NCRB. NORTH CAROLINA RATE BUREAU 5401 Six Forks Road Raleigh NC (919) November 24, 2003

Transcription

1 NCRB NORTH CAROLINA RATE BUREAU 5401 Six Forks Road Raleigh NC (919) November 24, 2003 Mr. Charles A. Swindell Deputy Commissioner Property and Casualty Division North Carolina Department of Insurance P. O. Box Raleigh, North Carolina Re: Homeowners 2000 Policy Program Forms and Rate Filing Your File Number: PC Dear Mr. Swindell: This is in response to your letter dated October 30, 2003 regarding the above captioned filing. I will attempt to answer your questions in the order they appear. 1. Why does the homeowners policy declarations page and HO (Change endorsement) show the offer of mobile home coverage when rule 104(E) says coverage is not available? It is correct in that mobile home coverage is not available in the Homeowners Policy Program. However, the proposed homeowner s declaration page is an advisory declaration and as indicated by the footnotes certain items may be amended or omitted as necessary. With regard to the reference to mobile homes, it is anticipated that companies will omit this reference. For easy reference, please find attached a copy of the appropriate pages from the original filing showing the declaration page instructions and footnotes. 2. Form HO 0005, Page 3 of 22, Section 1, item B1., states this includes structures connected to the dwelling by only a fence, utility line, or similar connection. To avoid potential complications in the future, similar connection needs to be defined or clarified or changed. The wording you are questioning appears in all of the policy forms (HO 00 02, HO 00 03, etc.) not just the HO and has been in use at least as far back as the

2 1984 Program. We are not aware of any current problems with this wording from our member companies or the consumers. Also, please keep in mind that when defining or clarifying language, such as this, the resulting provision will be more specific but perhaps not provide coverage in a situation that may be covered today. Such a change may take away a company's ability to more liberally interpret the current terminology. 3. Section II Liability coverages, item E.1 (Personal liability expected or intended liability) Appears to be too restrictive and it is preferred that the coverage remain as written in the current HO91 version or modified to minimize the proposed restriction. In reviewing your question, we would agree that the country-wide policy forms contain a lot of changes with regard to the expected or intended exclusion and these changes may be too restrictive. However, in North Carolina, we have had, and continue to have, an exception to the country-wide policy forms with regard to this exclusion. The proposed language included in the HO for the HO-2000 is not changing from the language used in the HO32 32 for the HO-91 Policy Program. 4. Section I Perils insured against, Section B. Coverage C Personal Property, item 14 (freezing) is more restrictive and is preferred to leave as written under HO91 Program. This change came about when it was pointed out to us that a dwelling that was vacant or unoccupied was not entitled to coverage unless "reasonable care" was used to maintain heat in the building, etc. But such "reasonable care" was not required by an insured off on a four week European vacation. Such a result did not seem equitable therefore we proposed the change. Further, since we believe that an insured would typically maintain heat, and thus a high standard of reasonable care for the dwelling he or she occupies, we believe this revision will have little or no overall coverage impact. 5. Coverage D limits in the countrywide version was expanded to 30% (formally 20%) of Coverage A amount. The proposed North Carolina version does not include this increase. 2

3 In reviewing the Insurance Services Office (ISO) proposed HO-2000, ISO did originally propose to increase Coverage D limit from 20% of Coverage A to 30% of Coverage A. However, it is felt that ISO, during their review of the rating impact of the HO-2000, did not take into consideration North Carolina specific impacts such as perils that are catastrophic in nature such as hurricanes and ice storms. In order to keep the rating impact of the new policy program at a zero off-balance, it is felt that this coverage limit should not be increased. If the Department wishes for this limit to be increased, the base rates will need to be increased to reflect this change. Please keep in mind, there are provisions for increasing the Coverage D limits in the rating rules. 6. Section I Property Coverages Item 4 (Property not covered); motor vehicles used to maintain insured s residence has been expanded to make coverage very restrictive. We do not wish to adopt this expanded version and request coverage is modified back to current HO91 definition. We do not agree that this change is restrictive. The current wording is "used to service an "insured's" residence". It has never been the intent to provide coverage when a vehicle is used to service another residence. Nevertheless, a recent court decision in Maine interpreted the language just the opposite of how the North Carolina Department of Insurance is interpreting it. The Court stated that since the vehicle was used just once to service an insured's residence it should be covered from that time forward even when operating off the residence premises. To prevent that never intended extension of coverage we added the word "solely". 7. Please remove all references of refer to company, as all rates must be filed with the Department before use. Included in the General Rules of the Homeowners Manual, Rule 210 Refer To Company indicates that whenever a risk is rated on a refer to company basis, each company is responsible for complying with regulatory or statutory rate filing requirements. The Rate Bureau feels that, in those limited instances that this occurs, the individual companies must file the appropriate rates with the Department of Insurance. 3

4 8. Give a complete rating example of the three and four family dwellings. Please find enclosed a rating example of the three and four family dwellings. 9. Review the Special State Requirements, E. North Carolina Joint Underwriting and advise why the North Carolina Insurance Underwriting Association is not included. The Plan of Operation of the North Carolina Joint Underwriting Association imposes certain requirements on the member companies of that Organization. Those requirements are included in the Homeowners Manual. However, those same requirements are not included in the Plan of Operation of the North Carolina Insurance Underwriting Association. 10. Remove all references to see company pages. Please find enclosed a revised manual rule which defines the term company pages as State Rate Pages. 11. Amend Year of Construction table to be more defined in the credits/factors. For example, YOC 1st year is 20%, 2nd year is 18%, 3 rd year is 16%, etc. We would prefer not to change this rule to show percentages in lieu of factors. The current manual rule provides factors and companies would prefer to see credit factors in lieu of percentages. 12. Please explain why the $1500 deductible is being eliminated. Please find enclosed revised manual rules (pages E-1 through E-24) providing for the $1,500 deductible. These enclosed pages replace those previously filed. This was an oversight on our part. 13. Are we to assume the HE-7 program has been eliminated? The HE-7 Policy Program has not been eliminated. We will be filing changes to this Program in the near future in a separate filing. 4

