Homeowners (HO) Policy

Transcription

1 Homeowners (HO) 5 Policy

2 Ohio Property and Casualty Insurance The Homeowners (HO) policy was probably the first true insurance package policy. It has two parts: Section I Property Section II Liability The HO Property section is similar to the Dwelling forms we have already studied. In fact, the HO 2 Broad form and HO 3 Special form pretty much parallel the DP-2 and DP-3 forms. In addition to these three forms, there are HO policies to cover renters, HO 4; condominium owners, HO 6; and a modified form for older dwellings, HO 8. As you will see, most differences in the various HO policies relate to the property sections. There are two main differences that set the Homeowners apart from the Dwelling Policy. Theft is now a named covered peril Liability coverage is included in the package The HO Liability section is designed to cover the homeowner s personal liability in the areas of bodily injury (BI) and property damage (PD). Section II coverages, Personal Liability and Medical, are uniform on all HO policies. Eligibility Division of Coverages on Homeowners (HO) Package Policy Section I - Property Coverages Section II - Liability Coverages Deductible, usually at least $500 No deductible Coverage A - Dwelling Coverage E - Personal Liability Coverage B - Other Structures Coverage F - Medical Payments to Coverage C - Personal Property Others Coverage D - Loss of Use Homeowner policies may only be issued to cover premises which are principally used for private residential purposes including the following: Owner-Occupants of 1 to 4 family dwellings Tenants in a non-owned building used as a residence Owner-Occupants of Condominiums Dwellings under construction Dwellings purchased on Land Contracts or occupied under a Life Estate agreement Seasonal dwellings if the insured is covered under a homeowner policy for their primary dwelling Mobile Homes with the attachment of the Mobile Home endorsement The structure must be used exclusively as a residence although certain incidental business occupancies such as an office in the home, professional or private studios may be acceptable depending on each insurer s underwriting guidelines. HO Definitions Understanding of the Homeowners (HO) policy definitions is critical to success on the state exam. The definitions are stated in a separate section of the policy (usually the first page) and are the same regardless of which HO form you are studying. 86

3 Homeowners Policy 5 Insured The named insured listed on the Declarations page, including the spouse if they live together. Any residents of the household who are your relatives by blood, marriage, or adoption. Anyone under the age of 21 who is not a relative but in the fulltime care of the insured, such as a foster child. A resident relative who has moved out to attend a college or university, if a full time student and under the age of 24. Residence Premises A one, two, three, or four family dwelling and any other structures on the grounds where the insured resides and is listed on the Declarations page. The structure can house up to four families and two roomers or borders per family. A newly acquired residence, if acquired during the policy period. Insured Location The residence premises; any residence where an insured is temporarily residing; vacant land (other then farmland); cemetery plots. Business Any full or part time activity earning more than $2000 of gross annual income. Volunteer activities and the activities of minors are not considered businesses. HO Section I Property Coverages The property coverages on HO policies are very similar to those we studied in Dwelling policies. Coverage A is the Dwelling, Coverage B is Other Structures, Coverage C is Personal Property, and Coverage D is Loss of Use. However, these coverages stack on an HO policy, meaning that each coverage is added to the other(s). The policy amount is stated as the Coverage A dwelling limit, and Coverages B, C, and D are in addition to that. That is, they increase the coverage, rather than possibly reducing it. A dwelling may be covered for $100,000, but there is the potential to collect far more in the event of a major loss. Generally, although the premium is calculated on the Coverage A limit, these other coverages are automatically stated at a fixed percentage of Coverage A, whether the client needs that amount or not. Coverage B (Other Structures) is 10% of Coverage A, in addition. Coverage C (Contents/Personal Property) is 50% of Coverage A, in addition. Coverage D (Loss of Use) is 30% of Coverage A, in addition. So, as you can see, when an HO is purchased to cover a $100,000 dwelling, the insured is actually getting substantially more than $100,000 worth of coverage, since these other coverages are in addition: Example of HO Section I Coverage, Based on $100,000 Dwelling Coverage A Dwelling insured for value of: $100,000 Coverage B Other Structures (10%) + $10,000 Coverage C Contents/Personal Property (50%) + $50,000 Coverage D Loss of Use (30%) + $30,000 Total Section I Coverage: $190,000 These coverage limits are often referred to as occurrence limits since this is the most the insurance company will pay for damage to these types of property per occurrence. There is no maximum or aggregate limit (the most that will be paid for all claims in a policy period) on the property side of the policy. It is important to note that the definitions of these coverages are basically the same on all HO forms. 87

