Homeowners Policies Part 1 & 2 & Dwelling

Coverage B—Other Structures

"Other structures" coverage protects structures on the residence premises that are not attached to the dwelling, such as a gazebo, detached garage or tool shed, driveway, swimming pool, or fence.

An "insured location" is the residence premises and may include:

-parts of other premises and structures listed in the declarations or acquired during the policy period premises that the insured uses in connection with an insured location -part of a premises that the insured temporarily lives in but does not own -vacant land -land on which a residence is being built for an insured -cemetery plots or burial vaults belonging to an insured -part of a premises occasionally rented to an insured but not for business purposes

It does not cover:

-structures rented to someone who is not a tenant of the dwelling, unless used only as a private garage -structures in which a business is operated -structures that store business property unless the business property is owned by an insured or a tenant of the dwelling

Section I of the Homeowners Policy —Property Coverages - This discussion of covered property describes the Homeowners Policy Special Form 3 (HO 3), the most popular form. This policy covers:

-the dwelling (Coverage A) -other structures (Coverage B) -personal property (Coverage C) -loss of use (Coverage D)

Bodily Injury

Liability insurance term that includes bodily harm, sickness, or disease, including resulting in death

Policy Period

The homeowners policy only covers losses that occur or begin during the policy period.

Damage

a term not defined in the policy—differs from the term "damages," which is a monetary payment to someone who suffered a loss or damage.

A package policy

combines two or more coverages. In this case, it combines property and liability insurance.

No Benefit to Bailee

the insurer will not cover any party that holds, stores, or moves property for a fee.

Business

"Business" refers to a full-time, part-time, or occasional trade, profession, or occupation as well as other activities a person engages in for money or other compensation of at least $2,000 per year.

Example

"Damage" refers to the loss, injury, harm, or deterioration that a person's negligence, act, or accident causes to another's person or property. However, the plural "damages" refers to money paid to compensate someone who has suffered a loss, disadvantage, or injury to his or her person, property, or rights through another's unlawful act, omission, or negligence.

Motor Vehicle

"Motor vehicle" is a self-propelled vehicle or trailer connected to it. This definition includes not only automobiles but also motorcycles, self-propelled lawn mowers, and even motorized wheelchairs.

Occurrence

"Occurrence" is an accident that results, during the policy period, in bodily injury or property damage. An occurrence can include losses from continuous or repeated exposure to a harmful condition.

Property Damage

"Property damage" is physical injury to, destruction of, or loss of use of tangible property. Tangible property has physical form, such as a house or car.

Insured Location and Residence Premises

"Residence premises" is the single-family dwelling where the named insured lives; any multiple-family dwelling where the named insured lives; and the part of any other building where the named insured lives, if it is listed as the residence premises on the declarations. It also includes other structures or grounds where the insured lives.

We, Us, and Our

"We," "us," and "our" refer to the insurance company.

You, Your, and Insured

"You" and "your" refer to the named insured and spouse, whether or not the spouse is named -The term can also include household residents, children who are students living away from home, and people responsible for animals, watercraft, or motor vehicles.

Collapse

-For coverage to apply, all or part of the building must fall down or cave in. Coverage does not apply to structural deterioration. The collapse must also prevent the named insured from living in the dwelling. -The policy covers direct physical loss caused by one of the named perils that apply to personal property or by hidden decay; hidden insect or vermin damage; weight of contents, equipment, animals, people, or rain on a roof; or defective construction or building materials.

Additional Coverages The policy provides several additional property coverages, some of which are subject to sublimits:

-debris removal -reasonable repairs -loss of or damage to trees, shrubs, and other plants -fire department service charge -property removal -credit card, electronic fund transfer card or access device, forgery, and counterfeit money -assessment against the insured for a loss shared by an -association of property owners -collapse of a building -breakage of glass or safety glazing material -loss of landlord's furnishings -increased costs arising from enforcement of ordinance or law -loss of or damage to grave markers

Trees, Shrubs, and Other Plants Tree, shrubs, plants, or lawns on the premises are covered for up to 5 percent of the dwelling limit, limited to $500 per item for loss by:

-fire or lightning -explosion -riot or civil commotion -aircraft -vehicles not owned or operated by someone living at the insured residence -vandalism or malicious mischief -theft (However, the natural perils most likely to damage this property—windstorm, hail, and weight of ice, sleet, or snow—are not among these covered perils.)

