Lesson 2 Homeowners Policy Section 1 - Property Coverage Introduction

Transcription

1 Lesson 2 Homeowners Policy Section 1 - Property Coverage Introduction The first part of the Homeowners policy is where you will find the coverage for property. Learning Objectives After completing this lesson you will be able to: 1. Determine what types of structures and property are covered by Coverage A Dwelling or Coverage B Other Structures. 2. Determine the amount of coverage for other structures under Coverage B. 3. Increase the amount of Coverage B Other Structures. 4. Identify structures that are specifically excluded under Coverage B Other Structures. 5. Provide coverage for other structures used in "business." 6. Determine whether or not a given piece of personal property is covered by the Homeowners Policy. 7. Determine the specific limit for a certain type of personal property, if there is one. 8. Advise an insured about how to increase the limit of liability on specific property. 9. Determine what losses will be paid under Coverage D Loss of Use. 10. Differentiate between Additional Living Expense coverage and Fair Rental Value coverage under Coverage D Loss of Use. Forms to print from the Forms Library: HO Permitted Incidental Occupancies HO Other Structures Increased Limits HO Coverage C Increased Special Limits of Liability HO Scheduled Personal Property Endorsement Forms you have already printed and will need for reference. Homeowners Form 3 - Special Form Rev. 10/09 Page 23 of 98

2 Lesson 2: Topic A Coverage A - Dwelling and Coverage B - Other Structures Learning Objective: Determine what types of structures and property are covered by Coverage A - Dwelling or Coverage B - Other Structures. Coverage A - Dwelling and Coverage B - Other Structures are the first two of the Section I Property Coverages and can be found on the left-hand column of page three of the Homeowners 3 - Special Form. A home is many of our clients' largest single asset. For many it is not just a place to live, but a source of pride, something they care deeply about. It's important to know what structures are covered by the policy. It's also important for you to know whether a structure is covered under Coverage A or Coverage B in order to help your client choose the right amounts of coverage. It's also useful to let clients know what structures are not covered before they have a loss to them. The limit of Coverage A on the dwelling is chosen by the insured. The dwelling must be insured for at least 80% of the cost to replace it with a new one. Many companies require homes be insured for 100% of their replacement cost. What is insured under Coverage A? Coverage A includes the dwelling described in the policy declarations, as well as structures that are attached to it. Commonly found attached structures include garages, carports, decks, patio covers and porches. Coverage A also includes building materials and supplies at the insured's residence, if they are going to be used to build or repair a covered structure. The policy clearly excludes coverage for land both here and in Coverage B. Only improvements to the land are insured. Limited coverage for lawns, trees and shrubs can be found in the Additional Coverages that we will study in Lesson 3. What is insured under Coverage B? Coverage B insures structures that are not attached to the dwelling, as well as fences, regardless of whether they're attached or not. Even structures attached to the dwelling by only a utility connection, like a power line, are also insured by Coverage B. Rev. 10/09 Page 24 of 98

3 Structures are anything that is constructed, so coverage is provided for a broad range of improvements. Well-known examples include things like detached garages and storage buildings. But things like sidewalks, driveways, in-ground swimming pools, gazebos and mailboxes are covered structures as well. Covered structures that are buildings are insured for replacement cost. Structures that are not buildings, like fences, sidewalks and swimming pools, are insured for actual cash value. In other words, the policy will pay to replace buildings with new ones, but payment for loss to structures that are not buildings will be reduced by depreciation, based on their age and condition. Coverage B only covers structures on the residence premises. No coverage is provided for buildings the insured owns elsewhere. Coverage for off-premises buildings can be added with ISO's Specific Structures Away From the Residence Premises (HO 04 92). The endorsement insures buildings for actual cash value, however. How much Coverage B is provided for other structures? Learning Objective: Determine the amount of coverage for other structures under Coverage B. The amount of Coverage B is automatically equal to 10% of Coverage A. This amount applies to other structures at the insured's residence on a blanket basis. For example, if the dwelling is insured for $200,000, 10% of that, or $20,000 is available to cover other structures. The full $20,000 is available to cover loss to any number of structures, but not more than $20,000 will be paid in one loss, even if multiple structures are damaged. Learning Objective: Increase the amount of Coverage B Other Structures. For structures that need more coverage, the policyholder can increase it using the Other Structures Increased Limits (HO 04 48) endorsement. The endorsement provides a specified additional amount of coverage on a described structure: for example, a large detached garage. The blanket 10% limit of coverage is still available as well. Tip When a client has other structures at his or her residence, be sure the total for Coverage B will cover the value of all of the other structures added together. Rev. 10/09 Page 25 of 98