4 Ohio Property and Casualty Insurance Coverage A Dwelling The policy covers the residence premises shown on the Declarations page, including structures attached to the dwelling and any materials and supplies located on, or next to, the residence premises and used to construct, alter, or repair the dwelling. Coverage B Other Structures The policy covers other structures on the residence premises set apart from the dwelling by a clear space (unattached), including structures connected only by a fence or utility line. This coverage is an additional 10% of Coverage A, so in the event a covered loss destroyed the dwelling and the outbuilding, the insured could collect for both. Business and farm structures are not covered. However, other structures used to store business property of a non-flammable nature are covered. Coverage C Personal Property The policy covers personal property (contents) owned or used by an insured while it is anywhere in the world. At the option of the insured, property of others on the residence premises, including that owned by a guest or residence employee, is also covered. Coverage C is 50% of Coverage A. Off-Premises Personal Property Coverage Personal property that is regularly or permanently located in an insurable residence other than the residence premises or a storage facility is covered only up to 10% of the limit for Coverage C, or $1,000, whichever is more. Personal property moved to a newly acquired principal residence is not subject to this limitation for 30 days from the time the client starts to move. Let s say a client purchases an HO 3 with $100,000 coverage on the dwelling. The Coverage C Personal Property coverage is automatically $50,000. Of this $50,000, 10% ($5,000) is automatically extended to cover personal property regularly or permanently off the premises. Special Limits of Liability HO policies do contain special limits of liability for certain types of personal property. Also, since one of the perils now included in the policy is theft, the insurer is concerned about its exposure for certain target items. The limits listed in the chart are the most the insurer will pay for loss to these items after any applicable deductible per occurrence. Maximum Limits of Liability for Certain Types of Personal Property $200 $1,500 $1,500 $2,500 $2,500 Money Gold Coins Silver Business property off premises Watercraft and trailers Theft of jewelry, watches, furs, precious and semi-precious stones Portable Electronic Apparatus (such as a CD player) while in a motor vehicle Theft of firearms and related equipment Theft of silverware Business property at the residence premises Remember, these special limits apply to all HO policies. If a client has personal property that exceeds these special limits, you should recommend special coverage, such as a PAF (personal articles floater). Your failure to properly cover these special items could result in errors and omissions liability if your client s loss was not properly covered. 88

