Homeowners Policy Concepts- From Exam Outline

Louisiana Licensing Exam Chapter 6

Owner Occupant

required for homeowners policies as the insured must live at the insured location. Exceptions include the HO-4 and HO-6 for people who live in a unit or condo of a property but do not own the building itself.

Special Form HO-3

dwelling and other structures are insured on open perils basis, and all perils are covered unless specifically excluded.

Residence Premises

A 1-4 family dwelling, where the insured resides, including other structures and grounds at that location, If the dwelling is more than one unit the insured must reside in one of the units.

Eligible Dwellings

• building that contains 1 to 4 residential units and no more than 2 room or boarders per family.

• Secondary residences-as long as the dwelling is primarily used as a residential location.

• Dwellings under construction that will be the primary residence of the insured once construction is complete

• Coverage for mobile homes can be covered through endorsement

• Residential farm dwellings are not eligible

Homeowners Policy Structure

• Section 1- provide property coverage

  • Coverage A Dwelling

  • Coverage B Other Structures

  • Coverage C Personal Property

  • Coverage D Loss of Use

• Section 2- provide liability coverage

  • Coverage E Personal Liability

  • Coverage F Medical Payments to Others

Broad Form HO-2

provides named perils coverage for A, B, and C. There are 16 named perils in this form. Coverage A and B are RC and Coverage C is ACV.

Fully Enclosed Building

coverage for a personal property loss during a wind or hail event only applies if the damage to the exterior that cause an opening was from the event. Loss caused from water or hail from an existing opening is not covered.

Accidental Discharge or Overflow of Water Peril (HO-2)

this peril excludes losses caused by mold, fungi, or wet rot, unless the mold, fungi, or wet rot is hidden within the walls, ceilings, or floors.

HO-2, HO-3, and HO-5 Loss Valuation Methods

Coverage A and B are replacement cost and coverage C is settled under actual cash value.

Special Form (HO-3)

Coverage A and B are insured on an open perils basis at replacement cost value, covering all direct loss unless specifically excluded. Coverage C is broad named perils coverage at ACV.

Coverage C in HO-3

covers the same perils as in broad form, however, in the vehicle peril coverage is given back for losses to a fence, driveway, or walk caused by a vehicle owned or operated by the insured.

Contents Broad Form (HO-4)

Designed to insure those who are tenants. Insures personal property under coverage C against the 16 named broad form perils found in the HO2 and HO3 forms on ACV basis.

Comprehensive Form (HO-5)

This is the broadest coverage for homeowner policies. Coverage A, B, and C provide insurance on an open perils basis. Coverage A and B are RCE and coverage C is ACV. 

Unit-Owners Form (HO-6)

This policy is designed for the owners of condominium and cooperative units. Coverage A is provided for the part of the structure they own (interior walls, floors, etc) and includes building alterations and improvements. Coverage C is provided for the insured’s personal property while anywhere in the world. There is no coverage B in this form, however if the insured has other structures on the premises they want to ensure it can be included in the coverage A limit. The dwelling and property are insured against the broad form perils with RC coverage for A and ACV for C.

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. Ex: an older Victorian home whose parts would be too difficult or impossible to replace to its original condition.

Modified Form (HO-8) Coverage and Valuation

insured against the basic named perils and most have the same limits has HO-2, however theft is limited to $1,000 for any one loss and will not coverage off-premises theft. Personal property is settled on ACV but losses to the dwelling or other structures will be covered at functional replacement cost. 

Insured

• Named insured and spouse

• Other residents who are relatives, or someone under 21 who is under the care of the named insured.

• A student who is enrolled full time who was a resident of the of the household before moving to attend school and under the age of 24.

• Section 2- persons using a vehicle on an insured location with the insured’s consent and persons while engaged in the employment of the named insured or resident relative.

• Section 2- any person or organization legally responsible for covered animals or watercraft owned by an insured. A loss is not covered if the person has a loss without the insured’s consent or is acting for a business.

