Homeowners Policy. 5.1 Eligibility LEARNING OBJECTIVES OVERVIEW

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1 5 Homeowners Policy LEARNING OBJECTIVES Upon the completion of this chapter, you will be able to: 1. Understand the purpose of a Homeowners policy including eligibility 2. Compare and contrast the different Homeowners Coverage Forms 3. Identify the Homeowners policy Section I coverages A, B, C, and D 4. Recall the Section I Additional Coverages and Exclusions 5. Recognize the available Homeowners Section I endorsements 6. Recognize the Section II Definitions 7. Identify liability Coverages E and F 8. Recall Section II Conditions OVERVIEW There are six standard Homeowners Forms: Broad Form (HO 2), Special Form (HO 3), Contents Broad Form (HO 4), Comprehensive Form (HO 5), Unit-owners Form (HO 6), and Modified Coverage Form (HO 8.) Each form includes Section I Property Coverages and Section II Liability Coverages. Homeowners policies are package policies because they contain more than one type of insurance and offer advantages not found in monoline policies, such as premium savings, broader coverage, and the insured s need for fewer policies. 5.1 Eligibility 1. All homeowners forms with the exception of the Contents Broad Form (HO 4) and Unitowners Form (HO 6) require the named insured to be the owner Occupant of the insured dwelling. The dwelling must be the principal residence of the named insured, and incidental business occupancies, such as offices, studios, and schools, are permitted. 2. The Contents Broad Form (HO 4) and Unit-owners Form (HO 6) are written to insure the personal property and personal liability of the named insured who does not own the building in which he/she lives. The HO 4 is designed for tenants of residential units (i.e., dwellings and apartment units) and provides no coverage for buildings and other structures. The HO 6 is designed for the owners and tenants of condominium or cooperative units. Coverage is provided for the portion of the building the named insured owns (or is responsible for insuring), personal property, and personal liability. 3. Eligible residential dwellings are those containing one to four residential units and no more than 2 roomers or boarders per family. 4. Dwellings under construction, and that will be the primary residence of the named insured upon completion of construction, are also eligible for coverage. 67

2 CHAPTER FIVE Homeowner Coverage Forms Basic Form Perils Fire or Lightning Internal explosion Windstorm or Hail Aircraft Riot or Civil Commotion Vehicles Vandalism Volcanic Action Explosion Smoke Theft (automatic without an endorsement) FLI WHARV VEST Fire Wind Volcanic Action Lightning Hail Explosion Internal Explosion Aircraft Smoke Riot and Civil Commotion Vehicles & Vandalism Theft Broad Form (HO 2) 1. This form provides named perils coverage for the dwelling (Coverage A), other structures (Coverage B), and personal property (Coverage C). The 16 named perils are: Fire or lightning Windstorm or hail Explosion Riot or civil commotion Aircraft Vehicles Smoke Vandalism or malicious mischief Theft Automatic without an endorsement Falling objects Falling objects Weight of ice, snow, or sleet Accidental discharge or overflow of water or steam Sudden and accidental tearing apart, cracking, burning, or bulging Freezing Sudden and accidental damage from artificially generated electrical current Volcanic eruption. Losses under Coverages A and B are valued on a replacement cost basis 2. Although coverage for personal property (Coverage C) is provided on the same named perils basis as the dwelling and other structures are, losses are valued on an actual cash value (ACV) basis. 68

3 HOMEOWNERS POLICY 3. This form does not cover loss to a fence, driveway or walk caused by a vehicle owned or operated by the insured. HO 3 (Special Form) 1. In the Special Form (HO 3), the dwelling and others structures (Coverages A and B) are insured on an open perils basis, meaning all perils are insured if they aren t specifically excluded in the policy. Losses to the dwelling and other structures are valued on a replacement value basis just as they are in the HO The Special Form (HO 3) specifically excludes the following causes of loss under Coverage A and B: Collapse, except as provided by Other Coverages. Freezing of household appliances or a plumbing, heating, air conditioning, or automatic fire protective system unless the insured has taken reasonable care to maintain heat in the building or shut off the water supply and drained the appliances and systems of water. Freezing, thawing, pressure or weight of water or ice on patios, fences, swimming pools, foundations, piers, docks, retaining walls. Theft in or to a dwelling under construction, including construction-related materials and supplies. Vandalism and malicious mischief, including ensuing loss, if the dwelling has been vacant for more than 60 consecutive days immediately before the loss. Mold, fungus, or wet rot unless resulting from accidental discharge or overflow of water or steam that is hidden from view. Wear and tear, marring, deterioration, mechanical breakdown, latent defect, inherent vice, smog, rust, corrosion, dry rot. Smoke from agricultural smudging or industrial operations. Pollution including discharge, dispersal, seepage, migration, or release of smoke, vapor, fumes, acids, or other chemicals unless such discharge is caused by a Coverage C Peril Insured Against. Settling, cracking, bulging, or expansion of foundation, walls, floors, pavements, patios. Birds, vermin, rodents or insects. Animals owned or kept by an insured. 3. Personal property (Coverage C) is insured on a named perils basis that includes the same 16 named perils in the Broad Form (HO 2). Coverage C losses are valued on an actual cash value basis. 4. Includes losses to a fence, driveway or walk caused by a vehicle owned or operated by the insured. 5. The burden of proof for losses to the dwelling and other structures falls to the insurer because coverage is provided on an open perils basis. On the other hand, the burden of proof for losses to personal property falls to the insured to show which of the 16 named perils caused the loss. Contents Broad Form (HO 4) The Contents Broad Form is also known as the renter s or tenant homeowners policy. It doesn t provide any coverage for the dwelling or other structures because it s designed to insure those who are tenants. The HO 4 insures personal property under Coverage C against loss from the 16 named broad form perils found in the HO 2 and HO 3 forms. Personal property losses are valued on an actual cash value basis, as they are on the HO 2 and HO 3 forms. 69