5 Homeowners Policy 5 In addition, some types of personal property are excluded and not covered on an HO, including: Animals, birds, and fish Motor vehicles other than those used solely to service the premises or designed to assist the handicapped Aircraft, except model or hobby aircraft Property of roomers, unless related to the insured Articles separately described and specifically insured in this or other insurance Property in an apartment regularly rented or held for rental to others by an insured or any property held for rental to others off the residence premises Business data including books of account, paper records, or those stored on electronic media Credit cards or fund transfer cards Coverage D Loss of Use This is an indirect loss coverage that applies when the residence premises is not fit to live in due to a covered loss. Sometimes called additional living expense, Coverage D pays any necessary increase in living expenses that may be incurred so a household can maintain its normal standard of living. The insured s normal household expenses are $2,000 per month, including rent/mortgage payment, utilities, and other items. Due to a covered loss, he must temporarily move to a hotel while his home is being repaired. Most of his normal expenses continue, even though he is not living in the home, plus he has the additional burden of paying the hotel and having to eat meals in restaurants. The insured s total monthly expenses now come to $3,200 a month. The additional living expense coverage pays only the difference $1,200 between his $2,000 normal expenses and his $3,200 current expenses, until the house is repaired or replaced or he is permanently relocated, whichever time period is the shortest. This coverage is for up to 30% of the Coverage A limit. Coverage for the loss of use is not limited by the expiration of the policy. There is also coverage under Coverage D for fair rental value, similar to the coverage in the DP policy, if the insured normally rents a portion of the primary residence and suffers a loss of rental income when the property is unfit to live in as a result of a covered loss. Remember, however, in order for an indirect coverage, such as loss of use, to apply, the direct loss damaging the house must first be covered. If a flood damaged a house, causing the insured to stay temporarily in a hotel, there would be no coverage for loss of use, since flood is a general exclusion on an HO policy, just as it is on Dwelling Property policies. Indirect losses are sometimes called consequential losses, or time element losses. Additional Coverages In addition to the Section I Property coverages discussed above, all HO policies also contain several additional coverages, most of which are in addition to the policy limits. These additional coverages are built into the contract and require no additional premium. Debris Removal This coverage pays the reasonable expense of removing debris after a covered peril damages a property up to the coverage. There is a limit on the dwelling, unless the amount to be paid for the loss plus the debris removal totals more than the policy limits, in which case an additional 5% of the Coverage A limit is available. This coverage also includes a $500 per tree ($1,000 maximum) amount if a tree falls and damages a covered structure, or blocks a driveway. 89

6 Ohio Property and Casualty Insurance Reasonable Repairs In the event a covered property is damaged by a covered peril, the insurer pays the costs for measures taken to protect the property from further damage. Trees, Shrubs, and Plants The policy pays for loss to trees, shrubs, plants, and lawn due to certain named perils (fire, lightning, explosion, riot, aircraft, vehicle, vandalism, theft) up to 5% of Coverage A, but not more than $500 for any one tree, shrub, or plant. This is in addition to limits. The perils of wind, weight of ice and snow, and disease are excluded. Fire Department Service Charge This pays up to $500 for liability assumed by the insured for fire department charges incurred when called to save or protect the property. This is in addition and there is no deductible. Collapse This pays for collapse of the building structure if caused by a peril insured under the policy or by weight of people, rain, animals, or hidden and undetected insects. Glass Breakage Breakage of glass that is part of a covered building, including storm doors and windows, is covered unless the dwelling has been vacant for more than 60 consecutive days immediately before the loss. Landlord s Furnishings If the insured rents out a furnished room that is part of the residence premises, the policy covers those furnishings up to a maximum of $2,500 on a named peril basis only. There is no theft coverage. Building Ordinance Up to 10% of Coverage A; payable as additional insurance. Grave Markers Up to $5,000 (including mausoleums) located both on and off the premises. HO Section I Perils Insured Against Under Section I Property, the perils covered vary depending on which HO form the insured purchased. In the property area, some HO forms are purely named peril, such as the HO 2, HO 4, HO 6, and HO 8. However, the HO 3 and HO 5 are considered to be All Risk forms, covering everything except what is excluded. The following chart outlines the perils covered on each of the HO forms: 90 PERIL HO 2 HO 3 HO 4 HO 5 HO 6 HO 8 Buildings Contents Building Contents Riot X OPEN X X OPEN OPEN X X Explosion X X X X X Vandalism X X X X X Vehicles X X X X X Volcano X X X X X Fire X X X X X Lightning X X X X X Smoke X X X X X Hail X X X X X Aircraft X X X X X Wind X X X X X Theft X X X X X Weight of Ice & Snow X X X X Water (Accidental Discharge) X X X X Fall Objects X X X X Freezing of plumbing X X X X

