Chapter 22, 23, 24

FAIR Plans:

- FAIR plans have been established in 32 states and the District of Columbia - Several states have beach and windstorm plans, where property is vulnerable to damage form severe windstorms and hurricanes

What are critical problems of the National Insurance Program?

- The NFIP has a substantial deficit, largely due to Hurricane Katrina in 2005 - Many property owners do not pay premiums that adequately reflect the risk of flooding - NFIP is required to insure multiple loss properties - Operational and management issues plague the program

Characteristics of homeowners insurance forms:

- designed for the owner-occupants of family dwellings - a policy can be used to cover the dwelling, other structures, personal property, additional living expenses, personal liability claims, and medical payments to others

Section I Conditions:

- no legal action can be brought against the insurer unless all policy provisions have been met - The insurer has the right to repair or replace any part of the damaged property with like property - The insurer is generally required to make a loss payment directly to the named insured - The insurer is not obligated to accept any property abandoned by the insured

What is insured under 'Personal Property Coverage'?

- personal belongings such as clothing, furniture, and electronic equipment - curtains - portable and window air conditioners - portable microwave ovens and portable diswashers - carpets not included in building coverage - clothes washers and dryers - food freezers and the food in them - Certain valuable items such as orginal artwork and furs (up to $2,500)

What are some additional coverages of Section I?

1. Removal of debris following an insured peril 2. Reasonable repairs to protect the property from further damage 3. Trees, shrubs, and plants, for a limited set of perils 4. Fire department service charge 5. Removal of property that is endangered by an insured peril 6. Unauthorized use of credit card, electronic fund transfer card or access device, forgery and counterfeit money 7. Loss assessment charged against the named insured by a corporation or association of property owners because of the direct loss of property collectively owned by all members 8. Collapse of a building 9. Breakage of glass or safety glazing material 10. Landlord's furnishings 11. Increased costs of construction or repair because of an ordinance or law 12. Grave markers

What three policy forms does flood coverage come in?

1. The Dwelling Form 2. The General Property Policy Form 3. The Residential Condominium Building Association Policy Form

What endorsements can be added?

1. Theft Coverage 2. Personal Liability Supplement

What are the major rating and underwriting factors?

1. Type of construction 2. Location of home 3. Fire-protection class, which depends on the quality of the public fire department, accessibility to the fire department, water supply and fire hydrants 4. Construction costs 5. Age of the home 6. Type of policy and deductible amount 7. Insurance score: a credit-based score that is highly predictive of future claim costs

Section II Conditions - Duties after an "Occurrence":

1. Written notice of the even must be provided to the insurer, including the time, place, circumstances and names of any claimants and witnesses 2. The injured person must provide written proof of claim and authorize the insurer to obtain copies of medical records

What is not insured by either Building Property or Personal Property Coverage?

1. damage caused by moisture, mildew, or mold that could have been avoided 2. Currency, precious metals, and valuable papers such as stock certificates 3. Property and belongings outside of building such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs, and swimming pools 4. Living expenses such as temporary housing 5. Financial losses caused by business interruption or loss of use of insured property 6. Most self-propelled vehicles such as cars, including their cars

What must an insured do after a loss occurs?

1. give prompt notice to insurer 2. Protect the property from further damage 3. Prepare an inventory of damaged personal property 4. Exhibit damaged personal property 5. File a proof of loss with 60 days after the insurer's request

What are exclusions that apply only to Coverage F?

1. injury to a resident employee off an insured location 2. Workers Compensation 3. Injuries that result from nuclear energy 4. Person regularly residing on the insured location

How many forms are available?

6

Watercraft Insurance - Boatowners Package Policy:

A 'Boatowners Package Policy' combines physical insurance on the boat, medical expense insurance, liability insurance and other coverages into one policy - Physical damage is covered on a "direct physical loss" or an "open perils" basis - The insured is covered for property damage and bodily injury liability arising out of negligent use of the boat - The policy also includes medical expense coverage and may include uninsured boaters coverage

National Flood Insurance Program:

A Flood is defined in the Standard Flood Insurance Policy as: "a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your porperty) from overflow of inland tidal waters, from unusual and rapid accumulation or runoff of surface waters from any source, or from mudflow" ***There is a 30-day waiting period for new application and endorsements for flood coverage****

What is an 'Extended Replacement Cost Endorsement'?