Insured Location

• The resident premises listed on the dec page

• Premises used as a residence by the insured, but only if it is either shown in the dec or acquired during the policy period.

• Any premises used in connection with a residence premises

• Any non-owned premises where the insured is temporarily residing (hotels rooms or vacation rentals)

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

• Any part of a premise occasionally rented to an insured for non-business use.

Residence Employee

an employee of an insured whose duties are related to the maintenance or use of the residence premises, including household and domestic services like a gardener or nanny.

Deductible

the insured pays an amount equal to the deductible listed on the dec page and the insurer pays the balance of the loss that exceeds the deducible amount subject to the policy limits. If two deductibles apply to the loss, the highest deductible will apply.

Coverage B Other Structure Exclusions

Land, other structures that are rented or held for rental to anyone who is not already a tenant of the dwelling, unless the other structure is used solely as a private garage, other structures from which any business is conducted, other structures used to store business property that is owned by someone other than an insured or a tenant of the dwelling. 

Coverage A on the HO-6

Coverage for alterations, appliances, fixtures, and improvements that are part of the building in the covered unit. Property the insured must insure under agreement with a property owner corp or association. Other structures located in the residence premises and owned solely by the insured. 

• Does not cover the land where the premises is located, structures rented or held for rental to any person who is not a tenant except as a private garage, and structures used to conduct business operations. 

Coverage A Limit of Liability

when the limit of liability for dwelling coverage is chosen, the other three property coverages are automatically issued at limits equaling a specific percentage of coverage A limit of liability. If these limits are inadequate, the insured can purchase higher limits through endorsements.

Coverage A Dwelling

Residence premises, structures attached to the dwelling, and materials and supplies on or next to the residence used for construction.

Coverage B Other Structures

Other structures set apart from the dwelling by a clear space or fence, utility line, etc.

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. Can be applied to the property on the residence premises that belongs to guests or residence employees, excluding roomers or boarders. The insured can also request coverage for personal property owned by others that is located at the resident premises.

Coverage C Limit of Liability

The limit of liability is 50% of coverage A. If the personal property is not located at the residence premises and is at a secondary residence, the coverage is lowered to 10% of the coverage C limit or $1,000-whichever amount is greater. For example, a college student away at school or property at a summer home. The same coverage is applied for property at a storage unit.

HO-4 and HO-6 Coverage C Limit

this limit of liability can be chosen because either no dwelling coverage is offered or a limited amount of dwelling coverage is offered.

Coverage C Special Limits

Special limits of liability apply to certain categories of personal property that are prone to losses (these do not increase the total coverage C limit). Ex: Money, bank notes, coins, and medals would have a limit of $200. Trailers or semitrailers not used with any watercraft would have a limit of $1,500. (Page 90 of textbook).

Coverage C Property Not Covered

• Property specifically described and insured elsewhere.

• Animals, birds, and fish.

• Motor Vehicles including equipment and parts (Not wheelchairs or lawnmowers).

• Aircraft including parts but excluding hobby aircraft not designed to carry cargo or people.

• Hovercraft including parts.

• Property or roomers, boarders, and other tenants who are not related to an insured. 

• Property in an apartment that is regularly rented or held for rental to others by the insured. 

• Business data stored on paper records or on computers.

• Credit cards and EFT cards except when additional coverage is added to the policy. 

• Water/steam, such as an increased water bill when a toilet breaks and water usage increases. 

Coverage D Loss of Use

indirect, consequential losses, additional living expenses, fair rental value, and civil authority prohibits use. This coverage will not cover expenses resulting from lease cancellation.

Additional Living Expenses (ALE)

if a residence it deemed unfit to live in, coverage D pays for any necessary increase in living expenses incurred by the named insured to maintain the household’s normal standard of living. Ex: hotels, food cost, and laundry. The time in which this will be paid is limited to the shortest time required to repair or replace the damage.