7 Homeowners Policy 5 HO Section I Exclusions With the conditions in mind, let s discuss the various exclusions relating to Section I Property coverages for the various HO policies. Named Peril On the Named Peril forms, you will find that each specified named peril may have situations where coverage would be denied. The HO 2 Broad form is named peril on both the dwelling and contents, with wind being one of the perils named. However, under the named peril of wind, the policy excludes loss to the inside of the dwelling caused by rain and similar items unless the direct force of wind damaged the dwelling s roof or wall first and the rain then entered through that opening. Vacancy Another exclusion related to specific property perils is vacancy. There is no coverage for vandalism if the building was vacant for more than 60 consecutive days immediately before the loss, and there is no coverage for freezing of plumbing that occurs while the building is vacant unless the insured has used reasonable care to maintain the heat. Other Exclusions Not Covered Other standard exclusions that are not covered on any HO form include: Ordinance or law (no coverage for changes in building codes) Earth movement (although collapse is covered, but not if it is caused by this) Water damage (no coverage for flood, sewer backup, or seepage), including water-borne materials Power failure (no coverage if the failure takes place off premises) Neglect (there must be an attempt to save and preserve the property) War (of any nature or its consequences) Nuclear hazards Intentional losses An All Risk HO policy may sound simpler to study, but since it covers everything that is not specifically excluded, it carefully lists many more exclusions. Typical exclusions contained in most All Risk forms include: Wear and tear Inherent vice or latent defect (a built-in flaw, usually natural) Smog or wet rot, except wet rot within walls, ceilings, or floors caused by plumbing leakage from a covered loss Discharge of pollutants Settling or expansion of pavements, walls, or roofs Damage caused by birds, vermin, rodents, or insects Black mold or fungus, except when caused by leakage from a covered plumbing loss 91

8 Ohio Property and Casualty Insurance HO Section I Conditions HO Section I Conditions In the property area of an HO, the conditions such as the insured s duties after a loss are virtually the same as we previously studied in Chapter 4 and the Dwelling forms. Property conditions that are unique to the homeowners include: Volcanic eruptions occurring within 72 hours are the same occurrence Pair and set clause, which is a condition that states in case of loss to a pair or set, the insurer may elect to either repair or replace any part to restore the pair or set to its value before the loss, or pay the difference between the actual cash value of the property before and after the loss HO Section II Liability Coverages Although Section I Property coverages may vary from form to form, the liability coverages are exactly the same on all HO forms. Actually, there are two separate coverages included in Section II: 1. Coverage E Personal Liability 2. Coverage F Medical Payments to Others All HO policies are written to include at least $100,000 for Coverage E and $1,000 per person for Coverage F, although higher policy limits are available. Remember, neither of these coverages is for the insured or his family members. These protect the insured in the event someone else is injured (bodily injury, or BI) or someone else s property is damaged (property damage, or PD) due to the negligence of an insured person. However, damage done to the property of others in the care, custody, or control of the insured is excluded from coverage since the property is in the possession of the insured, unless the damage to others property is caused by fire or smoke. Coverage E Personal Liability The insurer pays up to the limits of liability for damages for which an insured is legally liable and will provide a defense at company expense by a lawyer of the insurer s choice, even if the lawsuit against the insured is groundless, false, or fraudulent. The cost of the defense is paid in addition to the policy limit. The insurer may investigate and settle the claim or lawsuit any way it decides is appropriate. The company does not need the insured s consent to settle. Note: The insurer s duty to settle or defend ends when the amount paid out for damages equals the policy s limit of liability. Coverage F Medical Payments to Others The insurer pays the necessary medical expenses incurred within three years from the date of an accident causing bodily injury, including charges for medical, surgical, X-rays, dental, ambulance, hospital, nursing, prosthetic devices, and funeral services. This coverage does not apply to the insured or to regular residents of the insured s household, except resident employees in the course of employment. The coverage applies to other persons on an insured location with permission of the insured, and to persons off the insured location if the injury is caused by the activities of an insured or by an animal owned by the insured. 92 Coverage F is a no-fault-type coverage, designed to prevent lawsuits. The insurer pays medical payments to others up to the policy limit regardless of fault, as a good will gesture. Of course, if