5 I hope this answers the questions you may have regarding this Program. We will be forwarding answers to those questions that are still outstanding in the near future. Very truly yours, F. Timothy Lucas FTL:dp Personal Lines Manager 5

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9 HOMEOWNERS PROGRAM RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-1 RULE A1. SPECIAL STATE REQUIREMENTS A. Special Provisions Endorsement - HO Use this endorsement with all Homeowners policies. B. No Coverage For Home Day Care Business HO This endorsement details the exclusions and restrictions of the policy with respect to a home day care exposure. Use this endorsement with all Homeowners policies. C. Windstorm Exterior Paint and Waterproofing Exclusion Endorsement HO Use this endorsement with all Homeowners policies in Territories 05 and 06. D. Flood Insurance Notice The following special notice must be furnished with each new policy and upon each renewal: FLOOD INSURANCE NOTICE The North Carolina Department of Insurance has requested all companies to advise their policyholders that the homeowners policy program does not provide coverage for floods. You will not have coverage for property damage from floods unless you take steps to purchase a separate policy of flood insurance at an additional premium from the National Flood Insurance Program, 42 U.S.C. Section 4001, et seq. This Notice does not expand or increase coverage in any homeowners policy or endorsement. That policy and accompanying endorsements remain subject to all exclusions, limitations and condition. If you would like more information about obtaining coverage under the National Flood Insurance Program, please contact your agent or this company. Notification may be included with other materials sent to the policyholders and may be sent in the manner normally used by the company to notify policyholders of such matters. Notification should contain, at a minimum, the attached language but may contain further information not inconsistent with the attached language at the option of the individual member company. E. North Carolina Joint Underwriting Association Section XVI of the Plan of Operation of the Joint Underwriting Association (Fair Plan) sets forth the following as to "Responsibility with Respect to Cancellation or Nonrenewals": As respects risks eligible under the Plan of Operation, each participating Insurer agrees that with respect to cancellation or nonrenewals initiated by it, it will give to policyholders, except in cases of nonpayment of premium, material misrepresentation, or evidence of incendiarism, thirty days to avail themselves of the Plan of Operation and the Insurer shall, in writing, explain to the policyholder the procedures for making application under the Plan of Operation. RULE A2. INSTALLMENT PAYMENT PLAN Annual Policy When a policy is issued on an installment basis, the following rules apply: A. The first installment shall be due on the effective date of the policy and the due date of the last installment shall be no later than one month prior to the policy anniversary date. B. The premium calculated for the first installment payment, exclusive of installment charges, shall not be less than the pro rata charge for the period from the inception date of the policy to the due date of the next installment. C. Refer to the state company rates for Tthe additional charge shown on the state rate pages that shall be made for each installment.

10 HOMEOWNERS PROGRAMS RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-2 RULE A3. WINDSTORM OR HAIL EXCLUSION TERRITORIES 05, 06, 42 AND 43 ONLY Paragraph A. is replaced by the following: A. The peril of Windstorm or Hail may be excluded if: 1. The property is located in an area eligible for such coverage from the North Carolina Underwriting Association; and 2. A Windstorm or Hail Rejection Form is secured and maintained by the company. Use Absolute Windstorm or Hail Exclusion Endorsement HO Absolute Windstorm or Hail Exclusion. B. To compute the Base PremiumBASE PREMIUM: 1. Determine the appropriate Key Premium as described in Rule Subtract the Windstorm or Hail Exclusion credit shown on the state company rates pages from the Key Premium. 3. Multiply the Key Premium excluding Windstorm or Hail Coverage developed in Step 2. by the Key Factor for the desired limit of liability. 4. Example Form HO Key Premium = $640 Windstorm or Hail Exclusion Credit = $427 Key Factor for $100,000 = Step 1. Step 2. Step 3. Determine the Key Premium Key Premium = $640 Subtract Windstorm or Hail Exclusion Credit from Key Premium $640 - $427 = $213 Multiply Key Factor for desired limit by amount in Step 2. $213 x = $236.22, round to $236 = Base PremiumBASE PREMIUM RULE A4. THEFT COVERAGE NEWLY CONSTRUCTED DWELLINGS A. Coverage Description The policy may be endorsed to provide theft coverage in or to a newly constructed, unoccupied dwelling. B. Premium Charge the rate shown on the state company rate pages. This rate will not be refunded if the endorsement is cancelled. C. Endorsement Use Theft Endorsement Newly Constructed Unoccupied Dwelling Endorsement HO Theft Endorsement Newly Constructed Unoccupied Dwelling. RULE A.5. WATERBED LIABILITY FORMS HO AND HO A. Coverage Description The policy may be endorsed to provide coverage for property damage caused by waterbeds to non-owned property on the residence premises. B. Premium Charge the rate shown on the state company rates pages. C. Endorsement Use Waterbed Liability Forms HO and HO Endorsement HO Waterbed Liability Forms HO and HO C. When Endorsement HO is attached to the policy, enter the following on the Declarations page: "This policy does not provide coverage for the peril of Windstorm or Hail".