A add-on in which pays 20% or more above the policy limits

What is a 'Home business insurance coverage endorsement'?

A home business insurance coverage endorsement covers both business property and legal liability arising out a home-based business

What is a 'personal injury endorsement'?

A personal injury endorsement is used to extend liability coverage to legal liability arising out of personal injury, false arrest, slander

What is a 'Personal Property Replacement Cost Loss Settlement Endorsement'?

A personal property replacement cost loss settlement endorsement is added to the policy and claims are paid on the basis of replacement cost with no deduction for depreciation

What is a "Schedule" used for?

A schedule can be used to insure certain personal property for a specific amount

What is covered by Flood insurance and What's not?

Generally, physical damage to your building or personal property "directly" caused by a flood is covered by your insurance policy. For example, damages caused by a sewer backup are covered if the back is a direct result of flooding. however, if the back is caused by some other problem, the damages are not covered.

General Guidance on Flood Insurance Coverage:

What is insured under Building Property Coverage? 1. The insured building and its foundation 2. The electrical and plumbing systems 3. Central air conditioning equipment, furnaces and water heaters 4. Refrigerators, cooking stoves, and built-in appliance such as dishwashers 5. Permanently installed carpeting over an unfinished floor 6. Permanently installed paneling, wallboard, bookcases, and cabinets 7. Window blinds 8. Detached garages 9. Debris removal

Watercraft Insurance - Yacht Insurance:

Yacht Insurance is designed for larger boats - policies are not standard, but have many common features - Hull coverage insures he yacht and its equipment for property damage on an "all risks" or "open perils" basis. - The policy includes liability coverage, medical expense coverage, and uninsured boaters coverage

Inland Marine Floaters:

Coverage can be tailored to the specific type of personal property to be insured - Desired amounts of insurance can be selected - Broader coverage can be obtained - Most floaters cover insured property anywhere in the world - Inland marine floaters are often written without a deductible

What is HO-4 (contents broad form) Insurance?

Covers a tenant's personal property on a named perils basis - Not applicable to dwelling or other structures

What is HO-6 (unit owners form) Insurance?

Covers personal property on a named perils basis - a minimum of $5,000 of insurance is also provided on the condominium unit that covers improvements and additions

What is HO-3 (Special Form) Insurance?

Covers the dwelling and other structure on a risk-of-direct-physical loss basis. - All direct physical losses are covered except those losses specifically excluded - Personal property is covered on a named peril basis

What happens if the dwelling or other structural units are insured for less than 80% of the replacement cost?

The insured receives the larger of: 1. The Actual Cash Value of that part of the building damaged or 2. (Amount of Insurance Carried / 80% of Replacement Cost ) * Loss

What can occur when a "loss to a pair or set" occurs?

The insurer can elect either repair or replace any part of the pair or set or to pay the difference between the actual cash value of the property before and after the loss

Section I Conditions:

The insurer's liability for a loss is limited to the insured's insurable interest at the time of loss A deductible of $250 applies to any loss covered by section I Coverage - premiums can be reduced by increasing the deductible - In states that are vulnerable to natural catastrophe's, insurers can use percentage deductibles

What is a 'Personal Umbrella Policy'?

The personal umbrella policy provides protection against a catastrophic lawsuit or judgement - certain minimum amounts of liability insurance must be carried on the underlying contracts - Coverage is broad and includes protection against certain losses not covered by the underlying contracts - A self-insured retention must be satisfied for losses covered by the umbrella policy but not by any underlying contract

National Flood Insurance Program:

The program was designed to be self-supporting for the average historical loss year - Problems with the program and a $18 million deficit led to short-term exclusions and a call for reform - Congress revised and extended the program for five years in 2012 and revised it again in 2014 - Federal law requires individuals to purchase flood insurance if they have federal guaranteed financing guild, buy, refinance, or repair structures located in special hazard flood areas.

What is the 'Scheduled Personal Property Endorsement (with agreed value loss settlement)'?