9 Homeowners Policy 5 the injured party is not satisfied, he can always file a lawsuit for negligence under Coverage E, Personal Liability. Also, while Section I, Property, in a HO policy does contain a per occurrence deductible (usually at least $250), Section II, Liability, has no deductible. Additional Coverages Section II of a HO policy also contains several additional coverages, all of which are in addition to the policy limits, including: Claim Expenses The insurer pays all expenses incurred by the insured in any lawsuit it defends. The insurer pays any premiums on bonds required in lawsuits it defends, reasonable expenses incurred by an insured at its request (including loss of earnings up to $250 a day for assistance in its investigation or defense), and interest on any judgment that accrues before the judgment is actually paid. First Aid Expenses Expenses such as emergency first aid to others incurred by an insured for bodily injury covered under the policy. First aid to the insured is not covered, only to others. Damage to the Property of Others As mentioned earlier, Coverage E Personal Liability excludes coverage for damage done to property of others if that property is in the care, custody, or control of the insured. This additional coverage will give the coverage back on a replacement cost basis up to $1,000 per occurrence. Excluded is coverage for the property owned by a roomer or boarder of the insured or damage caused intentionally by an insured who is 13 years of age or older. Loss Assessments This concerns the insured s involvement in a Property Owners Association. Up to $1,000 coverage, in addition to limits, is provided for the insured s share of a loss assessment made as a result of bodily injury or property damage covered by the policy. Coverage is valid whether the insured was charged by the association while acting as an individual, or charged by the membership while acting in the capacity of a director or officer of the association, elected by other members of the association and serving without pay. HO Section II Exclusions Next, since the HO contract is written in two sections, Property and Liability, we need to examine the exclusions that apply to Section II Liability coverage, which are different. For example, exclusions are listed in one place, Section II Exclusions. Since Coverage E, Personal Liability, and Coverage F, Medical Payment to Others, contain very broad coverage and include defense costs; many exclusions are inserted to limit the insurer s potential liability. These are actually the same regardless of the HO form purchased. Remember, if there is no coverage provided by the policy for the pending lawsuit, then there are no defense costs paid. There is no coverage for BI or PD resulting from: Intentional acts of the insured (even if an innocent bystander is hurt). Self-defense is not included in this exclusion. Business pursuits Off-premises rental properties Failure to render professional services Operation of a motor vehicle, unless a(n): u Trailer not attached to a car u Unlicensed recreational vehicle used on-premises only 93

10 Ohio Property and Casualty Insurance u u Golf cart used only on a golf course and residential facility Unlicensed vehicle used to service the premises or to assist the handicapped Operation of a watercraft, unless a(n): u u u Inboard motorboat with 50 hp or less Outboard motorboat with 25 total hp or less Sailboat or boat, with no motor power, less than 26 feet in length Operation of an aircraft War or its consequences Transmission of a communicable disease by an insured Sexual molestation, corporal punishment, or physical or mental abuse Sale of controlled substances (such as drugs) Property damage to property owned by the insured Bodily injury to any person eligible to receive Workers Compensation Fungi, wet or dry rot, or bacteria due to inhalation, ingestion, or contact HO Section II Conditions Conditions applicable to the liability section include the insured s duties after a loss, which specify that the insured must give written notice of claim as soon as practical; setting forth the time, place, and circumstances of the loss, and the names and addresses of any claimants and witnesses. Another Section II condition states that the limit of liability will not be more than that shown on the declarations page, and that the limit is the same regardless of the number of insureds who are sued regarding the same occurrence. Further conditions state that under Coverage F, Medical Payments to Others, a payment made under that coverage is not an admission of liability by an insured or the insurer, and that there may be no lawsuit filed against the insurer unless all of the provisions of the policy have been complied with. Also, bankruptcy of an insured does not relieve the insurer of its obligations under the policy. HO Endorsements Since the HO is a package policy, the industry has created several optional endorsements that may be added to the contract to tailor it to the needs of the client. Most, but not all, of these endorsements also require an additional premium including: Limited fungi, wet or dry rot, or bacteria coverage (HO 04 26). $5,000 is the most we will pay regardless of the number of occurrences for: (1) The total of all loss payable under Section I Property Coverages caused by or consisting of "fungi", wet or dry rot, or bacteria; (2) The cost to remove "fungi", wet or dry rot, or bacteria from property covered under Section I Property Coverages; (3) The cost to tear out and replace covered property as needed to gain access to the "fungi", wet or dry rot, or bacteria; and (4) The cost of testing of air or property to confirm the absence, presence or level of "fungi", wet or dry rot, or bacteria whether performed prior to, during or after removal, repair, restoration or replacement. The cost of such testing will be provided only to the extent that there is a reason to believe that there is the presence of "fungi", wet or dry rot, or bacteria. The endorsement will provide $50,000 of liability coverage under section II. Inflation Guard Endorsement The purpose of this endorsement is to keep the policy limits for the dwelling adequate to guarantee replacement cost coverage by automatically raising the Section 94