11 HOMEOWNERS PROGRAM RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-3 RULE A6. YEAR OF CONSTRUCTION NEWLY CONSTRUCTED DWELLINGS ALL FORMS EXCEPT HO AND HO A. A Dwelling is eligible for a discount depending on the calendar year that the dwelling was completed and first occupied. If the year first occupied is different than the year completed, the later year would apply. B. To compute the premium for this provision, multiply the Base Premium BASE PREMIUM by the appropriate credit factor listed belowselected from the following table: Age of Dwelling (in years) Credit up to up to up to up to up to up to and over No Credit Applies Note: A dwelling under construction shall be considered to be completed and occupied during the current calendar year. Table A6.B. Age of Dwelling Credits C. To develop a premium for this option, multiply the Base PremiumBASE PREMIUM by the appropriate credit factor. RULE A7. COMMUNITY MITIGATION CLASSIFICATION MANUAL With the renaming of the Public Protection Classification (PPC) Manual all references to the PPC Manual shall be understood to be references to the Community Mitigation Classification Manual. THREE OR FOUR FAMILY DWELLING Use No. of Family Code 6 for Three or Four Family Dwellings Except as provided in E. below. A. A Homeowners Policy may be issued to the owner-occupant of a 3 or 4 family dwelling in the same manner as a 1 or 2 family dwelling under General Rule 104. Eligibility. Endorsement HO 04 44, Residence Premises Three or Four Family Dwelling must form a part of every policy covering such a dwelling. B. The limits of liability, under General Rule 101., applying to Coverage B Other Structures and Coverage C Personal Property, are revised as follows: 1. Coverage B Other Structures; 5% of Coverage A for a 3 or 4 family dwelling. 2. Coverage C Personal Property; 30% of Coverage A for a 3 family dwelling and 25% of Coverage A for a 4 family dwelling. C. To develop the BASE PREMIUM, multiply the One and Two Family Dwelling BASE PREMIUM by a factor of D. Refer to Rule 601. in the state rate pages for the liability rates. E. The premium for an eligible 3 or 4 family dwelling unit in a town or row house structure is computed by multiplying the BASE PREMIUM determined above by the appropriate factor below. Total No. of Individual Family Units Within the Fire Division* No. of Family Code Protection Class & Over 5-8 (4) & Over (4) Refer to Company *An eligible four family dwelling attached to a three family dwelling but not separated by a fire wall would be considered 7 individual family units within a fire division. PART I COVERAGE AND DEFINITION TYPE RULES RULE 101. LIMITS OF LIABILITY AND COVERAGE RELATIONSHIPS Table 101.A.1. Property Damage Limits. is deleted and replaced by the following: A. Limits The limits of liability required under the Homeowners policy are as follows: 1. Section I Property Damage Coverage A Dwelling HO 00 02, HO 00 03, Refer to Rule 301. in the HO or HO state classification pages. HO or HO For HO refer to Rule 507.A. HO 00 02, HO 00 03, HO or HO HO 00 02, HO 00 03, HO or HO Coverage B Other Structures 10% of A (One and two family dwelling) 5% of A (Three and four family dwelling) Coverage C Personal Property 50% of A (One and two family dwelling) 30% of A (Three family dwelling)

12 HOMEOWNERS PROGRAMS RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-4 Coverage A Dwelling 25% of A (Four family dwelling) HO or HO Refer to Rule 301. in the state classification pages. Coverage D Loss Of Use HO 00 02, HO or 20% of A HO HO % of C HO % of C HO % of A Table 101.A.1. Property Damage Limits The following is added to Paragraph FE.: Loss Settlement Condition Endorsement HO must be used with Form HO It replaces the Repair Cost or Market Value Loss Settlement Provisions in HO with an Actual Cash Value Loss Settlement Condition. The following Paragraph F. is added: GF. All Forms The limit of liability for Coverage E of Section II may be reduced to $50,000 to $25,000. Other limits below $100,000 are not permitted. RULE 104. ELIGIBILITY Paragraph G. is replaced by the following: G. Farm Property 1. A Homeowners Policy shall not be issued to cover any property to which farm forms or rates apply under the rules of the company. In no event shall a policy be issued to provide Section I property damage coverage to any property situated on premises used for farming purposes. 2. Optional Section II liability coverage is available for certain farm liability exposures as specified in Rule 615. RULE 106. PROTECTION CLASSIFICATION CODES AND INFORMATION This rule is replaced by the following: A. Codes Protection Class Code E XX 9S B. Protection Information The Protection Class listings in the l Community Mitigation Classification manual apply to risks insured under Homeowners Program policies. 1. The protection class indicated applies in a municipality or classified area where a single class or fire protection is available throughout (Example: 8, 7, 6, etc.). Paragraph B. is deleted and replaced by the following: 2B. In a classified area where two or more classifications are shown (Example: 6/9 or 9S), the classification is determined as follows: Distance To Fire Station Class a1. 5 road miles or less with hydrant within 1,000 feet First protection class (Example: 6/9... use Class 6) b2. 5 road miles or less with hydrant beyond 1,000 feet 9 or 9S c3. Over 5 road miles 10 First protection class (Example: 6/9... use Class 6) Table 106.B.#1 Two Or More Classifications