4 What structures are excluded by Coverage B? Learning Objective: Identify structures that are specifically excluded under Coverage B - Other Structures. The Homeowners policy is designed to insure personal, not business, exposures. Here we see the first of the policy's exclusions for business activities. More "insureds" are keeping property used for business in other structures on the residence premises, such as detached garages or barns. Thus, if the other structure is used to store business property which is owned by an "insured" or tenant of the dwelling so long as such property does not include gaseous or liquid fuel other than fuel in a parked car, there is coverage for business property. Please refer to page 3 of the Homeowners Special Form, Coverage B - Other Structures. Click on the thumbnail below to see examples: The Homeowners policy does provide an exception for coverage of a rental exposure. If the insured rents his garage or part of it solely for use as a private garage, the garage is covered under Coverage B. Example: John rents a stall of his garage to a friend who stores her antique car there. Be sure to review the presentation in Lesson 2 Topic A p5 of 7 to illustrate Coverage B Structure Exclusion which is summarized below. John has divided his two car garage into two separate rooms. 1. Ethel has John finish one stall of the garage into a room that Ethel then uses as a weaving room for her weaving business. The garage is not covered by Coverage B. 2. John uses the garage to store materials and supplies for his own business. The garage is covered by Coverage B. 3. John rents one stall of the detached garage to a neighbor to park his antique car there. The garage is covered by Coverage B. Learning Objective: Provide coverage for other structures used in "business." There is an endorsement that can be used to provide coverage for another structure used in "business." It is Permitted Incidental Occupancies (HO 04 42). One use for this endorsement is to provide a specific amount of coverage on a structure used in the described business. Note that the policy Coverage B still does not apply to the other structure. The full amount of Coverage B is then available to cover other structures, other than the one described in the endorsement. Rev. 10/09 Page 26 of 98

5 Lesson 2: Topic B Coverage C - Personal Property Learning Objective: Determine whether or not a given piece of personal property is covered by the Homeowners Policy. The Homeowners Policy takes about 1 1/2 pages to define the coverage for the "insured's" personal property, or contents. This coverage begins in the right-hand column on page 3 of the HO In this topic we will discuss: Coverage Provided Personal Property Limitations Special Limits of Liability Property Not Covered Coverage Provided The policy grants extensive coverage for the insured's contents. It will cover: Personal property owned by an "insured," or Personal property used by an "insured" While this property is anywhere in the world Notice two things about this coverage The property does not have to be owned by an "insured" to be covered, if an "insured" is wearing or using it. The territory is worldwide. In addition the policy will cover, if "you" request it to, property owned by: 1. Persons other than "insureds" if the property is in the part of a "residence premises" occupied by an "insured." Notice the "insured" does not have to be using this property. 2. A guest or "residence employee," if the property is in any residence occupied by an "insured." The limit of liability for all property covered by Coverage C is listed on the Declarations Page. In the ISO Homeowners Program the limit of liability for Coverage C is automatically 50% of the limit of liability for Coverage A - Dwelling. Many companies use 70% of Coverage A rather than the ISO standard of 50%. In either case, the limit of liability for Coverage C can be increased for an additional premium. Rev. 10/09 Page 27 of 98

6 Personal Property Limitations Learning Objective: Determine the specific limit for a certain type of personal property, if there is one. The amount the policy will pay for loss to some types of property is limited. There are twelve of these limitations within Coverage C. They are sub-limits within the Coverage C total limit. The first is a limitation for loss to any kind of property only if the property is located at an "insured's" residence other than the "residence premises." The amount of the limit is 10% of the limit of liability for Coverage C or $1,000 whichever is greater. However, this limitation does not apply to personal property: 1. Moved from the "residence premises" because it is being repaired, renovated or rebuilt and is not fit to live in or stored property in: or 2. In a newly acquired principal residence for 30 days from the time the insured begins to move the property there. An example of such a location is a vacation cottage owned by John and Ethel and not shown on the Declarations Page. The limitation only applies to the personal property that is kept at the cottage. It doesn't apply to property brought there for a short stay. For example, if John and Ethel go to the cottage for a weekend, the camera, clothes and fishing tackle that they bring with them are not subject to this limit. The limit would apply to furniture, appliances and dishes usually kept at the cottage. Example Coverage A - Dwelling = $100,000, then Coverage C - Personal Property = $50,000 The limit for property usually kept at the cottage = 10% of Coverage C ($50,000) or $5,000. Be sure to review the presentation in Lesson 2 Topic B Coverage C p5 of 14 to illustrate Personal Property Limitation. Special Limits of Liability The remaining eleven limitations are listed under Special Limits of Liability. These are specified dollar amounts for specified types of personal property. The amount of each limit and the type of property to which it applies are shown in the following pages. $200 Money, bank notes, bullion, gold other than goldware, silver other than silverware, platinum, other than platinumware, coins, medals, scrip, stored value cards and smart cards. Rev. 10/09 Page 28 of 98