4 CHAPTER FIVE Comprehensive Form (HO 5) 1. The Comprehensive Form provides the broadest coverage of any of the homeowners forms. 2. Coverages A - Dwelling, Coverage B - Other Structures, and Coverage C - Personal Property provide insurance on an open perils basis. 3. Losses to the dwelling and other structures are valued on a replacement cost basis, losses to personal property are valued on an actual cash value basis. Note This form is the Deluxe Package. It is the most costly and provides the most coverage. Unit-Owners Form (HO 6) 1. The Unit-owners Form provides named perils coverage to the owner of a condominium or cooperative unit under Coverage A - Dwelling and Coverage C - Personal Property. Coverage B does not appear in this form; however, if the owners of condominiums or cooperative units wish to insure other structures, the value of other structures may be included in the Coverage A limit of insurance. 2. The form insures real property (building and building items) for which the insured is responsible under the bylaws of the condominium association or cooperative corporation. It also insures personal property of the insured while anywhere in the world. Modified Form (HO 8) (Basic Form Named Perils) 1. The Modified Coverage Form is used to insure older homes when the replacement and market values of the dwelling are disproportionate or if a moral hazard would be created if insurance were written at 100% of replacement cost. An example of dwelling that would be insured under this coverage form is an old 3-story Victorian home in which the insured lives on the first two floors. If the dwelling were destroyed in a loss, the insured would not want to restore or replace it exactly as it was before the loss. Instead of insuring the dwelling for its replacement value of $1,200,000, the insured would insure it for a much lower amount of insurance. 2. The limit insurance limit would be chosen to represent the functional replacement value of the dwelling, which is the cost to replace damaged property with property that will perform the same function and efficiency even if it isn t of like kind and quality. Losses are paid on an actual cash value basis. 70

5 HOMEOWNERS POLICY Fire Perils Insured Against HO-2 HO-3 HO-3 Personal Property HO-5 Named Perils Lightning Internal explosion Wind Hail Aircraft Riot Vehicles Volcanic eruption Explosion Smoke VMM Burglar damage Falling objects Weight of snow, ice or sleet Accidental discharge Accidental tearing apart, cracking, burning, or bulging of HVAC Artificial electric current Open Perils Coverage Everything is covered, except what is excluded. Fire Named Perils Lightning Internal explosion Wind Hail Aircraft Riot Vehicles Volcanic eruption Explosion Smoke VMM Burglar damage Falling objects Weight of snow, ice or sleet Accidental discharge Accidental tearing apart, cracking, burning, or bulging of HVAC Artificial electric current Perils Insured Against HO-4 HO-6 HO-8 Fire Fire Fire Lightning Lightning Lightning Internal Explosion Internal Explosion Internal Explosion Wind Wind Wind Hail Hail Hail Aircraft Aircraft Aircraft Riot Riot Riot Vehicles Vehicles Vehicles Volcanic Eruption Volcanic Eruption Volcanic Eruption Explosion Explosion Explosion Smoke Smoke Smoke VMM VMM VMM Burglar Damage Burglar Damage Burglar Damage Open Perils Coverage All perils covered, except what is specifically excluded. Falling Objects Falling Objects Falling Objects Weight of snow, ice or sleet Weight of snow, ice or sleet Weight of snow, ice or sleet Accidental discharge Accidental discharge Accidental discharge Accidental tearing apart, cracking, burning, or bulging of HVAC Accidental tearing apart, cracking, burning, or bulging of HVAC Accidental tearing apart, cracking, burning, or bulging of HVAC Artificial electric current Artificial electric current Artificial electric current 71

6 CHAPTER FIVE Retention Question 1 An owner of a condominium unit would purchase which Homeowner form? a. HO 2, Broad Form b. HO 4, Contents Broad Form c. HO 6, Unit-owners Form d. HO 8, Modified Coverage Form Retention Question 2 In what way is the HO 5, Comprehensive Form, different from the HO 3, Special Form? a. Personal property is valued at actual cash value b. Personal property is insured on an open perils basis c. The dwelling is valued at replacement cost d. The dwelling is insured on an open perils basis 5.2 Definitions The named insured is the person or persons designated on the policy s declarations page and should be the party or parties holding deed to the property being insured. In situations where real property is owned by a trust, the named insured will be the trustee(s) living in the insured dwelling. 1. Insured means: a. The named insured and his or her resident spouse if the resident spouse is a member of the named insured s household. b. Other residents of the named insured s household who are: 1) Relatives of the named insured, meaning they are related by blood, marriage, or adoption. 2) Under the age of 21 and in the care of any insured. c. Full-time students living away at college if they: 1) Are under age 24 and related to the named insured, 2) Were a resident of the named insured s household before moving away to college, OR 3) Are under age 21 and in the care of the named insured or a resident relative. d. Under Section II Liability Coverages, any person or organization legally responsible for covered animals or watercraft owned by an insured, unless custody of such animals or watercraft is in the course of business as defined by the policy. e. With respect to a motor vehicle, to which liability coverage applies, persons using a covered vehicle on an insured location with insured s consent and persons while engaged in the employment of the named insured or a resident relative. 2. Insured location means: a. The residence premises. b. The part of any other premises, structures, or grounds used by the insured as a residence if it is shown in the Declarations or acquired by the named insured during the policy period for use as a residence. 72