13 HOMEOWNERS PROGRAM RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-5 In a classified area where two or more classifications are shown and an "E" is designated, (Example: 6/9E), the classification is determined as follows: Distance To Fire Station Class a1. 5 road miles or less with hydrant within 1,000 feet First protection class (Example: 6/9... use Class 6) b2. Between 5 and 6 road miles 9E c3. Over 6 road miles 10 First protection class (Example: 6/9... use Class 6) Table 106.B.#2 Two Or More Classifications The following Paragraph is added: 3D. Rural Fire Protection Districts are areas which have been inspected and for which protection classes are published. 4. All other properties are Class 10. PART II SERVICING TYPE RULES RULE 201. POLICY PERIOD Paragraph D. is replaced by the following: D. Less than three years on a pro rata basis and may be extended for successive policy periods based upon the premiums, forms and endorsements then in effect for the company. PART III BASE PREMIUM COMPUTATION RULES 301. BASE PREMIUM COMPUTATION Paragraph B.3. is replaced by the following: 3. Special Personal Property Coverage HO (Endorsement HO 32 36) and HO (Endorsement HO 32 35) RULE 302. LOSS SETTLEMENT OPTIONS This rule is replaced by the following: A. Functional Replacement Cost Loss Settlement HO 00 02, and HO And HO Only Coding: 39/439 or 40/ Introduction The policy provides building loss settlement on a replacement cost basis if, at the time of loss, the amount of insurance on the damaged building represents at least 80% of the full replacement cost of the building immediately before the loss. 2. Coverage Description The policy may be endorsed to provide building loss settlement exclusively on a functional replacement cost basis if, at the time of loss, the amount of insurance on the damaged building is 80% or more of the functional replacement cost of the building immediately before the loss. Functional Replacement Cost means the amount which it would cost to repair or replace the damaged building with less costly common construction materials and methods which are functionally equivalent to obsolete, antique or custom construction materials and methods. 3. Premium Computation Develop the Base Premium BASE PREMIUM in accordance with Rule 301. for the amount of insurance selected for this option. However, if Absolute Windstorm or Hail Exclusion Endorsement HO Absolute Windstorm or Hail Exclusion is also made a part of the policy then develop the Base Premium BASE PREMIUM in accordance with Additional Rule A3. Windstorm or Hail Exclusion. 4. Endorsement Use Functional Replacement Cost Loss Settlement North Carolina Endorsement HO Functional Replacement Cost Loss Settlement North Carolina.

14 HOMEOWNERS PROGRAMS RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-6 RULE 302. LOSS SETTLEMENT OPTIONS - (Cont'd) B. Actual Cash Value Loss Settlement HO 00 02, and HO And HO Only Coding: 37/ Introduction The policy provides building loss settlement on a replacement cost basis if, at the time of loss, the amount of insurance on the damaged building represents at least 80% of the full replacement cost of the building immediately before the loss. 2. Coverage Description The policy may be endorsed to provide building loss settlement exclusively on an actual cash value basis if, on the inception date of the policy, the Coverage A limit of liability selected by the insured is less than 80% of the full replacement cost of the dwelling. 3. Premium Computation To develop the Base Premium BASE PREMIUM for the Coverage A limit of liability shown in the policy declarations: a. Multiply the Coverage A limit of liability by the appropriate factor from the table shown below and round to the nearest $1,000. % Of Replacement Value Factor 20% % % % % % 1.14 Table 302.B.3.a. Factors b. Develop a Base Premium BASE PREMIUM in accordance with Rule 301. for the amount of insurance computed in B.3.a. above. c. Multiply the premium determined in B.3.b. by the appropriate factor from the table noted below. % Of Replacement Value Factor 20%.73 30%.74 40%.75 50%.76 60%.77 70%.78 80%.80 Table 302.B.3.c. Factors d. If Absolute Windstorm or Hail Exclusion Endorsement HO Absolute Windstorm or Hail Exclusion is also made a part of the policy then develop the Base PremiumBASE PREMIUM in accordance with Additional Rule A3. Windstorm or Hail Exclusion and multiply that Base Premium BASE PREMIUM by the appropriate factor from the table above. 4. Endorsement Use Actual Cash Value Loss Settlement Endorsement HO Actual Cash Value Loss Settlement. C. Special Loss Settlement HO 00 02, HO And HO OnlyAll Forms Except HO and HO Exception Code 5 1. Introduction The policy provides building loss settlement on a replacement cost basis if, at the time of loss, the amount of insurance on the damaged building represents at least 80% of the full replacement cost of the building immediately before the loss. 2. Coverage Description This percentage amount may be modified to 50%, 60% or 70% of replacement value without affecting the loss settlement provisions. If this option is selected, the Coverage A limit of liability representing 50%, 60% or 70% of replacement value is to be shown in the policy declarations.