7 $1,500 Securities, accounts, deeds, evidences of debt, letters of credit, notes other than bank notes, manuscripts, personal records, passports, tickets and stamps. The limit applies regardless of medium. For example, records stored on a computer are subject to the limit. Limit also applies to the cost of research to replace or restore the information. $1,500 Watercraft including boat trailers, furnishings, equipment and outboard engines or motors. Boats and yachts should be insured under watercraft policies, since the Homeowners Policies provide insufficient property and liability coverage for all but the smallest boats. For example a 16-foot bass boat has a value of several thousand dollars. $1,500 Trailers not used with watercraft. $1,500 Jewelry, watches, furs, precious and semi-precious stones. Applies only to theft losses. There is no dollar sub-limit if a fire, tornado or other covered peril causes a loss to these types of property. $2,500 Firearms and related equipment. Applies only to theft losses. Note that there is no dollar sublimit if a fire, tornado or other covered peril causes a loss to these types of property. $2,500 Silverware, silver-plated ware, goldware, gold-plated ware, platinumware, platinum plated ware, and pewterware. Applies only to theft losses. There is no dollar sub-limit if a fire, tornado or other covered peril causes a loss to these types of property. $2,500 Property used at any time or in any manner for any business purpose while located on the "residence premises." This includes property owned by an "insured" and used in a business and property owned by an insured's employer while it is on the "residence premises." Ownership of the property makes no difference. Rev. 10/09 Page 29 of 98

8 $500 Property used away from the "residence premises," and used primarily for business purposes. Example Property owned by the insured and used primarily for the business and is away from the "residence premises." This limitation does not include any property that fits the description of property in the last two limitations. $1,500 (in the motor vehicle) Electronic apparatus and accessories in or on a motor vehicle. Accessories include antennas, tapes, wires, records, discs or other media used with the apparatus. Applies only if the apparatus is capable of operating by power from the vehicle and power from other sources. $1,500 (not in a motor vehicle, off premises and used for business) Electronic apparatus and accessories used primarily for business while away from the "residence premises" and not in or on a motor vehicle. The apparatus must be capable of operating by power from the vehicle and power from other sources. Includes accessories, antennas, tapes, wires, records, discs or other media used with the apparatus. Property Not Covered The following table lists the most common types of Personal Property not Covered. Personal Property not Covered 1. Articles separately described and specifically insured, regardless of the limit for which they are insured 2. Animals, birds and fish 3. Motor vehicles The Homeowners Policy provides blanket coverage. If a piece of property is specifically insured on another policy or by an endorsement to the Homeowners Policy, it is removed from the coverage of the Homeowners Policy. For example, items insured on the HO Scheduled Personal Property Endorsement are not covered under Coverage C. These are commonly kept as pets and subject to all sorts of losses. See the discussion of motor vehicles following this chart. Rev. 10/09 Page 30 of 98

9 Personal Property not Covered 4. Aircraft and aircraft parts 5. Property of roomers, boarders or other tenants 6. Property in an apartment regularly rented to others or held for rental to others 7. Property rented to others or held to be rented to others 8. Business data 9. Credit cards The Homeowners Policies are not intended to cover this expensive equipment which is owned by relatively few insureds. Aircraft and their parts can be insured by an aircraft policy. The exclusion does not apply to model aircraft that are not for carrying people. This does not apply if the roomer or boarder is related to an insured. There is some limited coverage for this type of property in Additional Coverage 10. Does not apply, if the property is on the "residence premises." Includes data stored electronically in any computer or on any type of storage media, such as discs. There is coverage for the blank media, such as replacement blank discs. There is some limited coverage for this type of property in Additional Coverage 6. Be sure to review the presentation in Lesson 2 Topic B Coverage C p13 of 14 to illustrate Property Not Covered. More on Motor Vehicles The third category of Property Not Covered is motor vehicles. They are not covered because there are personal and commercial policies available to cover the special exposures created by motor vehicles. The excluded property includes the vehicle, it's equipment and accessories. It also includes electronic apparatus, if the apparatus is designed to be powered only by the power from the vehicle. That includes accessories, antennas, tapes, records, discs, etc. used with the apparatus. The intent is to provide no coverage for any part of any motorized vehicle. Example The insured's car which is used to drive to work and to the store The accessories, equipment and electronic apparatus are covered, when they are not in or on the motor vehicle Rev. 10/09 Page 31 of 98