The scheduled personal property endorsement (with agreed value loss settlement) provides additional coverage for nine classes of property and the insurer agrees to pay the stated amount for a schedule item if a total loss occurs Classes of Property: 1. Jewelry 2. Furs 3. Cameras 4. Musical Instruments 5. Silverware 6. Golfer's equipment 7. Fine arts 8. postage stamps 9. rare & Current coins

Section II Coverages - Coverage E:

Coverage E protects the insured when a claim or suit for damages is brought because of bodily injury or property damage allegedly caused by an insured's negligence - the coverage is broad and based on legal liability - The policy contains a per-occurrence limit - An occurrence is defined as an accident which results in bodily injury or property damage during the policy period - The insurer provides for a legal defense, even if the suit is frivolous or fraudulent

Tips for Buying a Homeowners Policy

1. Carry adequate insurance 2. add necessary endorsements 3. Shop around for a homeowners policy 4. Consider a higher property insurance deductible 5. Take advantage of discounts 6. Don't ignore floods and earthquake 7. Improve your credit record 8. Consider purchasing a person umbrella policy

Section I Excluded Causes of Loss:

1. Concurrent causation losses 2. Any loss due to an ordinance or law, except as described in additional coverages 3. Losses due to earth movement 4. Certain water losses 5. Losses due to neglect, power failure, or faulty design 6. Losses which are intentional 7. Losses due to war, government action, failure to act, or nuclear hazard 8. Losses due to certain weather conditions

What are exclusions that only apply to Coverage E?

1. Contractual liability 2. Property owned by the insured 3. Property in the care of the insured, with some exceptions 4. Workers compensation 5. Liability arising out of nuclear energy 6. Bodily injury to an insured

What are some Homeowners policy endorsements that can be purchased?

1. Inflation-guard endorsement 2. Earthquake coverage endorsement 3. Personal property replacement cost less settlement endorsement 4. The scheduled personal property endorsement 5. A personal injury endorsement 6. Watercraft endorsement 7. Home business insurance coverage endorsement 8. Identity theft endorsement

Some Exclusions apply to both Coverage E and Coverage F including:

1. Liability arising out of the use of an auto, certain watercraft, aircraft, or hovercraft 2. Expected or intentional injury 3. Business activities, with some exceptions 4. Professional services 5. Liability arising out of the use of an uninsured location 6. War on other hostile military acts 7. Liability arising out of the transmission of a communicable disease 8. Bodily injury or property damage arising out of sexual molestation, corporal punishment, or physical or mental abuse 9. Liability arising out of the use, sale, manufacture, delivery, transfer, or possession of controlled substances.

Special Limits of Liability:

1. Money, bank, note, bullion, gold, silver, platinum, coins, medals, stored value card and smart cards: $200 2. Securities, valuable papers, manuscripts, personal records, passports and tickets and stamps: $1,500 3. Water craft: $1,500 4. Theft of, watches, fur, and precious stones: $1,500 5. Trailers not used with watercraft: $1,500 6. Theft of fire arms and related equipments: $2,500 7. Theft of silverware, goldware, platinumware and pewterware: $2,500 8. Property on the residence premises used primarily for business purposes: $2,500 9. Property away from residence premises used for business purposes: $1,500 10. portable electronic equipment that reproduces, receives or transmits audio, visual and data signals and is designed to be operated by more than one power source and is in or upon a motor vehicle: $1,500 11. Antennas, tapes, wires, records, disks, and other media that are used with electronic equipments that reporduces, receives, or transmits audio or visual signals and is in or upon a motor vehicles: $250

Title Insurance:

A title insurance policy provides protection against title defects that have occurred in the past, prior to the effective date of the policy - The insurer assumes no losses will occur - the premium is paid only once when the policy is issued - the policy term runs indefinitely into the future - If a loss occurs, the insured is indemnified in dollar amounts up to the policy limits (UP TO PURCHASE PRICE)

What is a 'watercraft endorsement'?

A watercraft endorsement provides liability and medical payments coverage on any inboard or inboard-outdrive powered watercraft; sailing vessels 26+ feet in length; and watercraft powered by one or more outboard motors exceeding 25 total horsepower

How are losses to personal property paid on basis?