Fair Rental Value

if a covered property loss makes that part of the residence premises rented to others unfit to live in, the policy pays for the fair rental value, less any continuing expenses, while it is unfit. The time in which this will be paid is limited to the shortest time required to repair or replace the damage of the rented property.

Civil Authority Prohibits Use

if this prohibits the insured from using the residence premises as a result of direct damage to a neighboring premises by a peril insured against, the insurer will cover additional living expenses and fair rental value, as applicable for no more than 2 weeks.

Coverage D Limits of Coverage

the total limit for ALE, fair rental value, and civil authority payments. There is not a specific limit of insurance, and it can vary by state, carrier, etc. 30% of coverage A for HO-2,3,5, 30% of coverage C for HO-4, 50% of coverage C for HO-6, and 10% of coverage A for HO-8. (Page 92 of textbook)

Debris Removal Additional Coverage

Applicable to all HO forms. If the insured incurs expenses removing debris from a covered loss, the policy will pay the limits of insurance applicable to the covered property to cover the costs of removal. If the limit is exhausted, debris removal will pay up to an additional 5% of the applicable coverage limit.

Debris Removal for Trees Additional Coverage

will pay up to $1,000 for the removal of trees felled by windstorm, hail, or weight of ice, snow, or sleet. To activate coverage, trees must damage a covered structure, block a driveway, or block a ramp designed to assist people. The limit for removal for any one tree is $500. This is paid in addition to policy limits. 

Reasonable Repairs Additional Coverage

when covered property has been damaged by a covered loss, this coverage pays the reasonable cost of necessary measures taken to protect covered property from further damage, such as the expenses to place a tarp over a hole in the roof. Th is coverage does not increase the limit of insurance that applies to the covered property.

Trees, Shrubs, and Other Plants Additional Coverage

most forms pay up to 5% of coverage A limit for this coverage. HO-4 and HO-6 provide up to 10% of the coverage C limit. This limit is provided as an additional amount of insurance and had a sublimit of no more than $500 for loss to any one tree, shrub, or plant. A loss from windstorm, hail, or the weight of snow, ice, or sleet is not covered by this additional coverage.

Fire Department Service Charge Additional Coverage

if the insured is liable for service charges payable to another district’s fire department when it responds to protect the insured property from an insured peril, this additional coverage will pay up to $500 without a deductible.

Property Removed Additional Coverage

if the insured removes covered property from the premises because it is endangered by a covered peril, this additional coverage will insure against damage to the removed property for 30 days on an open perils basis. This coverage does not change the limit of insurance that applies to the property being removed.

Credit Cards, EFT Card, Forgery, and Counterfeit Money Additional Coverage

will pay up to $500 of additional insurance without being subject to a deductible for:

• the legal obligation of an insured to pay because of theft or unauthorized use of credit cards.

• Loss resulting from theft or unauthorized use of an insured’s fund transfer card.

• Loss to an insured cause by forgery or alteration of a check or negotiable instrument.

• Loss to an insured cause by good-faith acceptance of counterfeit United States or Canadian currency.

Loss Assessment Additional Coverage

if the property owner is part of a corporation or association, there may be property owned by all of the association’s members, meaning all members are liable for covering costs in the event of a loss. The additional coverage provides up to $1,000 for the named insured’s share of the losses charged by their corporation for direct loss to a collectively owned property by a peril insured against by the policy. Assessments charged by a governmental body are excluded from coverage.

Glass or Safety Glazing Material Additional Coverage

The breakage of glass or safety glazing material that is a part of a covered building, storm door, or storm window, including loss by earth movement. Direct physical loss to covered property cause solely by the pieces, fragments, or splinters of broken glass or safety glazing material. Not applied if the property was vacant for 60 consecutive days before the loss. 