10 Be sure to review the presentation in Lesson 2 Topic B Coverage C p14 of 14 to illustrate motor vehicle coverage. The policy will provide coverage for "motor vehicles," if they are not subject to motor vehicle registration, and they are: Used solely to service an insured's residence, or Designed to assist the handicapped Example A lawn tractor which is used solely to mow the insured's lawn A tractor which the insured uses solely to till the garden A motorized wheel chair Rev. 10/09 Page 32 of 98

11 Lesson 2: Topic C Customizing Coverage We are leaving our discussion of the policy to discuss two endorsements that you can use to change the coverage for certain types of property under Coverage C. One of the endorsements will revise only the Special Limit of Liability while the other changes the perils for which some property is covered and also allows you to revise the limit of liability for that property. Many insureds have property of one or more types worth more than the limit provided in the Special Limits of Liability. You can use these two endorsements to revise the limit for some of this property. For example many people own jewelry with a value of more than $1,500. The two endorsements, which we asked you to print at the beginning of this lesson are: HO Coverage C Increased Special Limits of Liability HO Scheduled Personal Property Endorsement Coverage C Increased Special Limits of Liability (HO 04 65) Learning Objective: Advise an insured about how to increase the limit of liability on specific property. Take a look at your copy of this endorsement. Note that the endorsement can be used only for types of property listed in the chart on the following page. Using this endorsement, you increase the special limit of liability for a type of property by listing the amount of increase in the schedule on the endorsement. The new special limit for that type of property is then the original special limit plus the amount of the increase listed. For example, the special limit for jewelry is $1,500. If you list an increase of $3,000 on the endorsement the total special limit for jewelry on that policy is now $4,500. Note that the limit for theft of any one piece of jewelry is still $1,000. The maximum permitted amount of increases for this endorsement are shown below: Type of Property Basic Policy Increase Total Limit Money, bank notes,... $200 $800 $1,000 Securities, accounts, deeds... $1,500 $1,500 $3,000 Jewelry, watches, furs $1,500 $5,000 $6,500 ($1,000 per item theft limit) Firearms loss by theft $2,500 $4,000 $6,500 Silverware $2,500 $7,500 $10,000 Electronic apparatus in vehicle $1,500 $4,500 $6,000 Electronic apparatus not in vehicle $1,500 $4,500 $6,000 Rev. 10/09 Page 33 of 98

12 This endorsement does not change the kind of coverage for property. The perils for which loss is insured remain the same 16 perils named in the Homeowners Policy. We will discuss perils in Lesson 3. Scheduled Personal Property Endorsement (HO 04 61) The second endorsement available to increase some of the Special Limits of Liability is the Scheduled Personal Property Endorsement. When you use this endorsement you are actually attaching an Inland Marine Policy to the Homeowners Policy. It provides open peril coverage for items listed or types of property given blanket coverage. The endorsement has a schedule on the first page in which you enter the amount of coverage desired for a type of property and the amount of premium charged for that coverage. Look at the nine classes of property that can be covered by this endorsement. The underwriter commonly requires appraisals of specific items: for example, pieces of jewelry, paintings, sculptures, furs and musical instruments. These items are then listed (scheduled) with an amount of insurance shown for each item. Newly Acquired Property Page 2 of this endorsement gives provisions for some additional amount of insurance for newly acquired jewelry, furs, cameras, musical instruments, and fine arts. Keep in mind that the newly acquired property provision only applies to classes of property already insured. The additional amount of coverage for most classes of property is 25% of the amount for the class or $10,000 whichever is less. The amount for newly acquired fine arts is 25% of the amount scheduled for fine arts coverage. The insured must report the items to the insurance company within 30 days (90 days for fine arts). In all cases the insured must pay the increase in premium back to the date the insured became the owner of the property. Perils Since the endorsement provides open perils coverage, the coverage is for all losses except those that are excluded. Territorial Limits The territory of coverage provided is worldwide. Rev. 10/09 Page 34 of 98