Actual Cash Value ***If the insured purchases a replacement cost endorsement, there is no deduction for depreciation

Under the Emergency Program, what states have higher limits of building coverage?

Alaska, Hawaii, The U.S. Virgin Islands and Guam

What is an 'Earthquake Coverage Endorsement'?

An earthquake coverage endorsement covers earthquakes, landslides, volcanic eruption, and earth movement

What is an 'Identity theft endorsement'?

An identity theft endorsement reimburses crime victims for the cost of restoring their identity and cleaning up their credit report

What is an 'Inflation-guard Endorsement'?

An inflation-guard endorsement provides for an annual pro rata increase in the limits of insurance in the Section I coverage

Inland Marine Floaters:

An inland marine floater provides broad coverage on property frequently moved from one location to another and on property used in transportation and communications.

Section II Conditions:

An insured may not sue the insurer unless the insured has complied with the conditions required in Section II The insurance is excess over other valid and collectible insurance No coverage is provided to an insured who concealed or misrepresented any circumstance or material fact or engaged in fraudulent conduct.

Mobile Home Insurance:

Coverage A: covers the mobile home on a replacement cost basis Coverage B: insures other structures Coverage C: Insures unscheduled personal property Coverage D: Insures loss-of-use ***Additional Coverage pays up to $500 for the cost incurred in transporting the mobile home to a safe place to avoid damage when it is endangered by a covered peril, such as a fire Coverage E & F: Provide for comprehensive personal liability insurance and medical payments to others

What is Coverage B?

Coverage B insurers other structures on the residence premises - includes a detached garage, tool shed, etc.. - structures that are rented out or used for business are excluded - the amount of coverage is based on the amount of insurance in coverage A

National Flood Insurance Program:

Buildings and their contents can be covered by flood insurance if the community agrees to adopt and enforce sound flood control and land use measures - a flood hazard boundary map shows the general area of flood losses - Resident can purchase limited amounts of insurance at subsidized rates under the emergency portion of the program

What is Coverage C?

Coverage C insures personal property owned or used by an insured - personal property is covered anywhere in the world, both on and off the premises - The amount of coverage is 50% of Coverage A, but can be increased if desired - Coverage fro personal property at another residence, such as a vacation home, is limited to 10% of Coverage C or $1,000, whichever is greater - Certain types of personal property have maximum dollar limits on the amount paid for any loss ****Excludes: articles separately described, animals, birds, fish, motor vehicles, aircrafts, hovercraft and parts, property of roomers and other tenants, property in a regularly rented apartment, property away from the premises that is rented, business data, credit cards, water

What is Coverage D?

Coverage D provides protection when the residence premises cannot be used because of a covered loss - Coverage is 30% of Coverage A - Additional living expenses is the increase in living expenses actually incurred by the insured to maintain the family's standard of living - The policy pays the Fair Rental Value for that part of the residence that is rented to others, but is not fit to live in. - Coverage applies if the home is not damaged, but a civil authority prohibits the insured from using the premises

Sections I & II Conditions:

Conditions that apply to both Section I & II include: 1. a liberalization clause to address issues with broadening coverage 2. A waiver or change of policy provisions 3. Terms and conditions for cancellation 4. Terms for nonrenewal of the policy 5. Assignment of the policy to another party 6. A subrogation clause to address recoveries form third parties 7. Extension of policy terms to a legal representative upon the death of the named insured or spouse

Title Insurance - Defects:

Consumer advocates argues that the title insurance market has several major defects: 1. Homeowners do not shop around for title insurance 2. Home buyers are over-charged for title insurance 3. The title insurance market is flawed as title insurers spend money to induce real estate agents and lenders to steer purchasers to specific title agents 4. Although illegal, kickbacks to real estate agents, lenders and builders are widespread.

What is Coverage A?