7 HOMEOWNERS POLICY c. Any premises used by the named insured described in a. or b. above, such as a boat slip. d. Any premises not owned by an insured and where the insured is temporarily residing, such as hotel rooms and summer vacation rentals. e. Vacant land, other than farm land, owned by or rented to an insured. f. Land owned by or rented by an insured on which a 1, 2, 3, or 4-family dwelling is being built as a residence for an insured. g. Individual and family cemetery plots or burial vaults of an insured. h. Any part of a premises occasionally rented to an insured for other than business purposes, such as a banquet hall where a wedding reception is hosted. 3. Residence employee means: a. An employee of, or leased under an agreement to, an insured, whose duties are related to the maintenance or use of the residence premises. These duties include household and domestic services, such as those of a gardener or nanny. b. A person who performs similar duties elsewhere that are not related to any business of the insured, such as a person hired to paint the insured s house, as so long as the insured doesn t own a business that paints houses. 4. Residence premises means: a. The one family dwelling where the named insured resides. b. The 2-, 3-, or 4-family dwelling in which the named insured resides in at least one of the family units. c. That part of any other building where the insured resides. d. The residence premises also includes other structures and the grounds at that location, such as the 5 acres upon which the insured sits, including the barn, detached garage, and swimming pool. 5. Business means: a. A trade, profession, or occupation engaged in on a full-time, part-time, or occasional basis. b. Any other activity engaged in for money or other compensation, EXCEPT: Volunteer activities for which no compensation is received other than expense reimbursement. Home day care services for which no compensation is received other than the mutual exchange of day care services. Rendering home day care services to a relative of an insured. Any other activity not described above for which no insured receives more than $2,000 in compensation during the 12 months before the current policy term. Deductible 1. The deductible applies to all losses unless otherwise noted in the policy. 2. With respect to any one loss, the policy will only pay that part of the total of all loss payable under Section I that exceeds the deductible amount shown in the declarations subject to the policy limits. 3. Although the standard homeowners policy deductible is $250, an insured may choose a higher or lower deductible. As the deductible increases, the policy premium decreases. For example, the premium for a policy with a $1,000 deductible will be less than a premium for a policy with a $250 deductible. 73

8 CHAPTER FIVE Retention Question 3 A related, full-time student away at school and under what age is considered an insured on the Homeowner policy? a. 18 b. 19 c. 20 d Section I Property Coverages Section I Coverage A - Dwelling Coverage B - Other Structures Coverage C - Personal Property Coverage D - Loss of Use Coverages Section II Coverage E - Personal Liability Coverage F - Medical Payments to Others Coverage A Dwelling 1. The policy covers: a. Dwelling on the residence premises shown in the declaration, including structures attached to the dwelling. b. Materials and supplies located on or next to the residence premises (usually within 100 feet) used to construct, alter, or repair the dwelling or other structures on the residence premises. For example, the pile of lumber in the insured s back yard that will be used to construct a deck off the kitchen. 2. The policy does not cover: a. Land on which the dwelling is located. b. Theft in, to, or from a dwelling under construction, including materials used in the construction. c. Vandalism and malicious mischief including ensuing loss, if the dwelling was vacant for more than 60 consecutive days immediately before the loss. 3. When a limit of liability is chosen for Coverage A Dwelling, the other three property coverages (B, C, and D) are automatically issued at limits equaling a specific percentage of the Coverage A limit of liability. If these limits are inadequate, the insured may purchase higher limits. 4. In most cases, the insurer requires the named insured to purchase insurance in an amount that is no less than 80% of the dwelling s replacement value. If, at the time of a loss, the amount of insurance on the dwelling is less than 80% of the dwelling s replacement value, a penalty will be applied to partial losses. If 80% Replacement cost is not carried, ACV will apply. Coverage B Other Structures The policy covers other structures on the residence premises that are set apart from the dwelling by a clear space. Structures connected to the dwelling by only a fence or utility line are considered set apart, for example, sheds, detached garages, built-in pools. Other examples include a ham radio station and cell phone tower. 74

9 HOMEOWNERS POLICY 1. No coverage is provided under Coverage B for 4 types of property: a. Land, including land on which the other structures are located. b. Other structures rented or held for rental to anyone who isn t a tenant of the dwelling, unless the other structure is used solely as a private garage. c. Other structures from which any business is conducted. d. Other structures used to store business property that is owned by someone other than an insured or a tenant of the dwelling. 2. This insurance limit is 10% of the Coverage A limit of liability, does not reduce the Coverage A limit of liability, and may be increased by endorsement. Coverage C Personal Property The policy covers: 1. Personal property owned or used by an insured while it s anywhere in the world. 2. After a loss and at the named insured s request: property owned by others while it s on the residence premises occupied by an insured or property owned by a guest or residence employee while located in any residence occupied by an insured. 3. Coverage for property at another residence is limited. If personal property is usually located at an insured s residence other than the residence premises, coverage is limited to 10% of Coverage C or $1,000, whichever is greater. For example, property usually located in a student s dormitory or at the insured s summer home. This limit doesn t apply to property being moved because it s being repaired or rebuilt, located in a newly acquired principle residence during the first 30 days after being moved, or the residence premises is not fit to live in or store property in. 4. Special limits of liability apply to certain categories of personal property. Special Limits Personal Property Category of Liability Money, bank notes, bullion, coins, medals, etc. $200 Securities, deeds, evidences of debt, notes other than bank notes, manuscripts, $1,500 passports, tickets and stamps. Watercraft of all types, including their trailers, furnishings, equipment, engines, and outboard motors. Loss resulting from wind or hail is excluded unless in a $1,500 fully enclosed building. Trailers or semi-trailers not used with watercraft of all types. $1,500 Loss by theft of jewelry, watches, furs, precious or semiprecious stones. $1,500 Loss by theft of firearms and related equipment, such as holsters and $2,500 ammunition. Loss by theft of silverware, goldware, pewterware, platinum ware, tea sets, trays, $2,500 trophies, and flatware. Property on the residence premises used primarily for business purposes (e.g., a personal computer used by the insured in a home-based business). The limit does not apply to a personal computer used by the insured occasionally $2,500 when bringing work home from the office, and used primarily for personal and household purposes. Property away from the residence premises used primarily for business purposes. This limit doesn t apply to electronic apparatus. Different editions of the homeowners policy provide different limits of insurance for this coverage. $500 75