11 Homeowners Policy 5 I coverages periodically to keep pace with inflation. This endorsement also helps the insured avoid possible future co-insurance penalties for under-insurance. Of course, as the policy limits increase, so does the premium charged. Permitted Incidental Occupancies Endorsement Although business pursuits are excluded on an HO policy (Sections I and II), certain incidental business occupancies may be covered for an additional premium, including: u Office in the home (e.g., real estate. insurance) u Professional activity (e.g., teaching, coaching, although corporal punishment would still not be covered) u Private school (e.g., piano lessons, tutoring, home schooling) u Studio (e.g., artist s studio) High-risk occupancies such as those presented by police officers, lawyers, or physicians, are not eligible. Also, retail-type operations and manufacturing risks are not eligible. Mobile Home Endorsement Underwriting rules demand a dwelling must be affixed to a permanent masonry foundation to be eligible for Homeowners Insurance. A mobile home is a dwelling on axles and wheels. It is not on a fixed masonry foundation. As such, it is not eligible for the program. However, a mobile home endorsement has been developed to adequately insure these moveable dwellings. It can be added to the HO 2, HO 3 or HO 5 form. In order to qualify for the endorsement, the mobile home must be used for year round living, and it must be at least 10 feet wide and 40 feet long. The following are highlights of the endorsement: Coverage A Dwelling includes any structures or utility tanks attached to the mobile home and items that are installed on a permanent basis to the frame of the trailer (e.g., floor coverings, appliances, dressers, cabinets). Like conventional Homeowners Insurance, 10% of the Coverage A (Dwelling) limit is granted for Coverage B (Detached Other Structures). But if the percentage provides less than $2,000 coverage, the endorsement will provide a minimum of $2,000. Loss settlement on the structure will be at replacement cost as long as the home is insured for at least 80% of the cost to replace it. A unique additional coverage is added called Property Removed. If the insured mobile home is necessarily moved to avoid damage by a peril insured against, the endorsement will pay up to $500 of the reasonable expenses of moving and returning the mobile home. If the insured is transporting the mobile home from one location to another and would like the home covered for damage in transit, a separate endorsement is required and an additional premium paid. Scheduled Personal Property Another personal coverage that may be added to a Homeowners policy or purchased separately is a Personal Articles Floater (PAF). The declarations page of a PAF permits the insured to schedule (list) certain types of personal property to be covered. Coverage is provided on an ACV basis, up to the policy limit listed and can also be written on an agreed value basis. Underwriters often request that the insured furnish an appraisal or recent bill of sale to confirm that the property actually exists and to establish its value. Items that are commonly scheduled are jewelry, furs, cameras, musical instruments, and fine arts, such as paintings and sculptures, although other items may be covered as well. Rates vary depending on the type of property to be covered. Coverage provided is usually All Risk, with no deductible. Generally, the coverage floats, since PAFs are actually a type of Inland Marine Insurance, which is 95