Coverage A covers the dwelling on the residence premises and any structure attached to the dwelling - materials intended for construction are included - the coverage specifically excludes land

Section I Coverages:

Coverage A: Dwelling Coverage B: Other Structures Coverage C: Personal Property Coverage D: Loss of Use

ISO Dwelling Program - Dwelling Property 1 (Basic Form):

Dwelling Property 1 (Basic Form) provides coverages similar to the Homeowners policy - Coverages A & B insure the dwelling and other structures - Coverage C covers personal property - Coverage D covers the Fair Rental Value if part of the dwelling is rented - Coverage E can be added to provide coverage for additional living expenses Only a limited amount of named perils apply to both the dwelling and the personal property All covered property losses are paid on an ACTUAL CASH VALUE basis, with some exceptions

ISO Dwelling Program - Dwelling Property 2 (Broad Form):

Dwelling Property 2 (Broad Form) cover losses to the dwelling and other structures on a replacement cost basis - The list of named perils is expanded

ISO Dwelling Program - Dwelling Property 3 (Special Form):

Dwelling Property 3 ( Special Form) covers the dwelling and other structures on an "open perils" basis

How are losses to dwelling and other structures paid?

Dwelling and other structural losses are paid on a replacement cost basis - If the dwelling is insured for at least 80% of the replacement cost at the time of loss, partial losses are paid in full - Replacement cost is the amount of necessary to repair or replace the dwelling with material of like kind and quality at current prices

What is the 'Homeowner Flood Insurance Affordability Act of 2014' and what was it enacted for?

Enacted in response to large premium increases Key Provisions: 1. Lowering some premium increases and prevent some future increases 2. Attaching a $25 surcharge to every flood insurance policy on a primary residence to help fund the deficit 3. Requiring FEMA to consider loss mitigation efforts when determining premiums

Cost of Homeowners Insurance

Insurers also use reports that reveal the prior claim history of a home. - A Comprehensive Loss Underwriting Exchange (CLUE) report shows up to 7 years of information on property claims, including the date of loss, type of loss and amounts paid. - The use of CLUE reports are controversial

Personal Umbrella Policy:

Insurers can use a standard personal umbrella policy developed by the ISO. - The policy pays for damages in excess of the retained limit for bodily injury, property damage, or personal injury for which the insured is legally liable - The policy covers some additional expenses including the legal defense costs - Exclusions include liability for expected or intentional injury, certain personal injury losses, business liability, and professional services

Section II Conditions - Limits of Liability:

Limit of Liability: - The insurer's total liability under coverage E for all damages arising from one occurrence will not be more than the limit shown in the declarations - The insurer's total liability for medical expenses for bodily injury to one person resulting from an accident will not exceed the coverage F limit shown in the declarations

Personal Liability Insurance

Personal liability insurance protects the name insured and family members against legal liability arising out of their personal acts - the insurer pays amount for which the insured is found legally liable, up to the policy limits - The insurer also pays defense costs - The coverage is found in Section II of the homeowners policy

What is HO-5 (Comprehensive Form) Insurance?

Provides open perils coverage ("all risks coverage") on the dwelling, other structures and personal property - All direct physical losses are covered except those losses specifically excluded

What is the 'ISO Dwelling Program'?

Some dwellings that are ineligible for coverage under the HO policy can be insured under an ISO DWELLING POLICY. - The forms are narrower in coverage - The forms do not include coverage for theft or personal liability without appropriate endorsements

Government Property Insurance Programs:

Some government insurance programs are necessary because certain perils are difficult to insure privately - coverage may not be available or may not be affordable

What is the 'Biggert-Waters Act of 2012' and what are some key provisions?

The Biggert-Waters Act of 2012 extends the NFIP program through september of 2017 Key Provisions: 1. Rate subsidies on certain properties are phased out over four years 2. Annual premium rate increases of up to 20% are allowed 3. A reserve fund is created to help fund claims in years when catastrophic losses occur

Flood Insurance - The Dwelling Form:

The Dwelling Form is used to insure 1-4 family residential buildings and single family dwelling units in a condo building.

Flood Insurance - The General Property Policy Form:

The General Property Policy Form is used to insure five or more family residential buildings and nonresidential

Who drafts homeowners insurance forms?