10 CHAPTER FIVE Personal Property Category Electronic apparatus and accessories while in or on a motor vehicle, but only if equipped to be operated by power from the motor vehicle while still being capable of operation by other power sources. Accessories include antennas, tapes, wires, records, disks, etc. Electronic apparatus and accessories used primarily for business purposes while away from the residence premises and NOT in or upon a motor vehicle, but only if equipped to be operated by power from the motor vehicle while still being capable of operation by other power sources. Accessories include antennas, tapes, wires, records, disks, etc. Special Limits of Liability $1,500 $1, Property not covered under Coverage C includes: a. Property specifically described and insured elsewhere, such as on another policy or by endorsement to the homeowners policy. b. Animals, birds, or fish. c. Motor vehicles, including equipment, parts, and electronic equipment and accessories that can only be operated by the motor vehicle. An exception exists (meaning coverage is provided) for motor vehicles not required to be registered for use on public roads, used solely to service an insured s residence, or designed to assist the handicapped. d. Aircraft, including its parts, except model or hobby aircraft is covered if it s not used or designed to carry people or cargo. e. Hovercraft, including its parts. f. Property of roomers, boarders, and other tenants except those related to an insured. g. Property in an apartment regularly rented, or held for rental, to others by an insured except for property covered under the additional coverage, Landlord s Furnishings. h. Property rented or held for rental to others off the residence premises. i. Business data, credit cards, and electronic fund transfer cards including data stored in books of account, on paper records, or on computers. j. Water or steam. 6. This insurance limit is 50% of the Coverage A limit of liability, does not reduce the Coverage A limit of liability, and may be increased by endorsement. Coverage D Loss of Use Three types of coverage are provided under Coverage D and all are for indirect, or consequential, loss. The limit of insurance appearing on the declarations for Coverage D is the total limit payable for all three types of coverage provided. For example, a wildfire burns near the insured s home. If direct damage from the wildfire occurs to the residence premises, Additional Living Expense and Fair Rental Value coverages are triggered. If direct damage from wildfire occurs to the named insured s neighbors, and a civil authority evacuates the named insured, Civil Authority Prohibits Use coverage is triggered. 1. Additional Living Expense a. If a property loss covered by Section I of the policy makes the residence premises unfit to live in, the policy pays for any necessary increase in living expenses incurred by the named insured to maintain the household s normal standard of living. b. Payment is made for the shortest time necessary to repair or replace the damage. If the insured must relocate permanently, payment will be made for the shortest time it takes the insured to settle at the new location. 76

11 HOMEOWNERS POLICY 2. Fair Rental Value a. If a property loss covered by Section I of the policy makes that part of the residence premises rented to others unfit to live in, the policy pays for the fair rental value of such premises less any continuing expenses while it s unfit to live in. b. Payment is for the shortest time required to repair or replace the rented portion of the premises. 3. Civil Authority Prohibits Use If a civil authority prohibits the named insured from using the residence premises as a result of direct damage to neighboring premises by a peril insured against under the homeowners policy, the policy pays losses under Additional Living Expense and/or Fair Rental Value for no more than two weeks. 4. Loss and expenses due to the cancellation of a lease or agreement are NOT covered. 5. Limits of Coverage The automatic limits of insurance for Coverage D vary by the homeowners form of coverage: a. 30% of Coverage A for forms HO 2, HO 3, and HO 5 b. 30% of Coverage C for form HO 4 c. 50% of Coverage C for form HO 6 d. 10% of Coverage A for form HO 8 HO 2 Broad Form HO 3 Special Form HO 5 Comprehensive Form Coverage A Coverage B Coverage C Coverage D Loss Settlement RC RC ACV Limit of Insurance Limit of Liability 10% Coverage A (additional insurance) 50% Coverage A (additional coverage) 30% Coverage A (not additional coverage) Loss Settlement RC RC ACV Limit of Insurance Limit of Liability 10% Coverage A ( additional coverage) 50% Coverage A (additional coverage) 30% Coverage A (additional coverage) Loss Settlement RC RC ACV Limit of Insurance Limit of Liability 10% Coverage A (additional coverage) 50% Coverage A (additional coverage) 30% Coverage A (additional coverage) 77

