Personal Lines Ch.6 Notes

Home Policy Eligibility

-Owner occupied

-no more than 4 residential units

-2 roomer/boarder max

-incidental business allowed

Broad Form HO2

-HO-2 (Broad Form) Homeowners Policy

Covers the dwelling (Coverage A), other structures (Coverage B), and personal property (Coverage C) on a named-perils basis.

Covers 16 named perils, including:

Fire or lightning

Windstorm or hail

Explosion

Riot or civil commotion

Aircraft

Vehicles

Smoke

Vandalism and malicious mischief

Theft

Falling objects

Weight of ice, snow, or sleet

Accidental discharge of water

Freezing

Electrical damage from artificially generated current

And other specified perils.

Personal property is covered worldwide, subject to policy limits and exclusions.

The dwelling is typically insured for replacement cost if policy conditions are met.

Personal property is generally settled at actual cash value (ACV) unless endorsed otherwise.

Provides loss of use (Coverage D) if a covered loss makes the home uninhabitable.

Includes personal liability (Coverage E) and medical payments to others (Coverage F).

Broader coverage than an HO-1 Basic Form, but less coverage than an HO-3 Special Form.

Unlike an HO-3, the HO-2 does not provide open-perils coverage on the dwelling; only the listed perils are covered.

HO3 Special Form

• Open Perils for COV A and COV B

• named perils for COV C

• Loss Settlements: replacement for COV A & B and ACV for COV C

HO4 Renters

• no coverage for COV A & B

• ACV for COV C

• Section 2

• can add coverage cost for additional endorsement

HO5 BROADEST

• the “best” home insurance policy

• COV A,B, and C have open perils

• COV A&B replacement

• COV C ACV

Condo/Co-OP

-owner/tenant occupied

-COV A&B

-Walled in coverage

COV A,B, and C have open perils

-standard loss settlement

HO8 modified form

-for antique homes

-replacement value disproportionately higher than market value

-insures against basic named perils

-provides functional replacement costs only

Insured

The Insured refers to:

• the named insured or their spouse

• over residents of the home that are relatives of the named insured

• a student enrolled in school full time who was a resident on the named insured household under 21 and in an insured’s care

Under section 2 liability coverages, the insured is also:

• person using a vehicle on an insured location with the insured’s consent

• any entity responsible for covered animals or watercraft owned by the insured.

The named insured is the person designated on the declarations page and should be the party holding the deed to the property being insured.

Bodily Injury

Includes bodily harm, sickness disease including any required case, loss of services (consortium) and death that results

Property Damage

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

Residence Premises

1-4 family dwelling where the insured resides, including other structures at that location. on the HO6 form, the residence premises is the unit in which the insured resides.

Insured Location

refers to:

• the premises listed on the declarations page

• any other residences used by the insured

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

• any non-owned premises in which the insured is temporarily residing

• vacant land owned by or rented to the insured

• land owed or rented to the insured in which residence will be built upon and/or burial plots of the insured

• any part of the premises occasionally rented to an insured for non-business use

Residence Employee

An employee of the insured whose duties are related to the maintenance or use of the residence premises, such as a nanny

COV-A: Dwelling

the dwelling located on the residence premises shown in the Declarations, including structures attached to the dwelling, such as porches, breezeways, decks, etc.

COV-A on HO6

Coverage A = Dwelling. It covers the portions of the condo unit that are the insured's responsibility to insure. Generally includes alterations, appliances, fixtures, and improvements that are part of the unit.

Often called"building property" coverage in an HO-6.

Coverage applies to:

Wall, floor, and ceiling coverings

Built-in cabinets and countertops

Fixtures and improvements

Permanently installed appliances

Additions and alterations made by the unit owner

Designed to fill gaps left by the condominium association's master policy.

The amount of Coverage A should be based on what the condo owner is responsible for under the condominium bylaws.

Typically provides replacement cost settlement when policy conditions are met.

Does not cover the condominium building's common areas, which are generally insured by the condo association.

Quick Exam Tip

HO-3 Coverage A = Entire house structure

HO-6 Coverage A = Only the parts of the condo unit the owner is responsible for insuring

COV B- Other Structures

Limit of insurance is 10% of the Coverage A limit, does not reduce the coverage A limit of liability

COV C- Personal Property

Coverage C applies to the personal property owned or used by the insured. Coverage is provided while the personal property is anywhere in the world.

The Coverage limit of insurance is 50% of the coverage A limit of liability. Within this limit, certain types of personal property have limitations. If the personal property is usually located at a secondary residence that is not considered the residence premises, coverage is limited to 10% of this COV C limit OR $1,000. whichever is greater.

This limit would apply to a college student’s personal property while away or property at the insured summer home. the same limitation applies to personal property located in a self-storage facility

COV C SPECIAL LIMITS

Special limits of liability which do not increase the total coverage C limit, apply to certain categories of personal property that are prone to losses. the following limits are standard, but different insurers may specify different limits

$200: Money, bank notes, bullion, gold (other than goldware), silver (other than silverware), platinum, coins, and medals.