Water Damage or Water Exclusion The water damage or water exclusion is essentially a flood exclusion. It precludes coverage for damage by water or waterborne material, including:

-flood, surface water, and waves (including tidal waves and tsunamis), tides, tidal water, overflow of any body of water, or spray from any of these, regardless of whether the water is driven by wind or a storm surge -perils related to water damage, regardless of whether driven by wind -water that backs up through sewers or drains or which overflows or is discharged from a sump or related device -water from below the surface of the ground (such as might leak or flow through a building, foundation, sidewalk, driveway, patio, or swimming pool) Such water damage is excluded whether from natural or artificial causes. However, any type of direct loss by fire, explosion, or theft resulting from water damage is covered.

Property Only Conditions Section I—Property Conditions of the homeowners form has 18 property conditions:

-insurable interest and limit of liability -duties after loss -loss settlement -loss to a pair or set -appraisal -other insurance and service agreement -suit against insurer -repair or replace option -loss payment -abandonment of property -mortgage clause -no benefit to bailee -nuclear hazard clause -recovered property -volcanic eruption period -policy period -concealment or fraud -loss payable clause

Property Not Covered Eleven types of property are excluded under Section I—Property Coverages:

-items insured by another insurance policy animals, birds, or fish -motor vehicles, including accessories, equipment, and parts. However, they are covered if they are not required to be registered for use on public roads or property and when they are used only in an insured's residence or to help the handicapped. -aircraft (and parts) designed to carry people or cargo -hovercraft (and parts) -personal property of roomers, boarders, and other tenants, unless the tenant is related to an insured -personal property in an apartment that the insured regularly rents to others, although the policy gives limited protection to the landlord's furnishings -property rented to others away from the residence premises -business data -credit cards, electronic fund transfer cards, or access devices used only to deposit, withdraw, or transfer funds. However, the policy provides $500 for losses arising from their use in certain circumstances. -water and steam

Property and Liability Conditions Seven homeowners policy conditions determine whether coverage applies for property and liability losses:

-liberalization clause -waiver or change of policy provisions -cancellation -nonrenewal -assignment -subrogation -death

The following are typical sublimits for each loss and vary among policies:

-money and related items: $200 -securities, accounts, deeds, and related items: $1,500 -watercraft, including their trailers, furnishings, equipment, and engines: $1,500 -all other trailers: $1,500 -jewelry, watches, furs, and gems: $1,500 -firearms and related items: $2,500 -silverware and related items: $2,500 -business property on the insured's premises: $2,500 -business property away from insured's premises: $1,500 -portable electronic equipment that can be powered by a motor vehicle: $1,500 -antennas, compact discs, and other media in a motor vehicle: $250

Exclusions That Apply to Dwellings, Other Structures, Personal Property, and Loss of Use Coverages The HO 3 form has nine exclusions that affect the four property coverages—dwelling (Coverage A), other structures (Coverage B), personal property (Coverage C), and loss of use (Coverage D):

-ordinance or law -earth movement -water damage/water exclusion -power failure -neglect -war -nuclear hazard -intentional loss -governmental action

Selected Endorsements Endorsements may be added to a homeowners policy to extend its coverage. Popular endorsements include:

-watercraft -personal property replacement cost loss settlement -scheduled personal property endorsements -earthquake -limited fungi, wet or dry rot, or bacteria coverage -identity fraud expense coverage

Concurrent Causation Exclusions Three more perils are excluded with respect to the dwelling and other structures:

-weather conditions -acts, failure to act, decisions, and failure to decide faulty or inadequate:planning, surveying, and related actions design, specifications, workmanship, or construction materials used in construction or repair maintenance

Civil Authority Prohibits Use Coverage

A civil authority—such as a federal, state, or local government agency, or the state police—can prohibit residents from living in their undamaged residences located in a damaged neighborhood or community. The insured's additional living expenses and lost rents are covered for up to two weeks.

Concurrent causation

A doctrine originating in a 1973 California Supreme Court case, which held that, when a covered risk and an excluded risk constitute "concurrent proximate causes", of an accident "the insurer is liable so long as one of the causes is covered by the policy".