12 CHAPTER FIVE HO 4 Tenants Form Loss Settlement Limit of Insurance HO 6 Condominium Owners Form Loss Settlement Limit of Insurance HO 8 Modified Form Loss Settlement Limit of Insurance Coverage A ACV Limit of Liability Coverage B ACV 10% Coverage A (additional coverage) Coverage C ACV Limit of Liability ACV Limit of Liability ACV 50% Coverage A (additional coverage) Coverage D 30% Coverage C (additional coverage) 50% Coverage C ( additional coverage) 10% Coverage A (additional coverage) Retention Question 4 Coverage A Dwelling does not cover vandalism and malicious mischief if the dwelling has been vacant for how many days? a. 20 b. 30 c. 60 d. 90 Retention Question 5 The amount of insurance provided for Coverage C is what percentage of Coverage A on a HO 3, Special Form? a. 15% b. 25% c. 35% d. 50% Retention Question 6 All of the following special limits of Coverage C are correct, except: a. $200 for money b. $2,500 for theft of firearms c. $1,500 for a trailer not used with watercraft d. $2,500 for business property away from premises 78

13 HOMEOWNERS POLICY Retention Question 7 The automatic limit for Coverage D Fair Rental Value is what percentage of Coverage A under an HO 3, Special Form? a. 10 b. 20 c. 30 d Section I Additional Coverages Both sections of the homeowners policy provide additional coverages. Under Section I Additional Coverages, a percentage of the applicable Coverage A, B, C, or D limit of liability applies in certain circumstances; in other cases, additional limits of insurance apply. 1. Debris Removal a. The policy will pay the named insured s reasonable expenses for the removal of debris of covered property if a covered loss occurs. b. Payment is included in the limit of insurance for covered property that is damaged. If debris removal expenses and expenses for damaged property exceed the applicable limit of insurance, this coverage will provide additional insurance equal to 5% of the limit available for such expense. For example, the insured s shed burns to the ground. The Coverage B limit of liability is $10,000. This coverage will pay a total of $10,000 plus $500 ($10,000 times 5 %) for the replacement value of the shed plus debris removal expenses. c. A limit of $1,000 applies for reasonable expenses to remove from the residence premises debris of the insured s trees felled by windstorm, hail, or the weight of ice, snow, or sleet. 2. Reasonable Repairs When the insured s property has been damaged by a covered peril, this coverage pays the reasonable costs incurred by the named insured to take necessary measures to protect covered property damaged by a covered peril against further damage. For example, a tree falls on the dwelling s roof. The insured s expenses to place a tarp over the hole in the roof would be covered. This coverage does not increase the limit of insurance that applies to the covered property. 3. Trees, Shrubs, and Plants a. Coverage is provided for trees, shrubs, plants, or lawns on the residence premises for the following perils: fire or lightning, explosion, riot or civil commotion, aircraft, vehicles not owned or operated by a resident of the residence premises, vandalism or malicious mischief, and theft. Coverage is NOT provided for any other peril, including windstorm or hail. b. The limit of insurance is up to 5% of the Coverage A limit of liability in the HO-2, HO- 3, HO-5, and HO-8 forms and applies to all trees, shrubs, plants, or lawns. Coverage is provided up to 10% of the Coverage C limit in the HO-4 and HO-6 to pay for loss to trees, shrubs, and plants damaged by the listed covered perils. The most paid for loss to any one tree, shrub, or plant is $500. This limit is additional insurance. c. No coverage is provided for property grown for business purposes. 79

14 CHAPTER FIVE 4. Fire Department Service Charge This coverage pays up to $1,000 for the named insured s contractual liability to pay fire department charges incurred by a fire department that is called to save or protect covered property by a peril insured against. Covered charges must be incurred by a fire department other than that of the jurisdiction in which the covered property is located. For example, a neighboring fire department is called to assist the fire department of the jurisdiction in which the insured property is located. This coverage is additional insurance, and the policy deductible does not apply. 5. Property Removed Coverage is provided for loss to covered property by any cause while being removed from a premises endangered by a peril insured against. Coverage applies for no more than 30 days while removed. For example, if a wildfire threatens the insured s home and property is removed, loss to the removed property that is caused by flood or earthquake would be covered during the first 30 days the property is removed. However, if flood threatened the insured s home, coverage wouldn t apply because the endangering peril is not a peril insured against. 6. Credit Cards, Electronic Fund Transfer Card or Access Device, Forgery, and Counterfeit Money Coverage up to $500 is provided for the insured s legal responsibility because of theft or unauthorized use of credit cards, electronic fund transfer cards or access devices issued to an insured. Loss to an insured caused by forgery, alteration of a check or negotiable instrument, or counterfeit money is also covered. Exclusions exist for use of a covered card or device by a resident of the named insured s household, by a person entrusted with a card or access device, the insured s failure to comply with credit card requirements, business use of a card, or the insured s dishonesty. This coverage also includes defense. 7. Loss Assessment Coverage up to $1,000 is provided for the named insured s share of loss assessment charged during the policy period by a corporation or association of property owners. The assessment must be made because of direct loss to property owned collectively by all members AND that was caused by a Peril Insured Against under this policy. This coverage is additional insurance. 8. Collapse Coverage is provided for the abrupt falling down or caving in of a building, or a portion of a building, if the building cannot be occupied for its intended purpose after the collapse. a. Direct physical loss from collapse must be caused by a Coverage C named peril, hidden decay, hidden insect or vermin damage, weight of contents, equipment, animals, people, the weight of rain collecting on a roof, or the use of defective materials or construction methods. b. The policy does not cover collapse of awnings, fences, patios, swimming pools, underground pipes, cesspools, etc., unless damage is the direct result of the collapse. c. This coverage does not increase the limit of insurance that applies to the damaged property. 9. Glass or Safety Glazing Material a. Coverage is provided for: 1) The breakage of glass or safety glazing material that is part of a covered building, storm door, or storm window, including loss caused by earth movement. 80