$1,500: Securities, accounts, deeds, evidences of debt, letters of credit, notes, manuscripts, personal records, passports, and tickets.

$1,500: Watercraft, including trailers, furnishings, equipment, and outboard motors.

$1,500 (Theft only): Jewelry, watches, furs, precious and semi-precious stones.

$2,500 (Theft only): Firearms and related equipment.

$2,500 (Theft only): Silverware, goldware, platinumware, and pewterware.

Property not covered under COV C includes:

motor vehicles including equipment and parts. HOWEVER, coverage can be provided for vehicles not required to be registered for use on public roads (such as golf carts and electric wheelchairs)

COV D- Loss of Use

Three types of loss coverage are provided under coverage D for indirect, or consequential losses:

• additional living expense

• fair rental value

• civil authority prohibits use

COV D will not cover expenses resulting from lease cancellation

Additional Living Expense (ALE)

ALE = Coverage D (Loss of Use) on most homeowners policies.

It pays for the extra living expenses you incur when a covered loss makes your home unfit to live in.

ALE Covers:

Hotel bills

Restaurant meals above your normal food expenses

Temporary rental housing

Additional transportation costs caused by displacement

Other necessary increases in living expenses to maintain your normal standard of living

ALE Does NOT Cover:

Normal living expenses you would have had anyway

Costs resulting from an uncovered loss (such as flood, unless separately insured)

Permanent increases in living expenses

I.E.: If you're forced away from home because of a covered loss, ALE helps pay the extra cost of living elsewhere

Fair Rental Value

Fair Rental Value pays for the lost rental income when a covered loss makes a rented part of the residence unfit to live in.

What It Covers

Lost rent from a tenant after a covered loss.

The fair rental value of the property while it is being repaired or rebuilt.

What It Does NOT Cover

Loss of rental income caused by an uncovered peril.

Expenses that do not continue while the property is uninhabitable (such as utilities no longer being incurred).

Civil Authority Prohibits Use

If a civil authority prohibits the named insured from using the residence premises as a direct result of damage to a neighboring premises by a peril insured against, the insurer would cover additional living expenses and fair rental value, as applicable for no more than two weeks.

Section 1 Additional Coverages

• Debris Removal: 5% of the applicable coverage limit for debris removal.

• Reasonable Repairs: when the insured's property has been damaged by a covered peril, 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. This coverage does not increase the limit of insurance that applies to the covered property

• Trees, Shrubs, and Other Plants: Most forms pay up to 5% of the COV A limit for this coverage. However, the HO4 and HO6 provide up to 10% of the COV C limit. This limit is provided as an additional amount of insurance and has a sublimit of no more than $500 for loss to any one tree, shrub, or plant.

• Fire Department Service Charge: Additional coverage will pay up to $500 without a deductible

• Property Removed: If the insured removes covered property from the premises because it is endangered by a covered peril, this coverage will insure against damage to that property for 30 days on an open perils basis

• Credit Cards et cetera: Additional coverage will pay up to $500 of additional insurance without being subject to a deductible.

• Loss Assessment:If a property owner is part of a corporation or association of property owners, there may be property owned by all of the association’s members, meaning all members are partially liable for covering costs in the event of a loss to the commonly owned property. A property owner’s share of that loss is known as loss assessment. The Loss Assessment Additional Coverage provides up to $1,000 for the named insured’s share of the losses charged by their corporation or association for direct loss to collectively owned property by a peril insured against by the policy. This amount is additional insurance.

  Assessments charged against the insured by a governmental body are excluded from coverage.

• Glass or safety glazing material

• collapse

• ordinance or law

• grave markers: policy will pay up to $5000

Other Exclusions:

The Homeowners forms do not provide coverage for faulty, inadequate, or defective planning, zoning, development, surveying, design, repair, construction, or renovation. However, if a covered loss to the dwelling or other structures ensues from this faulty work, that ensuing loss is covered.

Duties After Loss

in the event of a loss to covered property, the insured must:

Give prompt notice to the insurer

Notify the police in case of a theft loss

Notify the credit card, electronic fund transfer card, or access device company in the case of loss covered by the Credit Cards, Electronic Fund Transfer Card or Access Device, Forgery, and Counterfeit Money Additional Coverage

Protect the property from further damage by making reasonable and necessary repairs to protect the property, and keep accurate records of repair expenses

Cooperate with the insurer’s investigation

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

Send a signed, sworn proof of loss within 60 days of the insurer’s request, including the time and cause of loss, the interest of the insureds, any other applicable insurance, changes in property occupancy, repair estimates for the damaged building, the inventory, and receipts for additional living expenses

Loss Settlement

For buildings and structures valued on a replacement cost basis, the insured is required to maintain insurance to value to at least 80% of the full replacement cost at the time of loss.