15 HOMEOWNERS PROGRAM RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-7 3. Premium Computation To develop the Base Premium a BASE PREMIUM for the Coverage A limit of liability shown in the policy declarations: a. Multiply the Coverage A limit of liability by the appropriate factor from the following table below and round to the nearest $1,000: % Of Replacement Value Factor 50% % % 1.14 Table 302.C.3.a. Factors b. Develop a Base PremiumBASE PREMIUM in accordance with Rule 301. for the amount of insurance computed in preceding paragraph C.3.a. above. However, if Absolute Windstorm or Hail Exclusion Endorsement HO Absolute Windstorm or Hail Exclusion is also made a part of the policy then develop the Base PremiumBASE PREMIUM in accordance with Additional Rule A3. Windstorm or Hail Exclusion for the amount of insurance computed in paragraph C.3.a. above. c. Multiply the premium determined in preceding paragraph C.3.b. by the appropriate factor from the following table noted below.: % Of Replacement Value Factor 50%.96 60%.97 70%.98 Table 302.C.3.c. Factors 4. Endorsement Use Special Loss Settlement Endorsement HO Special Loss Settlement. RULE 303. ORDINANCE OR LAW COVERAGE ALL FORMS EXCEPT HO Paragraph B.2.a. is replaced by the following if Absolute Windstorm or Hail Exclusion Endorsement HO Absolute Windstorm or Hail Exclusion is also made a part of the policy: B. Increased Amount Of Coverage B.2. Premium Determination a. Forms HO 00 02, and HO And HO To develop the Base PremiumBASE PREMIUM multiply the premium computed in accordance with the Additional Rule A3. Windstorm or Hail Exclusion, by the appropriate factor shown belowselected from the following table: Percentage Of Coverage A Factors Coverage A Limit Increase In Amount Total Amount $60,000 To $140,000 All Other 15% 25% % 50% % 75% % 100% For each add l 25% increment, add Table 303.B.2.a. Factors RULE 304. SPECIAL PERSONAL PROPERTY COVERAGE HO 00 03HO AND HO This rule is replaced by the following: A. HO Only 1. Coverages A and B under Form HO are insured against additional risks of physical loss subject to certain exclusions. Coverage C is insured against perils named in the form. 2. The policy may be endorsed to insure Coverage C against additional risks of physical loss subject to certain exclusions. (When Rule 302., Special Loss Settlement is used, this option may not be used.) 3. Develop the BASE PREMIUM in accordance with Rule 301. Status Code 7 Use Endorsement HO Special Personal Property Coverage HO only. B. HO Only 1. Coverage C under Form H is insured against perils named in the form. The policy may be endorsed to insure Coverage C against additional risks of physical loss subject to certain exclusions.

16 HOMEOWNERS PROGRAMS RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-8 2. This option may only be used when the condominium or cooperative unit is owner occupied. 3. Multiply the BASE PREMIUM developed in accordance with Rule 301 by Status Code 7 Use Endorsement HO Unit-Owners Coverage C Special Coverage HO Only. Paragraph C. is deleted and replaced by the following: C. Endorsement 1. Use Special Personal Property Coverage Endorsement HO for use with HO only. 2. Use Unit-Owners Coverage C Special Coverage Endorsement HO for use with HO only. PART IV ADJUSTED BASE PREMIUM COMPUTATION RULES RULE 402. TOWNHOUSE OR ROW HOUSE ALL FORMS EXCEPT HO AND HO This rule is replaced by the following: The premium for an eligible 1, 2, 3 or 4 family dwelling in a town or row house structure is computed by multiplying the Base Premium by the appropriate factor below selected from the following table: Townhouse And Row House Factors Total No. Of Individual Family Protection Class Units Within The Fire Division 1 8 9, 9S & Over 1 Or 2 Family Dwelling 1 & & & Over Refer to company 3 Or 4 Family Dwelling & Over Refer to company An eligible two family owner-occupied dwelling attached to a one family dwelling but not separated by a fire wall would be considered 3 individual family units within a fire division. An eligible four family dwelling attached to a three family dwelling but not separated by a fire wall would be considered 7 individual family units within a fire division. Four 2 family dwellings not separated by a fire wall would be considered 8 individual family units. Table 402. Townhouse And Row House Factors RULE 403. PERSONAL PROPERTY (COVERAGE C) REPLACEMENT COST LOSS SETTLEMENT COVERAGE This rule is replaced by the following: Coding Note Subline Code 03 (403 if 150 character format) applies instead of Subline Codes listed on the state rate pages. A. Introduction The policy provides loss settlement on an Actual Cash Value basis for certain types of property. B. Loss Settlement Option The policy may be endorsed to provide loss settlement on a Replacement Cost basis for such property whether insured on a blanket or scheduled basis. If endorsed, the Coverage C limit must be increased: 1. To 70% of Coverage A for all forms except HO and HO To $12,000 (if policy limit is less than $12,000 for Forms HO or HO 00 06). C. Endorsement Use Personal Property Replacement Cost Endorsement HO D. Scheduled Personal Property 1. When the Scheduled Personal Property Endorsement HO is attached to a policy with Endorsement HO 04 90, the following property, if scheduled, will also be subject to repair or replacement cost loss settlement up to the scheduled limit of liability: a. Jewelry; b. Furs and garments trimmed with fur or consisting principally of fur; c. Cameras, projection machines, films and related articles of equipment; d. Musical equipment and related articles of equipment; e. Silverware, silver-plated ware, goldware, gold-plated ware and pewterware, but excluding pens, pencils, flasks, smoking implements or jewelry; and f. Golfer's equipment meaning golf clubs, golf clothing and golf equipment.