15 HOMEOWNERS POLICY 2) Direct physical loss to covered property caused solely by the pieces, fragments, or splinters of broken glass or safety glazing material. b. NO coverage is provided for loss occurring on the residence premises if the dwelling was vacant for more than 60 consecutive days before the loss, except coverage is provided for loss caused by earthquake. c. This coverage does not increase the limit of insurance that applies to the damaged property. 10. Landlord s Furnishings a. Up to $2,500 coverage is provided for appliances, carpeting, and household furnishings owned by the named insured and located in each apartment on the residence premises that is rented to others. Coverage is provided for the 15 named perils (the Coverage C perils, with the exception of theft). b. This coverage does not increase the limit of insurance applying to the damaged property. 11. Ordinance or Law a. The insured may use up to 10% of the Coverage A limit of insurance for increased costs the insured incurs due to the enforcement of any ordinance or law that requires or regulates: 1) Construction, demolition, remodeling, renovation, or repair of that part of a covered building damaged by an insured peril. 2) The demolition or reconstruction of the undamaged part of a covered building, when that building must be totally demolished because of damage by an insured peril to another part of that covered building. 3) The remodeling, removal, or replacement of the portion of the undamaged part of a covered building to complete the remodeling, repair, or replacement to that part of the covered building damaged by an insured peril. b. This coverage is additional insurance. 12. Grave Markers a. The policy will pay up to $5,000 for grave markers, on or away from the residence premises, for loss caused by a peril insured under Coverage C. b. This coverage does not increase the limits of insurance that apply to the damaged, covered property. Retention Question 8 The Landlord s Furnishings endorsement provides up to $ of coverage. a. 500 b. 1,000 c. 2,000 d. 2,500 81

16 CHAPTER FIVE 5.5 Section I Exclusions The policy does not provide for loss caused directly or indirectly by any of the following perils, even if they are caused concurrently or over a widespread area. 1. Ordinance or Law Losses resulting from the enforcement of an ordinance or law regulating the construction, repair, remodeling, renovation or demolition of a building are excluded except what is provided in the additional coverage, Ordinance or Law. 2. Earth Movement Losses resulting from: earthquake, including land shock waves or tremors before and after volcanic eruptions, landslides, mudslides, mudflow, subsidence, or sinkhole, and any earth sinking, rising, or shifting. Direct loss by fire or explosion that ensues is covered. This exclusion doesn t apply to loss by theft. 3. Water Damage Water damage means flood, surface water, tidal water, overflow of a body of water, water or water-borne material that backs up through sewers or drains or that overflows from a sump pump, and water that exerts pressure on or seeps or leaks through a building, foundation, swimming pool, or other structure. Direct loss by fire, explosion, or theft resulting from water damage is covered. Water damage is excluded whether caused by human, animal, or natural forces. 4. Power Failure If the failure of power or utility services takes place off the residence premises, this exclusion applies. However, if the failure of power or utility services takes place on the residence premises and is caused by a Peril Insured Against, it doesn t apply. 5. Neglect There is no coverage for losses if the insured fails to use all reasonable means to save and preserve covered property at and after the time of a loss. 6. War War includes the following, including any consequences of: undeclared war, civil war, insurrection, rebellion or revolution, warlike act by a military force or personnel, destruction, seizure or use for a military purpose. Discharge of a nuclear weapon is deemed warlike even if it occurs accidentally. 7. Nuclear Hazard Damage is excluded by any nuclear reaction, radiation or radioactive contamination, or a consequence of any of these. 8. Intentional Loss No coverage applies to any loss that arises out of any act an insured commits or conspires to commit with the intent to cause loss. In the event of intentional loss, no insured is entitled to coverage, including innocent insureds (those who did not cause the loss, but are covered on the same policy as the person who did caused the loss). 9. Governmental Action The destruction, confiscation, or seizure of covered property by order of any governmental or public authority is excluded. The exclusion doesn t apply to such acts taken at the time of a fire to prevent its spread, if the fire loss would be covered under the policy. Retention Question 9 Which of the following is a Section I exclusion in the Homeowner policy? a. Governmental action b. Property removed c. Loss assessment d. Debris removal 82