Collapse Additional Coverage

the abrupt falling down or caving in of a building, or a portion of the building, that renders the building unfit for its intended use. Must have been cause by the perils below:

• Insured peril against (broad form or open perils depending on policy form)

• Hidden decay

• Hidden insect or vermin

• Weight of contents, animals, people, or equipment

• Weight of rain collected on the roof

• The use of defective material or methods of construction

Collapse is only covered for the dwelling-no patios, awnings, fences, etc.

Ordinance or Law Additional Coverage

coverage for increased costs to the insured due to enforcement of any ordinance or law that requires or regulates:

• Construction, demolition, remodeling, renovation, or repair of that part of a covered building damaged by an insured peril.

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

Typically 10% of coverage A. For HO-4 the insured may use up to 10% of the limit applying to the Building Additions and Alterations Additional Coverage.

Grave Markers Additional Coverage

The policy will pay up to $5,000 for these, on or away from residence premises, for loss of a peril covered by coverage C. The coverage is included in the limit of insurance applicable to the damaged property.

Landlord’s Furnishings Additional Coverage

This is for the HO-2,3,and 5 Only. If the insured regularly rents out an apartment or unit on the residence premises, this additional coverage provides up to $2,500 of additional insurance for the insured’s appliances, carpeting, and other furnishings. Insured under broad form perils-not including theft.

Building Alterations and Additions Additional Coverage

This is additional coverage only available under the HO-4. If the tenant insured makes building improvements or installations at their expense, they are covered under coverage C. Equal to 10% of coverage C. 

Ordinance or Law Exclusion

A section 1 exclusion that states a loss resulting from the enforcement of an ordinance or law regulating the construction, repair, remodeling, renovation, or demolition of a building are excluded, except coverage provided by the ordinance or law additional coverage.

Earth Movement Exclusion

A section 1 exclusion that states a policy does not cover losses resulting from earthquakes, landslides, mudslides, mudflow, subsidence, sinkhole, or any earth sinking, rising, or shifting. If direct loss by fire, explosion, or theft results in earth movement damage, those losses are covered.

Water Exclusion

A section 1 exclusion that states damage by flood, surface water, tidal water, waves, tsunami, or overflow by a body of water, water or waterborne material that backs up through sewers or drains, or that overflows from a sump pump, and underground water that exerts pressure and seeps through a building, foundation, swimming pool, or other structure. All excluded when damage is caused by human, animal, or natural forces. 

Power Failure Exclusion

A section 1 exclusion that states if the failure of power or utility services takes place off the residence premises and causes a loss, this exclusion applies. If the off-premises failure causes a loss of a covered peril on the residence premises- it is covered. 

Neglect Exclusion

A section 1 exclusion that states there is no coverage of losses if the insured fails to use all reasonable means to save and preserve covered property at and after the time of loss.

Other Common Section 1 Exclusions

• Intentional Loss

• War

• Nuclear Hazard

• Governmental Action

• Faulty, inadequate planning or zoning, development, design, repair, construction, and renovation. Faulty work is covered. 

Mobile Home Endorsement

Can be added to the HO-2 or HO-3. The definition of residence premises is changed to mean the mobile home and other structures owned or leased by the insured. The following is protected:

• The mobile home

• Structures and utility tanks attached to the mobile home on a permanent basis

• Materials and supplies located on or next to the residence premises that are used to construct, alter, or repair the mobile home or other structures.

Mobile Home Endorsement Coverage

The coverage B limit is no more than 10% of coverage A. If this amount is less than $2,000 the insurer MUST provide a minimum of $2,000. The property removal additional coverage protects the mobile home’s removal in order to avoid damage from an insured peril.

Homeowners Policy Characteristics

Written for an owner-occupied home that provides broader property and liability coverage as a package policy.

Basic Perils

Fire, lightning, explosion, with the option for extended coverages and VMM. The form written for these perils has been discontinued due to the demand of broader coverages.

