INS 51 - Chapter 6b Notes – Homeowners Liability Coverage

HO-3 Section II – Exclusions

-Exclusions help limit the scope of coverage (and help keep premiums lower).

-There are dozens of exclusions, most applying to both Coverages E and F, but some only applying to Coverage E, or only applying to Coverage F.  Below, we discuss only the exclusions that apply to both Coverages E and F.

-Motor Vehicle exclusions apply to losses arising from motor vehicles, watercraft, aircraft, and hovercraft (since these losses are likely covered elsewhere (e.g.-PAP)).

-Some bodily injury and property damage loss exposures are beyond the scope of a homeowners policy, such as:

·        If caused intentionally or in an expected manner

·        If relating to business purposes (if business activity occurs at the resident premises of the insured, or at another insured location)

·        If relating to professional services

·        If the insured’s premises are not an insured location

·        If due to war

·        If due to communicable disease

·        If due to physical / mental / sexual abuse

·        If from the use / sale / delivery / possession of a controlled substance

HO Coverage Forms Other than HO-3

-HO forms are not all like.  Some insurers have their own forms, and some states have their own forms, both of which may differ from the ISO HO-3.

-While the HO-3 is the most widely used coverage form (among ISO forms), other forms like the HO-2, HO-4, HO-5, HO-6, and HO-8 exist to address more specialized situations.  The numbers of the forms above just refer to the order in which the ISO introduced the forms.  Where these specialized forms differ from the HO-3 the most are in Section I (Property Coverage).

HO-2 (Broad Form)

-Like the HO-3, these are designed for owner-occupants of the house.  HO-2 has lower premium than HO-3 because coverage is less broad.  More specifically, HO-2 coverage is on a ‘named perils’ basis.  By contrast, HO-3 is on a ‘open perils’ basis.

-Thus, with HO-2, the burden of proof (to establish coverage) is on the insured, whereas with HO-3, specifically Coverages A and B, this burden of proof is on the insurer (since the initial assumption is that a loss will be covered unless excluded).

HO-5 (Comprehensive Form)

-Provides the broadest property coverage possible.

-Similar to HO-3 for Coverages A and B, but much broader for Coverage C.

HO-4 (Contents Broad Form)

-Designed for people living in rented houses or apartments.

-Essentially the same as HO-3 except does not include Coverages A and B.

HO-6 (Unit-Owners Form)

-Covers exposures faced by owners of condominiums or co-op units.

-Condos may provide insurance requirements for common areas (i.e., condo association insurance for jointly owned property); however, this must be supplemented by individual insurance for the owner’s individual unit.  Here, the HO-6 defines the ‘resident premises’ as the unit where the insured lives

HO-8 (Modified Coverage Form)

-Designed for use where the replacement cost of an owner-occupied dwelling significantly exceeds the market value of this dwelling.

-Because of the moral hazard that would exist if this was covered under HO-3 (since the homeowner would prefer to collect insurance than to sell the property if damages occurred), HO-8 specifies that if the insured makes repairs after a loss, the insurer’s payment is capped at the cost of ‘common construction materials’ that will restore the property to being ‘functionally equivalent’ to its pre-loss state