17 5.6 Section I Selected Property Endorsements HOMEOWNERS POLICY Mobile Home Insurance 1. Depending upon the insurer, insurance for mobile homes may be insured on a homeowners policy by adding a Mobile Home endorsement. If the insurer doesn t allow the addition of such an endorsement to its homeowners policy, a separate Mobile Homeowners policy must be written. 2. Under ISO (Insurance Services Office) rules, an owner occupied mobile home may be covered under an HO 2 or HO 3 by endorsement. The endorsement amends the definition of Coverage A (Dwelling) to include a mobile home. Tenants of a mobile home may insure their personal property under an HO 4 if the insurer s underwriting guidelines permit. 3. When mobile homes are insured by writing a separate Mobile Homeowners Policy, the policy is inclusive of a Section I Property, very similar to the Homeowners Section I, and Section II Liability, very similar to the Homeowners Section II. 4. The separate Mobile Homeowners Policy, under Coverage A (Mobile Home), is inclusive of the mobile home itself; property installed on a permanent basis, such as appliances, floor coverings, dressers and cabinets; attached structures; and utility tanks. Coverages B, C, and D are nearly identical to the same coverages under the Homeowners Policy, except that Coverage C (Personal Property) is generally written at 40% of Coverage A, instead of 50% under the Homeowners Policy. 5. The Additional Coverage (Property Removed) is expanded to include up to $500 for reasonable expenses incurred in moving the mobile home when threatened by a covered peril. 6. The separate Mobile Homeowners Policy may be written on an open peril basis with losses settled on a replacement cost basis on the mobile home property, with additional items of property attached to the mobile home on an actual cash value basis. 7. Typically, the endorsements available to a Homeowners Policy are also available to the Mobile Homeowners Policy. A couple of endorsements that are unique to the Mobile Homeowners Policy are the Transportation/Permission to Move Endorsement, and the Mobile Home Actual Cash Value Settlement Endorsement. may be used when the insured does not desire to insure the mobile home to 80% of replacement cost. Endorsements Unique to Mobile Home Insurance 1. Transportation/Permission to Move Endorsement In addition to the covered perils listed, this endorsement will also provide coverage to protect it from impending danger or harms way. The same $500 that is used to provide coverage under the Additional Coverage Property Removed would apply. a. Basically, this endorsement provides coverage for the following 2 reasons: 1) Damage during transport 2) To escape harms way b. It provides coverage for up to 30 days while the mobile home is being moved to a new location for the following reasons: 1) Collision 2) Upset 3) Stranding 4) Sinking 2. Mobile Home Actual Cash Value Settlement Endorsement This endorsement may be used when the insured does not desire to insure the mobile home to 80% of replacement cost. 83

18 CHAPTER FIVE Other Structures on the Residence Premises - Increased Limits If the Coverage B limit of insurance is inadequate to insure all other structures on the residence premises (10% of Coverage A), this endorsement allows the insured to purchase increased limits for other structures listed in the endorsement. The increased limits generate an additional premium charge. Water Back Up and Sump Discharge or Overflow 1. This endorsement allows the insured to buy back some coverage that is excluded under the Water Damage exclusion. It provides up to $5,000 of coverage for direct physical loss to property insured under Section I (Coverages A, B, and C) caused by water or waterborne material that: a. Backs up through sewers or drains, or b. Overflows from a sump, sump pump, or related equipment. 2. Coverage is provided even if the sump overflow is caused by equipment breakdown. A special deductible of $250 applies and replaces any other deductible that may otherwise apply. 3. Coverage doesn t apply if damage is caused by the negligence of an insured. Personal Property Replacement Cost Loss Settlement 1. This endorsement changes the valuation method for most property insured under Coverage C from actual cash value (ACV) to replacement cost. 2. Also applies to awnings, outdoor antennas and equipment carpeting, and household appliances. 3. If the following classes of property are separately described and specifically insured in this policy and NOT subject to agreed value loss settlement, the endorsement also applies to jewelry, furs and fur garments, cameras and related equipment, musical instruments and related equipment, silverware, goldware, pewterware, and golfer s equipment. Other classes of property separately described and specifically insured are NOT subject to this endorsement. 4. Property NOT eligible for coverage under this endorsement and that is subject to actual cash value loss settlement includes antiques, fine arts, paintings and similar articles of rarity or antiquity that cannot be replaced, memorabilia, souvenirs, collectors items, articles whose ages and histories contribute to their value, articles not maintained in good or workable condition, and articles that are outdated or obsolete and are stored or not being used. 5. This endorsement only changes loss valuation it doesn t change other policy provisions, including perils insured against or exclusions. Scheduled Personal Property Endorsement 1. This endorsement is used to increase limits of liability for certain categories of personal property and to broaden the perils insured against that apply to that property. 2. Coverage is provided on an open-perils basis and contains very few exclusions; including wear and tear, insects or vermin, war, and nuclear hazard. Some additional exclusions and restrictions apply for fine arts, postage stamps, coins, and the breakage of art glass windows, glassware, statuary, marble, bric-a-brac, porcelains, and similar fragile articles. This endorsement is also referred to as a Personal Article Floater. 3. Newly acquired property of a class already insured on the endorsement is automatically covered. The insurer must be notified within 30 days (90 days for fine arts) if new property is acquired. 4. Scheduled property is insured worldwide. 5. The Section I deductible does not apply to this endorsement. 84

19 Earthquake Endorsement HOMEOWNERS POLICY 1. Coverage for a loss caused by earthquake, including land shock waves or tremors before, during, or after a volcanic eruption, is provided to property insured under Coverage A (Dwelling), B (Other Structures), and C (Personal Property). 2. A single earthquake is defined as 1 or more earthquake shocks that occur within a 72-hour period. 3. The coverage does not cover loss resulting from flood of any nature, or the cost of filling land. 4. A deductible that is a percentage of Coverage A (Dwelling) or Coverage C (Personal Property), whichever is greater, is included. The total deductible will not be less than $250. Limited Fungi, Wet or Dry Rot, or Bacteria Coverage Endorsement 1. This endorsement provides a basic property limit option of $10,000 on an annual aggregate basis during the policy period for: a. Loss caused by fungi, wet or dry rot, or bacteria. b. Cost of: 1) Testing the air or property to confirm the existence of fungi, wet or dry rot, or bacteria. 2) Removal of fungi, wet or dry rot, or bacteria. 3) Tearing out and replacing any part of the building or other covered property to gain access to fungi, wet or dry rot, or bacteria. 2. Insurers also can offer higher optional coverage limits of $25,000 and $50,000. Permitted Incidental Occupancies Endorsement 1. With respect to Section I, Coverage B (Other Structures), this endorsement covers a structure of the residence premises, specifically described, for direct physical loss by an insured peril for a specified limit of insurance when used to conduct a business. 2. The endorsement also allows the Coverage C (Personal Property) special limit of $2,500 to apply to the described business. Retention Question 10 The Water Back Up and Sump Discharge or Overflow endorsement provides how much coverage for damaged property? a. $2,500 b. $5,000 c. $7,500 d. $10, Homeowner Section II The language contained in Section II--Liability Coverages is identical in each of the homeowners forms. It provides the same coverages contained in a standalone Comprehensive Personal Liability (CPL) policy. Section II coverages are not subject to a deductible. Protection is provided for legal claims against the insured or family members from occurrences in and around the premises, personal activities, and pets, both on an away from premises. Coverage is intended to protect against nonbusiness, non-automobile exposures of the individual or family unit. The largest single exposure a homeowner has is potential liability claims. 85