17 HOMEOWNERS PROGRAM RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-9 2. Since the loss settlement condition in Endorsement HO will pay the insured the least of the: RULE 403. PERSONAL PROPERTY (COVERAGE C) REPLACEMENT COST LOSS SETTLEMENT COVERAGE (Cont'd) a. Actual cash value of the property sustaining loss; b. The amount for which the property could be repaired or replaced; or c. The amount of insurance of the property sustaining loss; the limit of liability that applies to each scheduled item should be carefully evaluated to ensure that the limit selected by the insured represents the cost to replace the item if lost or damaged beyond repair. E. Scheduled Personal Property (With Agreed Value Loss Settlement) When Scheduled Personal Property (With Agreed Value Loss Settlement) Endorsement HO is attached to a policy with Endorsement HO 04 90, the property subject to agreed value loss settlement will not be subject to repair or replacement cost loss settlement. F. Premium Determination Multiply the Base Premium including any premium adjustment for Coverage C limits by a factor of: for all forms except HO and HO for Forms HO or HO B. The premium to extend the limit of liability for Coverage C to include Replacement Cost Coverage is computed by multiplying the BASE PREMIUM including any premium adjustment for Coverage C limits by the appropriate factor below. All Forms except HO & HO or HO CG. The charge for Replacement Cost Coverage should be applied before the credit or charge for optional deductibles. DH. Refer to the state company rates page for the minimum additional premium, including the cost to increase the Coverage C limits. E. Replacement Cost Coverage also applies to articles or classes of property separately described and specifically insured in this policy, as listed in the Scheduled Personal Property endorsement. Use Endorsement HO Personal Property Replacement Cost. RULE 404. PROTECTIVE DEVICES This rule is replaced by the following: Approved and properly maintained installations of burglar alarms, fire alarms and automatic sprinklers in the dwelling are to be recognized for a reduced premium in accordance with the following: A. Definitions 1. Central Station Systems a. A Central Station Fire Alarm System is one in which the operations of circuits and devices are signaled automatically to, recorded in, maintained, and supervised from an approved central station having competent and experienced observers and operators who shall, upon receipt of a signal, take such action as shall be required. b. A Central Station Burglar Alarm System is one in which the operations of electrical protection circuits and devices are signaled automatically to, recorded in, maintained, and supervised from a central station having trained operators and guards in attendance at all times. Guards are dispatched to make immediate investigation of unauthorized entry or opening of protected properties from which signals are received. Combination Central Station and Local Systems beyond the range of central station service may be classified as Local Burglar Alarm Systems. Central Stations are listed by name and location by Underwriters Laboratories, Inc. in both the UL Burglary Protection Equipment List and UL Fire Protection Equipment List.

18 HOMEOWNERS PROGRAMS RULES FILING HO-2003-R00RU NORTH CAROLINA Page E Fire or Police Station Connected Systems a. Fire Station Connected (Remote Station) Fire Alarm Systems contemplate a system of electrically supervised circuits employing a direct circuit (not house telephone) connection between signaling devices at the protected premises and signal receiving equipment in a remote station, such as a municipal fire alarm headquarters, or fire station. b. A Police Station Connected Burglar Alarm System is one in which a Local Alarm System is provided with supplementary transmitting equipment, so that when actuated, a signal is also annunciated at the constantly attended receiver at police headquarters. 3. Local Systems a. Local Fire Alarm Systems contemplate supervised systems providing fire alarm signals within the protected premises. These systems are primarily for the protection of life by indicating the necessity of evacuation of the building and secondarily for the protection of property. b. A Local Burglar Alarm System is one in which the protective circuits and devices are connected to an enclosed and tamper-protected loud sounding device attached to an outside wall of the building in which the property is situated. Disturbance of the protective devices or unauthorized entry through wired portions of the property automatically causes the sounding device to operate until it is stopped by key control in the possession of the owner or by exhaustion of the power supply or by a timing element set for a definite period of operation. 4. Automatic Sprinkler Systems An Automatic Sprinkler System contemplates a system in which water is piped to devices called sprinkleheads, that melt with heat and release water to extinguish a fire. B. Evaluation of Alarm Systems The following shall also be considered in evaluating alarm systems for qualification and premium credit: 1. All devices, combination of devices and equipment shall be approved by a recognized independent testing firm for the purposes for which they are intended. 2. All equipment shall be installed in a workmanlike manner by a qualified firm or person. 3. Detection devices shall be installed throughout all areas of the dwelling as follows: a. Fire Alarm Systems (1) A smoke detector shall be located in the immediate vicinity of, but outside, the bedrooms; and (2) Heat or smoke detectors shall be provided in all major areas of the house including living room, dining room, bedroom, kitchen, hallway, attics, furnace rooms, utility rooms, basements and attached garages. (3) Heat detectors shall be installed within the strict limitation of their listed spacing (see Item 11. of premium development below). b. Burglar Alarm Systems (1) Completely protecting all accessible windows, doors, transoms, skylights, and other openings leading from the premises; or (2) Protecting with contacts only, all movable accessible openings leading from the premises and providing one or more invisible rays or channels of radiation, with the minimum overall length of the rays or radiation equivalent to the longest dimensions of the area or areas to detect movement through the channel; or (3) Protecting with contacts only, all doors leading from the premises and providing a system of invisible radiation to all sections of the enclosed area so as to detect fourstep movement c. Automatic Sprinkler Systems An approved and properly maintained automatic sprinkler system with sprinklers: (1) In all areas including attics, bathrooms, closets and attached structures; or

19 HOMEOWNERS PROGRAM RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-11 (2) In all areas except attic, bathroom, closet and attached structure areas that are protected by a fire detector.

20 HOMEOWNERS PROGRAMS RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-12 C. Premium Development The premium for a risk having an approved protective device is developed by multiplying the Base Premium BASE PREMIUM (including any premium adjustment to Coverage C limits) by the selected appropriate factor belowfrom the following table: Protective Devices Factors Protective Device Factor* 1. Central Station Reporting Burglar Alarm Central Station Reporting Fire Alarm Both 1. and 2. above Fire Station Connected Fire Alarm Police Station Connected Fire Alarm Both 4. and 5. above Local Fire Alarm System Local Burglar Alarm System Both 7. and 8. above Automatic Smoke Detectors Automatic SprinklerSystem a. Iin all areas including attic, bathroom, closet and attached structure.87 b. in all areas except attic, bathroom, closet and attached structure areas that are protected by a fire detector.93 * For Protection Classifications 1-9, 9S Note 1 Premium credit shall not be afforded on any additional or optional coverage, except Coverage C revised limits. Note 2 Refer to the state rate pages for the maximum credit allowed. Note 3 These credits do not apply to multi-family residential properties unless entire building meets the above requirements. RULE 406. DEDUCTIBLES Paragraph B.23. is replaced by the following: B. Optional Deductibles 23. $250 Theft Deductible All Forms except HO with HO HO 00 05, H with Special Personal Property Coverage Endorsement HO and HO with HO (Theft Indicator Code 3) a. The theft deductible applies to Coverage C Personal Property and is available only when: (1) A $100 deductible applies to All Other Perils; or (2) A higher deductible applies to the peril of Windstorm or Hail, as described in Paragraph C.23. of this rule, and a $100 deductible applies to All Other Perils. b. When the $100 deductible applies to All Other Perils, compute the premium by multiplying the BaseASE PremiumREMIUM by a factor of: (1) 1.09 for All Forms except HO & 06; or (2) 1.05 for Forms HO or 06. c. When a higher Windstorm or Hail and $100 All Other Perils deductible applies, subtract a factor of.01 from the factors shown in C.23.a.(56) or C.23.b.(45) for policies applicable to a higher windstorm or hail deductible. Table 404.A. Protective Devices Factors D. Endorsement Use Premises Alarm or Fire Protection System Endorsement HO Premises Alarm or Fire Protection System.

