Instruments

• Silverware and Goldware

• Golfers Equipment

• Fine Arts

• Stamp and Coin Collections

• Any other Property named on the endorsement

Any Scheduled items will be covered by this endorsement specifically, not coverage C. Section I deductible DOES NOT APPLY to the scheduled property.

Perils Insured Against and Exclusions

Coverage is provided to the scheduled items on an open perils basis. Loss from war, wear/tear, inherent vice, insects/vermin and nuclear hazards are excluded.

Special Provisions of Scheduled Property

Newly acquired fine arts are covered, at ACV for up to the 25% of the scheduled limit applying to fine arts. For coverage to continue, the art objects mut be reported to the insurer within 90 days of acquisition and the additional premiums must be paid. For other new scheduled property, the coverage is provided up to the lesser of 25% of the insurance scheduled for that property or $10,000. For coverage to continue, the objects must be reported to the insurer within 30 days of acquisition and the additional premium must be paid.