12 Ohio Property and Casualty Insurance designed to cover property in transit, anywhere in the world. Fine arts, however, are covered only in the United States and Canada. PAFs usually automatically cover newly acquired items of the same category already listed on the policy, up to a maximum of $10,000 or 25% of the amount of insurance already scheduled, whichever is less. However, for coverage to continue, the insured must also report the newly acquired property to the insurer within 30 days and pay an additional premium. PAFs are designed to repair or replace the damaged article. If the insured refuses to accept the repaired or replaced item, the claim will be settled on the basis of what the insurer would have paid to repair or replace the item up to the scheduled amount. If the item is not repairable or cannot be replaced, the insurer will owe the insured the stated value on the schedule. Once coverage for the item is scheduled with this endorsement or a separate policy is purchased, that item is NO longer considered part of the contents coverage of the homeowner policy. Nadia is concerned that her $8,000 diamond wedding set is not covered properly on her homeowner policy. She provides an appraisal to the insurance company and lists the ring on a Scheduled Personal Property endorsement to the policy for the $8,000 value. The ring is stolen. Upon notice of claim, the current value of the ring is $9,500. Nadia will collect the $8,000 insured value from the endorsement. She is not able to claim the remaining $1,500 value from the contents coverage C of the homeowners. Even though the policy will provide up to $1,500 for theft of jewelry, once the ring was scheduled on the endorsement or a separate policy was purchased, the ring no longer qualifies as contents under the homeowner policy. That is why it is important to have the correct values when scheduling or insuring these items separately. Clients usually buy PAFs to obtain broader coverage for certain personal property than their Homeowners policy may provide. Remember: Homeowners policies have special limits on certain property (such as $1,500 for theft of jewelry). Also, most Homeowners policies provide only named peril coverage for personal property. Personal Injury Liability Since the definition of personal injury, which is generally defamation, libel, and slander, is not included within the definition of bodily injury liability, insured s seeking protection in this area must add it by optional endorsement and pay an additional premium for it. Home Day-Care Business An insured that operates a day-care business at the residence may be covered for the additional liability exposure by purchasing this endorsement. However, intentional acts of the insured, such as molestation, corporal punishment, or the operation of motor vehicles, are not covered. Remember: Business pursuits on an HO are excluded unless an optional endorsement is attached. Home day-care premiums are usually based on the number of children cared for. 96

13 Homeowners Policy 5 Optional Endorsements Other optional endorsements are also available, such as for watercraft and extensions of liability and medical payments to other premises (such as rental properties owned by the insured). Earthquake coverage is also available by endorsement, with a deductible stated as a percentage of the policy limit. A dwelling is insured for $100,000, with an earthquake endorsement with a 5% deductible. If an earthquake causes a loss to the structure, the deductible for this loss would be $5,000 (5% of the $100,000 policy limit.) Since all HO policies cover personal property (contents) on an ACV basis, clients may add the optional personal property replacement cost endorsement for an additional premium. Coverage for contents is now provided without any deduction for depreciation. HO Coverage Forms There are many HO coverage forms from which to choose. Before we describe each form, let s discover what these all have in common: The coverage stacks on all HO forms, meaning that each coverage is in addition to the others, although the premium is based only on Coverage A. All HO coverage forms cover theft of personal property (contents). All HO coverage forms cover personal liability and medical payments to others. The minimum policy limit is the same regardless of the form ($100,000 for Coverage E Personal Liability and $1,000 for Coverage F Medical Payments to Others). All HO coverage forms cover contents on a depreciated value basis (ACV), although replacement cost coverages are available as an option. All HO coverage forms are package policies, covering both property and liability. The deductible applies to the property section, but not to the liability section. All HO coverage forms contain special limits of liability relating to certain types of personal property, such as money ($200) and theft of jewelry ($1,500). Let s discuss each of these forms next. HO 2 Broad Form The HO 2 is a Named Peril form on both dwelling structures and contents. It also has R/C coverage on the buildings and ACV for contents. The HO 2 is very similar to the DP-2 Broad form Dwelling Fire policy, except that theft is included. HO 3 Special Form The HO 3, the most popular HO coverage form. It is All Risk on the dwelling and other structures, but contents are still named peril. Replacement cost coverage is provided for the buildings, but not the contents, which are still ACV. 97