21 HOMEOWNERS PROGRAM RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-13 Paragraph C.1. is replaced by the following: C. Optional Higher Deductibles 1. All Perils Deductibles (Type Code 5) To compute the premium for this deductible type, provision, multiply the BaseASE PremiumREMIUM by the factors selected from the following table:listed below: All Forms Except HO AND HO Deductible Amounts Coverage A Limit $500 $1000 $1500 $2500 Up to $59, $60,000 to 99, ,000 to 200, ,001 and Over HO Coverage C Limit $500 $1000 $1500 $2500 Up to $25, N/A.59 $25,001 and over N/A.68 HO Coverage C Limit $500 $1000 $1500 $2500 Up to $40, N/A.56 $40,001 and over N/A.63 Table 406.C.1. All Perils Deductibles Factors Paragraph C.23.a.(56) is replaced by the following: a.(56) Deductible Factors In Territories 05, 06, 42 and 43 only, when the property is located in an area serviced by the North Carolina Insurance Underwriting Association (NCIUA), additional calculations must be performed to ensure that the premium credit applied to the deductible is not greater than the premium credit that would be applied if the peril of Windstorm or Hail were excluded from the policy. (a) Property Not Located in Area Serviced by NCIUA To compute the premium for this provision, multiply the Base PremiumBASE PREMIUM by the factor selected from the following tables for the deductible amounts desired windstorm or hail deductible options from the tables below. (b) Property Is Located in Area Serviced by NCIUA To determine if an "adjusted deductible credit" or the calculated deductible credit applies, complete each of the following steps: Step 1. Multiply the windstorm or hail exclusion credit shown in the state company rates pages, under Additional Rule A3. Windstorm or Hail Exclusion Base Credit, by the Key Factor, for the same amount of insurance used to determine the Base PremiumBASE PREMIUM. Step 2. Multiply the result determined in Step 1. by.9 to determine the "adjusted deductible credit". Step 3. Select the factor for the desired windstorm or hail deductible option from the tables below and subtract that factor from unity (1.00). Step 4. Multiply the factor determined in Step 3. above by the Base PremiumBASE PREMIUM. The result is the windstorm or hail deductible credit. Step 5. Compare the results in Steps 2. and 4. If the result in: Step 2. is less than the result in Step 4., to compute the premium, subtract the "adjusted deductible credit" from the Base PremiumBASE PREMIUM. Step 2. is greater than or equal to the result in Step 4., multiply the Base PremiumBASE PREMIUM by the factor for the desired windstorm or hail deductible option.

22 HOMEOWNERS PROGRAMS RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-14 1% Windstorm Or Hail Deductible All Other Coverage A Limit (Expressed In $) Perils Ded. Amount 100,000 To 200, ,001 & Over Up To 59,999 60,000 To 99,999 $ , , , Table 406.C.3.a.(6)#1 1% Windstorm Or Hail Deductible 2% Windstorm Or Hail Deductible All Other Coverage A Limit (Expressed In $) Perils Ded. Amount 100,000 To 200, ,001 & Over Up To 59,999 60,000 To 99,999 $ , , , Table 406.C.3.a.(6)#2 2% Windstorm Or Hail Deductible 5% Windstorm Or Hail Deductible All Other Coverage A Limit (Expressed In $) Perils Ded. Amount 100,000 To 200, ,001 & Over Up To 59,999 60,000 To 99,999 $ , , , Table 406.C.3.a.(6)#3 5% Windstorm Or Hail Deductible Paragraph C.23.b.(45) is replaced by the following: b.(45) Deductible Factors In Territories 05, 06, 42 and 43 only, when the property is located in an area serviced by the NCIUA, additional calculations must be performed to ensure that the premium credit applied to the deductible is not greater than the premium credit that would be applied if the peril of Windstorm or Hail were excluded from the policy. (a) Property Not Located in Area Serviced by NCIUA To compute the premium for this provision, multiply the Base PremiumBASE PREMIUM by the factor selected for the desired windstorm or hail deductible options from the following tables belowfor the deductible amounts desired. (b) Property Is Located in Area Serviced by NCIUA To determine if an "adjusted deductible credit" or the calculated deductible credit applies, complete each of the following steps: Step 1. Multiply the windstorm or hail exclusion credit shown in the state company rates pages, under Additional Rule A3. Windstorm or Hail Exclusion Base Credit, by the Key Factor, for the same amount of insurance used to determine the Base PremiumBASE PREMIUM. Step 2. Multiply the result determined in Step 1. by.9 to determine the "adjusted deductible credit". Step 3. Select the factor for the desired windstorm or hail deductible option from the tables below and subtract that factor from unity (1.00). Step 4. Multiply the factor determined in Step 3. above by the Base PremiumBASE PREMIUM. The result is the windstorm or hail deductible credit.