The Insurance Services Office (ISO)

National Flood Insurance Program:

The National Flood Insurance Program provides insurance coverage to property owners in flood-prone areas - Flood insurance is purchased from agents or brokers who represent private insurers - Under the 'Write-your-own program', private insurers sell federal flood insurance under their own names, collect the premiums, and receive an expense allowance - The federal government is responsible for all underwriting losses - The program is administered by the Federal Emergency Management Agency (FEMA)

Inland Marine Floaters - Personal Articles Floater (PAF):

The Personal Articles Floater (PAF) is an inland marine floater that provides comprehensive protection on valuable personal property. - Can be written as a stand-alone contract - The PAF insures certain classes of personal property on an "open perils" basis - The coverage can also be added as a "Scheduled Personal Property Endorsement" to an HO policy.

Flood Insurance - The Residential Condo Building Association Policy Form:

The Residential Condo Building Association Policy Form is issued to residential condo associations on behalf of association and unit owners

FAIR plans:

The Urban Property and Reinsurance Act of 1968 created FAIR Plans (Fair Access to Insurance Requirements) - plans provide coverage to urban property owners who are unable to obtain coverage in the standard market - Plans cover property for fire and extended-coverage perils, vandalism, and malicious mischief - A building insured under a FAIR plan must meet certain underwriting standards - A state with a FAIR plan creates a pool or syndicate of private insurers to provide basic property insurance

When is an 'Appraisal Clause' used?

The appraisal clause is used when the insured and insurer agree that the loss is covered, but the amount of loss is in dispute

Section I Perils Insured Against:

The dwelling and other structures are insured for all direct physical losses unless specifically excluded Specific Exclusions: 1. Collapse 2. Freezing 3. Fences, pavement, patio, and similar structures 4. Dwelling under construction 5. vandalism and malicious mischief 6. Mold, fungus, and dry rot 7. Wear and tear, mechanical breakdown Personal property is insured for a direct physical loss if it is caused by one of the perils listed in the policy. - The peril must be the proximate cause of the loss - Named perils include fire, windstorm, or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism, falling object Coverage for Theft is broad but with these exclusions: 1. Theft by an insured 2. Theft in or to a dwelling under construction 3. Theft from any part of the premises rented to someone other than an insured

Analysis of the HO-3 Policy:

The following persons are considered "insureds" under the policy: 1. Named insured and spouse 2. Resident relatives 3. Other persons under age 21 4. Full-time student away from home Section II coverage also includes: 1. Any person legally responsible for covered animals or watercraft 2. With respect to a motor vehicle covered by the policy, persons employed by the name insured

Section II Additional Coverages:

The homeowners policy automatically includes several additional coverages: 1. Claims Expenses (court fees) are covered in addition to the policy limits for liability damages 2. The insurer pays any first-aid expenses incurred for bodily injury covered under the policy 3. Damage to property of others pays up to $1,000 per occurrence for property damage caused by an insured, with some exclusions 4. Certain loss assessments are covered up to $1,000

What happens under a 'Guaranteed Replacement Cost Policy'?

The insure agrees to replace the home exactly as it was before the loss even if the replacement cost exceeds the amount of insurance stated in the policy

What is 'Title Insurance'?

Title Insurance protects the owner of property or the lender of money for the purchase of property against unknown defect in the title to the property under consideration - if there is a defect in a title, the owner could lose the property to someone with a superior claim - Examples of defects to the title include an invalid will, incorrect description of the property, and undisclosed liens

Mobile Home Insurance:

Under the ISO program, Mobile Home Insurance is written by adding an endorsement to an HO-2 or HO-3 policy - the mobile home must be at least 10 feet wide and 40 feet long, and capable of being towed on its on chassis The coverages are similar to those found in a homeowners policy

What is HO-2 (Broad Form) Insurance?

covers the dwelling, other structures and personal property on a named peril basis

What is HO-8 (modified coverage form) Insurance?

designed for older homes - dwelling and other structures are based on the amount required to repair or replace using common construction materials and methods

What right does the insurer have when the insured gives notice of loss?

the insurer has the right to repair or replace any part of damaged property with like property

If other insurance covers a Section I loss...

the insurer will only pay the proportion of the loss that its limit of liability bears to the total amount of insurance covering the loss

What is the 'Mortgage Clause'?

the mortgage clause is designed to protect the mortgage's insurable interest Only losses that occur during the policy period are covered Concealment or misrepresentation of any material facts, fraud, and false statement relating to the insurance will void the insurance clause