Broad Perils

Fire, lightning, internal explosion, WHARVES, BBB, Ice, volcanic eruption, explosion, VMM, smoke, theft, falling objects, freezing, and electrical damage.

Special Form Peril Exclusions

This is an open perils form. Coverage is excluded for freezing if insured did not use reasonable care, weight of ice, etc on other structures, theft to a dwelling under construction, vandalism to a vacant dwelling after 60 days, smoke from agricultural smudging, mold, fungus, wet rot, collapse, wear and tear, mechanical breakdown, inherent vice, smog, rust, pollution, settling or cracking of foundation, birds, rodents, insects, and animals kept by the insured.

Coverage E- Personal Liability

Provides coverage for a third-party claim or suit brought against the insured for damages because of BI or PD caused by an occurrence that took place during the policy period- the insured must be found legally liable. Also covers defense costs at the insurer’s defense.

Coverage F- Medical Payments to Others

the policy will pay an injured third party’s necessary medical expenses incurred within 3 years from the date of an accident-causing bodily injury, up to the Coverage F limit. The Coverage F limit of liability, which will apply per person (minimum $1,000) for any one accident, will be included on the Declarations page. The insured does not have to be found at fault for this coverage to kick in.

HO Section 1- Conditions

Duties after loss, loss settlement, loss to a pair or set, appraisal, other insurance and service agreement, suit against us, mortgage clause, recovered property, no benefit to bailee, policy period, loss payable clause, loss payment, abandonment, volcanic eruption period, our option, and insurable interest and limit of liability.

Personal Property Replacement Cost Endorsement

Changes loss settlement basis from ACV to RC for personal property insured by coverage C, awnings, outdoor antennas, and outdoor equipment, carpeting and household appliances, scheduled jewelry, furs, instruments, etc. If replaced or repaired property exceeds $500, the insurer will pay ACV until the repair or replacement is complete.

Identity Fraud Expense Coverage Endorsement

Adds additional coverage to section 1 that will pay up to $15,000 for expenses incurred as a direct result of any one instance of identity fraud discovered during the policy period. Coverage for lost income has a limit of $200 per day with a max of $5,000

Business Pursuits Endorsement

extends liability coverage for the insured’s involvement in a business that the insured does not own, have financial control over, or have a partnership interest in. Typically for teachers, BI and PD for corporal punishment would only be covered would have to be marked on the endorsement.

Watercraft Liability Endorsement

Amends the watercraft liability exclusion in section 2. Liability coverage is extended to outboard motors of more than 25 horsepower, watercraft with inboard motors, and sailing vessels 26 feet in length or longer regardless of power.

Personal Injury Endorsement

Adds liability coverage for personal injury that is defined as false arrest, detention, and imprisonment, malicious prosecution, wrongful eviction, oral or written publication of material that violates a person’s rights of privacy, slanders or libels a person, or disparages a person’s goods, products, or services. Cannot be done with malicious intent or coverage is not provided. No coverage for the named insured or an insured.

Home Day Care Coverage Endorsement

If a daycare is using the dwelling building or another structure on the residence premises, the latter of which is subject to a scheduled limit of liability (rather than coverage B). On premises personal property will be covered by coverage C. This endorsement alters the Limit of Liability condition to create an aggregate limit for coverages E and F.

Earthquake Endorsement

Can add back coverage for direct physical loss to covered property caused by an earthquake, including shock waves or tremors surrounding a volcanic eruption. All events within a 72-hour period are one event. Excludes flood, filling land, replacement of decor that is not load bearing. Deductible must be at least $500.

Scheduled Personal Property Endorsement

This endorsement is used to increase insurance limits and broaden the perils insured against that apply to jewelry, furs, cameras, musical instruments, silverware and goldware, golfer’s equipment, fine arts, stamp and coin collections, and any other property named on the endorsement. These will NOT be included in coverage C- only on this endorsement with open perils.