23 HOMEOWNERS PROGRAM RULES FILING HO-2003-R00RU NORTH CAROLINA Page E-15 Step 5. Compare the results in Steps 2. and 4. If the result in: Step 2. is less than the result in Step 4., to compute the premium, subtract the "adjusted deductible credit" from the Base PremiumBASE PREMIUM. Step 2. is greater than or equal to the result in Step 4., multiply the Base PremiumBASE PREMIUM by the factor for the desired windstorm or hail deductible option. $1,000 Windstorm Or Hail Deductible All Other Coverage A Limit (Expressed In $) Perils Ded. Amount 100,000 To 200, ,001 & Over Up To 59,999 60,000 To 99,999 $ Table 406.C.3.b.(5)#1 $1,000 Windstorm Or Hail Deductible $2,000 Windstorm Or Hail Deductible All Other Coverage A Limit (Expressed In $) Perils Ded. Amount 100,000 To 200, ,001 & Over Up To 59,999 60,000 To 99,999 $ , , Table 406.C.3.b(5)#2 $2,000 Windstorm Or Hail Deductible $5,000 Windstorm Or Hail Deductible All Other Coverage A Limit (Expressed In $) Perils Ded. Amount 100,000 To 200, ,001 & Over Up To 59,999 60,000 To 99,999 $ , , , Table 406.C.3.b.(5)#3 $5,000 Windstorm Or Hail Deductible The following paragraph is added: D. Hurricane Percentage Deductible - Territories 05, 06, 42 and 43 only (All Forms except HO and HO 00 06) 1. Deductible Amounts a. The Hurricane Percentage Deductible option is used in conjunction with a deductible applicable to All Other Section I Perils. A percentage amount of 1%, 2% or 5% of the Coverage A limit of liability is available when the dollar amount of the percentage deductible selected exceeds the amount of the deductible applicable to All Other Section I perils. b. The Hurricane percentage deductible applies to the total of the windstorm loss that occurs during a hurricane. This deductible applies beginning at the time a hurricane warning is issued for any part of North Carolina by the National Weather Service and ends 24 hours following the termination of the last hurricane warning is issued for any part of North Carolina by the National Weather Service. 2. Definition Hurricane means a storm system that has been declared to be a hurricane by the National Weather Service. The National Weather Service currently uses the Saffir/Simpson Hurricane scale to categorize hurricanes. This scale specifies that a hurricane is a storm that originates in the tropics and results in either a sustained wind speed of at least 74 miles per hour or a storm surge of at least 4 feet above normal. 3. Endorsement Use Hurricane Percentage Deductible Endorsement HO Declarations Instructions Enter on Endorsement HO or the policy declarations, the percentage amount that applies to Hurricane and the dollar amount that applies to All Other Section I Perils. For example: Deductible Section I 250 except 1% of the Coverage A Limit for Windstorm during a Hurricane Deductible Section I $100 except 2% of the Coverage A Limit for Windstorm during a Hurricane.

24 HOMEOWNERS PROGRAMS RULES FILING HO-2003-R00RU NORTH CAROLINA Page E Loss By Windstorm That Is A Hurricane In the event of Hurricane loss to covered property, the dollar amount is deducted from the total of the loss for all coverages. For Example: Coverage Limit of Liability Amount of Loss Before A $ 100,000 $ 7,500 B $ 50,000 $ 606 C $ 10,000 $ 18 D $ 20,000 $ 660 $12,500-11,510 1% Deductible 1,000 Table 406.D.5. Example 6. Deductible Factors The factors displayed below incorporate the factors for the All Perils Deductibles shown in paragraph C.1. Do NOT use the factors for the All Perils Deductibles when rating a policy with a higher Hurricane deductible. Additional calculations must be performed to ensure that the premium credit applied for the deductible is not greater than the premium credit that would be applied if the peril of Windstorm or Hail were excluded from the policy. To determine if an "adjusted deductible credit" or the calculated deductible credit applies, complete each of the following steps: Step 1. Multiply the windstorm or hail exclusion credit shown in the state rate pages, under Additional Rule A.3. Windstorm or Hail Exclusion Base Credit, by the Key Factor, for the same amount of insurance used to determine the BaseASE PremiumREMIUM. Step 2. Multiply the result determined in Step 1. by.9 to determine the "adjusted deductible credit". Step 3. Select the factor for the desired windstorm or hail deductible option from the tables below and subtract that factor from unity (1.00). Step 4. Step 5. Multiply the factor determined in Step 3. above by the BaseASE PremiumREMIUM. The result is the windstorm or hail deductible credit. Compare the results in Steps 2. and 4. If the result in: Step 2. is less than the result in Step 4., to compute the premium, subtract the "adjusted deductible credit" from the BaseASE PremiumREMIUM. Step 2. is greater than or equal to the result in Step 4., multiply the BaseASE PremiumREMIUM by the factor for the desired windstorm or hail deductible option. 1% Hurricane Deductible (Size Code 41) All Other Perils Deductible Amount $ $ $ $1, $2, Territory - 05, 06, 42, 43 Table 406.D.6.#1 1% Hurricane Deductible 2% Hurricane Deductible (Size Code 42) All Other Perils Deductible Amount $ $ $ $1, $2, Territory - 05, 06, 42, 43 Table 406.D.6.#2 2% Hurricane Deductible