20 CHAPTER FIVE Liability Coverages Coverage E Personal Liability BI/PD (Bodily Injury/Property Damage Coverage) Note BI/PD is always the first liability coverage that appears in any policy s Liability Section, just as Dwelling is always the first property coverage that appears in property. Insurance is provided for claims made and suits brought against an insured because of bodily injury or property damage caused by an occurrence for which the insurance applies. 1. The policy pays up to the limit of liability for the damages for which an insured is legally liable, including prejudgment interest awarded against an insured. 2. The policy provides a defense, at the insurer s expense, even if the suit is groundless, false, or fraudulent. The insurer may investigate and settle any claim or suit it decides is appropriate. The duty to defend ends when the policy limits have been exhausted by payment of a judgment or settlement. Payments for defense costs are made in addition to the limit of liability appearing on the declarations. 3. The basic limit of insurance is $100,000 per occurrence with no aggregate limit. Limits may be increased as needed. Coverage F Medical Payments to Others 1. The purpose of Med Pay benefits is to help avoid lawsuits. Med Pay provides immediate dollars for medical expenses in hopes of avoiding unnecessary litigation later. The basic Med Pay benefit limit is $1,000 per injured person, but can be increased if desired. Benefit limits cannot be stacked onto liability awards. Negligence or fault is never an issue with Med Pay. Med Pay always pays its portion of a medical expense claim before BI/PD picks up any remaining expenses. The policy will pay necessary medical expenses that are incurred or medically ascertained within 3 years from the date of an accident causing bodily injury. 2. Legal liability, negligence, and fault do not trigger this coverage. Medical payments to others is a goodwill coverage and designed to discourage the submission of liability claims. 3. Medical expenses are the reasonable charges for medical, surgical, x-ray, dental, ambulance, hospital, professional nursing, prosthetic devices, and funeral services. 4. Coverage does not apply to the insured or regular residents of the insured s household (except residence employees). 5. Coverage applies to: a. A person on the insured location with the permission of an insured. b. A person off the insured location if the bodily injury: 1) Arises out of a condition on the insured location or the immediate surroundings. 2) Is caused by the activities of an insured. 3) Is caused by a residence employee in the course of employment by the insured. 4) Is caused by an animal owned by or in the care of an insured. Note Section II Coverages are not subject to a deductible. TEST TIP Med Pay always pays TO OTHERS, except boats and auto. 86

21 HOMEOWNERS POLICY Example If a neighbor is injured in an insured s yard and suffers injuries, the medical expenses are covered regardless of fault up to a limit, normally $1,000. The medical expenses incurred totaled $1,000 and were all paid by the Med Pay portion of the policy, but the neighbor decides to sue the insured for damages totaling $5,000. If the jury awards the settlement, the neighbor would only get the remaining $4,000. The Med Pay $1,000 already paid would be factored into the total settlement awarded. Retention Question 11 All of the following are covered by Coverage F Medical Payments to Others, except: a. An injury to the insured while mowing the lawn b. A neighbor s injury caused by an insured s activity c. An injury to another person caused by a residence employee while mowing the lawn d. A guest is injured while visiting the insured at home 5.8 Section II Additional Coverages The following coverages are provided and payments are made in addition to the limit of liability appearing on the declarations. 1. Claim Expenses (Supplementary Payments) Includes the insurer s expenses for defending a claim, along with reasonable expenses incurred by an insured at the insurer s request. Also covered as claim expenses are premiums on bonds required in a suit defended by the insurer, the insured s actual loss of earnings up to $250 a day for assistance in the investigation or defense of a claim or suit, and post-judgment interest. 2. First Aid Expenses Includes expenses incurred by an insured for rendering first aid to others who sustain bodily injury covered under the policy. No coverage is provided for first aid to an insured. 3. Damage to Property of Others Pays up to $1,000, at replacement cost, for property damage to property of others caused by an insured. Payment is made regardless of negligence. For example, damage caused by an insured to a borrowed lawn mower. Coverage does not apply to property damage: a. Covered under Section I of the policy. b. Caused intentionally by an insured who is 13 years of age or older. c. To any property owned by an insured. d. To property owned by or rented to a tenant of an insured or a resident of the named insured s household. e. Arising out of a business engaged in by an insured; acts or omissions in connection with premises owned, rented, or controlled by an insured that is not the insured location; the ownership, maintenance, occupancy, operation, use, loading or unloading of aircraft, hovercraft, watercraft, or motor vehicles. 4. Loss Assessment Provides Up to $1,000 of coverage for the insured s share of loss assessments charged by a corporation or association of property owners, during the policy period. The loss assessment must be the result of bodily injury or property damage not otherwise excluded by the policy or liability for an elected director, officer, or trustee who serves on the board of the association or corporation without being compensated. 87