14 Ohio Property and Casualty Insurance HO 5 Comprehensive Form The HO 5 provides All Risk coverage on both the structures and contents. HO 4 Renters or Tenants Form The HO 4 provides contents coverage for insureds who do not own the premises they inhabit. Therefore, it contains no structures coverage. The declarations page of an HO 4 would look like this: Coverage A Dwelling -0- Coverage B Other Structures -0- Coverage C Personal Property $50,000 (should be the ACV) Coverage D Loss of Use $15,000 (30% of Coverage C) Coverage E Personal Liability $100,000 (this is the same on all HOs) Coverage F Medical Payments $1,000 (this is the same on all HOs) Although there is no Coverage A or Coverage B on the HO 4, the coverage form still includes contents (personal property), loss of use, personal liability, and medical payments to others (Coverages C through F). Personal property is covered on a named peril basis similar to the HO 2 and HO 3. HO 6 Condominium Unit Owners Form The HO 6 is very similar to the HO 4, except that it includes a small amount of Coverage A for the dwelling unit, which is the interior space owned by the insured. The HO 6 does not cover the condo building structure or common condo structures. This coverage is provided by a Commercial Property policy purchased by the Condominium Association. However, since the insured actually owns the unit and may need coverage for interior improvements, there is limited Coverage A ($5,000 only) for alterations, built-in appliances, fixtures, and improvements. This limit can be increased by endorsement. Coverage is Named Peril, although optional All Risk coverage is available. Note: There is no HO 7 form. 98 HO 8 Modified Form The HO 8 is specially designed for older homes, for which the R/C of the dwelling exceeds the market value. If the insurer would issue the coverage on the dwelling at the replacement cost, the insured may be inclined to intentionally destroy the structure since the insurance company would pay out a much larger amount then the insured could obtain by selling the property. Coverage is written on the dwelling to reflect the market value of the home. Since the insurer and the insured have agreed to insure the home for less than the 80% co-insurance required, the co-insurance clause on partial losses would be eliminated. In order to avoid disputes regarding the amount to be paid out on a claim, the HO 8 states that the policy will pay the amount necessary to repair or replace the loss or damage, but not more than the cost of using common construction materials and methods that are functionally equivalent to and less costly than using obsolete, antique, or custom construction materials or methods originally used in the construction of the home.

15 Homeowners Policy 5 An antique fireplace mantle of exotic wood is damaged by fire. The insurance company will replace it with a similar looking mantle using modern materials and construction. The insurer will not pay a higher price to install an identical antique mantle. The HO 8 is Named Peril similar to a DP-1 on both structures and personal property and loss are settled at ACV on both buildings and contents. HO Policy Number and Name Coverages A and B Coverage C (Structures) (Contents) Risk Losses Risk Losses HO 2 Broad Form NP R/C NP ACV HO 3 Special Form AR R/C NP* ACV HO 4 Tenants or Renters Form None None NP ACV HO 5 Comprehensive Form AR R/C AR ACV HO 6 Condominium Unit Owners Form NP $5,000 NP ACV HO 8 Modified Form (older homes) NP Market NP ACV * Can be upgraded to All Risk by adding HO 15 endorsement. NP = Named Peril R/C = Replacement Cost AR = All Risk ACV = Actual Cash Value 99