Loss to a Pair or Set

Homeowners policies contain a standard Pair or Set clause. In case of a 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

If the insurer and insured disagree on the amount of loss, either party may demand appraisal. Each party will choose an appraiser within 20 days after receiving the request, and the two appraisers will select an umpire within 15 days. The appraisers will separately set the amount of loss, and if the amount is agreed upon, it will be the amount of loss payable by the insurer. If they disagree, the umpire will make the final decision.

Each party pays for its own appraiser and splits the cost of the umpire.

Other Insurance Service Agreement

If the loss is also covered by another insurance policy, the insurer will only pay for their pro rata share of the loss, based on the proportion of the policy limit to the total amount of applicable insurance.

Suit Against Us

If the insured takes legal action against the insurer, the insured must have complied with all policy terms and bring suit within 2 years of the date of loss.

Mortgage Clause

The standard Mortgage clause applies to all Homeowners policies. Losses payable under Coverages A or B will be paid to the insured and the mortgagee, as interests appear. If the insurer denies the insured’s claim, the denial will not apply to the mortgagee if the mortgagee:

• Notifies the insurer of any change in ownership, occupancy, or substantial change in risk

• Pays any due premium

• Submits a sign, sworn statement of loss within 60 days of receiving notice that the insured failed to do so

The mortgagee must be notified at least 10 days prior to any cancellation or nonrenewal effective date.

Recovered Property

If the insurer or insured recover property for which a claim has already been paid, that party must notify the other party of the recovery. The insured may choose whether the property gets returned to or retained by the insured, in which case the loss payment will be adjusted, or if it becomes the insurer’s property.

Other Conditions

Many of the Section I conditions are common to property policies generally and similar to the terms provided by the Dwelling Program. These include:

Selected Property Endorsements

• Mobile Home Endorsement: The Mobile Home Endorsement may be attached to a Broad Form (HO–2) or Special Form (HO–3) Homeowners policy. The definition of residence premises is changed to mean the mobile home and other structures owned or leased by the insured, as shown on the Declarations. Other changes are made to Section I, and Section II remains unchanged.

  Coverage A protects the following pieces of property, with losses settled on a replacement cost basis:

  The mobile home on the residence premises that is used principally as a private residence

  Structures and utility tanks attached to the mobile home on a permanent basis, including floor coverings, appliances, dressers, and cabinets

  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

  The Coverage B limit is no more than 10% of the Coverage A limit. However, if that amount is less than $2,000, the insurer must provide a minimum limit of $2,000.

  The Property Removed Additional Coverage protects the mobile home when it is endangered by a peril insured against and must be removed to avoid damage. The insurer will pay for the reasonable expenses incurred for its removal and return, up to $500, with no applicable deductible.

• Earthquake Endorsement: Earth movement is a common exclusion on all property policies, but coverage may be essential to homeowners. One option for earthquake protection is the Earthquake Endorsement, which will add back coverage for direct physical loss to covered property caused by an earthquake, including land shock waves or tremors surrounding a volcanic eruption. One or more earthquake shocks that occur within a 72-hour period are considered a single earthquake.

  The endorsement will continue to exclude flood, even if caused by an earthquake, as well as the cost of filling land. Any damage to exterior masonry veneer, such as decorative brick or stone that is not load bearing, is also excluded, unless the insured chooses to add that coverage.

  Earthquake coverage will not increase the applicable limit of liability. It also requires a deductible, represented as a percentage of the limit of either Coverage A or Coverage C, whichever is greater. The deductible must be at least $500.'

• Schedules personal property endorsement: open perils, no deductible

Special Provisions: If fine arts are scheduled, the insured agrees that the art will be handled by competent packers. Newly acquired fine arts are covered, at actual cash value, for up to 25% of the scheduled limit applying to fine arts. For coverage to continue, the art objects must be reported to the insurer within 90 days of acquisition, and the additional premium must be paid.

For newly acquired jewelry, furs, cameras, and musical instruments, new items are covered as long as coverage already exists under the endorsement for that class of property. Coverage is provided up to the lesser of 25% of the amount of 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.

Personal Property Replacement Cost Endorsement

This endorsement changes the loss settlement basis from actual cash value to replacement cost for the following property:

• Personal property insured by Coverage C

• Awnings, outdoor antennas, and outdoor equipment

• Carpeting and household appliances

• Scheduled jewelry, furs, cameras, musical instruments, silverware and goldware, and golfer’s equipment (including that which is scheduled on the Scheduled Personal Property Endorsement), as long as the property is not subject to settlement on an agreed value basis

Fine arts, collectors items, articles in bad condition, and articles that are stored and obsolete are not eligible for this coverage.

If the cost to repair or replace covered property exceeds $500, the insurer will pay the actual cash value of the property until actual repair or replacement is complete.

Ordinance or Law increased amount of coverage endorsement

On an unendorsed policy, the Ordinance or Law Additional Coverage lets the insured use up to 10% of the Coverage A limit on covered increased costs. The Ordinance or Law Endorsement allows the insured to increase this percentage to a percentage scheduled on the endorsement.

Identity Fraud Expense Coverage

This endorsement adds an Identity Fraud Expense Additional Coverage to Section I 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. A $500 deductible applies.