13 Special Provisions There are some special provisions for fine arts, golfer's equipment, postage stamps and rare and current coins, beginning on page 2 in the lower right column of the endorsement. Tip If one or more of these types of property are insured, the insured should be made aware of relevant provisions. Conditions Note that there are only three conditions. The longest of the three is loss settlement. For Fine Arts the amount shown for each item in the schedule is agreed to be the value of the item. That is, if there is a total loss to that item the company will pay the insured the amount shown in the schedule. This is called a valued amount or valued policy. For all other property covered the amount shown for a specific item is not a valued amount. Look at Item 2c under conditions in the right hand column of page 3 of the endorsement. The policy will pay the LEAST: Actual cash value Amount for which the property could reasonably be expected to be repaired to its condition immediately before the loss Amount for which the property could reasonably be expected to be replaced with one substantially identical to the article lost or damaged The amount of insurance The endorsement allows the company to replace an item for any price it can arrange, or pay the insured the amount of cash for which it could replace the item. Tip Advise the insured of this provision when the endorsement is written. Rev. 10/09 Page 35 of 98

14 Lesson 2: Topic D Coverage D - Loss of Use Coverage D is the last of the Section I Property Coverages and can be found on the left-hand column of page five of the Homeowners 3 - Special Form policy (HO 00 03). When a policyholder's home has been damaged by a covered cause of loss to the extent that it can't be lived in, Coverage D will pay for the loss of use of their home. Coverage D is provided in an amount equal to 30% of Coverage A - Dwelling in the Homeowners 3 - Special Form policy that you have in hand. So, when insuring a home with a Coverage A limit of $200,000, 30% of that, or $60,000 is available to pay for loss of use. Coverage D has two parts. Learning Objective: Differentiate between Additional Living Expense coverage and Fair Rental Value coverage under Coverage D - Loss of Use. Coverage D has two parts. Additional Living Expense This part pays for the increased costs of living the insured incurs due to not being able to live in their home because of a covered cause of loss. OR Fair Rental Value This part pays the insured the rental value of their home when they can't rent it because of a covered cause of loss. Paragraph 2 of the HO allows the insured to collect Fair Rental Value, or loss of rental income, for the part of their home that actually is rented to others. Owners of multi-family homes can collect for the loss of income from renting out the other sections of their home, in addition to collecting for the increased costs of living due to their not being able to live in their home. Rev. 10/09 Page 36 of 98

15 What does Additional Living Expense pay for? The following chart shows how an increase in living expenses is calculated: Learning Objective: Determine what losses will be paid under Coverage D - Loss of use. An Illustration of Additional Living Expense Coverage Additional Living Expenses coverage pays for the increase in costs of living an insured incurs when they can't live in their home. The policy will pay for as long as it reasonably takes to repair the home or until the insured permanently relocates. Coverage does not end when the policy expires or is cancelled. Month after loss Normal Additional Mortgage payment $1,000 $1,000 $0 Motel room $2,500 $0 $2,500 Utilities $50 $200 *n/a Telephone $300 $100 $200 Groceries $200 $500 *n/a Restaurant meals $2,100 $100 $2,000 Laundry $200 $50 $150 Moving and Storage $300 $0 $300 Transportation $200 $100 $100 Totals $6,850 $2,050 $5,250 *n/a = The month after the loss amount did not exceed the normal amount In order to collect, the insured must document their loss by keeping receipts and other records needed to demonstrate their costs. The policy pays the cost necessary to maintain the household's normal standard of living. By the same token, does the insurance company only have to pay for one motel room for a family of four that previously occupied a 3-bedroom home? Or is the cost of a suite with separate bedrooms what is owed? Should the policy pay for the most deluxe accommodations in town or the most basic? The answer is whatever it takes to maintain the insured's normal standard of living. Rev. 10/09 Page 37 of 98

16 When our fictitious couple John and Ethel have to eat out at restaurants for two weeks following a fire in their home, will the insurance company pay for filet mignon at the finest restaurant in town? It depends on what they normally had for dinner at home before the fire. If the standard fare was tuna noodle casserole, probably not. But if one of them were a gourmet cook who prepared nothing but the finest food for the family's nightly repast, the company owes the cost to eat just as well as they did before the fire. Is covered damage to the home required in order to collect under Coverage D? In most cases, in order to collect coverage for loss of use, the home must have been made unfit to live in by a covered cause of loss. Although loss of power can make a home untenantable, the policy later excludes power interruption that originates away from the residence. Loss that occurs at the residence, such as an insured's tree being blown down and taking out the dwelling's electrical service, is still covered. The policy also covers when the insured is prevented from occupying their home by order of a civil authority. The order to evacuate must be due to covered loss that has occurred to neighboring premises. If John and Ethel are evacuated from their home by authorities due to a wildfire that's damaged a neighbor's home, their policy will pay for loss of use of their home. Rev. 10/09 Page 38 of 98