Insurable Interest and Limit of Liability

A party cannot collect insurance benefits that exceed the amount of its insurable interest in the property at the time of the loss.

Outline of the ISO Homeowners 3—Special Form

Agreement Definitions Deductible Section I—Property Coverages Coverage A—Dwelling Coverage B—Other Structures Coverage C—Personal Property Coverage D—Loss of Use Additional Coverages Section I—Perils Insured Against Coverage A—Dwelling and Coverage B—Other Structures Coverage C—Personal Property Section I—Exclusions Section I—Conditions Section II—Liability Coverages Coverage E—Personal Liability Coverage F—Medical Payments to Others Section II—Exclusions Section II—Additional Coverages Section II—Conditions Sections I and II—Conditions

Employee and Residence Employee

An "employee" works for an insured but is not a "residence employee." A residence employee fulfills duties related to the residence premises, such as a gardener, maid, butler, nanny, or cook.

Assignment

An assignment transfers the rights of a party to a contract to a third party. The assignment condition invalidates any assignment of the policy unless the insurer agrees to the assignment in writing.

Nonrenewal

An insurer normally renews a homeowners policy when it expires. However, the insurer may refuse to renew the policy by delivering a nonrenewal notice to the named insured or mailing it to the address listed in the declarations before the current policy expires.

Insurance Services Office, Inc. (ISO)

An organization that collects statistical data, promulgates rating information develops standard policy forms and files information with state regulators on behalf of insurance companies that purchase its services.

Waiver or Change of Policy Provisions

Any waiver or change to the policy must be in writing by the insurer to be valid. Normally, an insurer changes a policy by adding a written endorsement.

Example

Arthur owns a house that has an ACV of $500,000. To get full replacement cost coverage on the home in the event of a partial loss, he must buy a policy with a limit of at least $400,000. However, he buys a policy with a limit of $350,000, which means there will be a coinsurance penalty. His deductible is $1,000. In case of a partial loss, the insurer will pay the policy limit divided by 80 percent of the replacement cost, multiplied by the amount of the loss, less the deductible. So if Arthur's home suffers a partial loss valued at $200,000, the policy will pay for its restoration as follows: Step 1: $350,000 ÷ $400,000 = 0.875 Step 2: $200,000 × 0.875 = $175,000 Step 3: $175,000- $1,000 = $174,000 Arthur will receive $174,000 from the insurance company, not the $199,000 he would have received had he met the coinsurance requirement. In this case the coinsurance penalty is $25,000.

Cancellation

Cancellation is the termination of a policy before its scheduled expiration date. The policy specifies when, how, and by whom the policy may be canceled. These provisions may be modified by state-specific endorsements.

Coverage A—Dwelling

Coverage A covers the named insured's dwelling, namely, the house. It also covers structures attached to the dwelling, such as an attached garage or tool shed. Items permanently attached to the dwelling ("fixtures"), such as a central air-conditioning system or wall-to-wall carpeting, are part of the dwelling. Construction materials located on or next to the premises that will be used to build, alter, or repair the dwelling or other structures are also considered part of the dwelling.

Homeowners Policy Special Form 3(HO 3)

Dwelling and other structures on an open perils basis; personal property on a named perils basis (16 specified perils); loss of use, personal liability, and medical payments.

Homeowners Policy Broad Form 2 (HO 2)

Dwelling, other structures, and personal property on a named perils basis; loss of use, personal liability, and medical payments.

Homeowners Policy Comprehensive Form 5 (HO 5)

Dwelling, other structures, and personal property on an open perils basis; loss of use, personal liability, and medical payments. The broadest homeowners coverage.

Ensuing Loss Exception

Ensuing loss resulting from the "wear and tear" group of perils is covered. For instance, if rodents chew the insulation on electrical wires inside a wall of the insured's home, the damage to the wires is excluded. But if one of the damaged wires causes a fire, the damage from the fire (a covered peril) is covered.

Homeowners Modified Form 8 (HO 8)

For older homes when their replacement cost may substantially exceed their market value: dwelling and other structures based on the amount needed to repair or replace the property using common construction materials and methods; loss of use, personal liability, and medical payments.

Homeowners Policy Unit Owners Form 6 (HO 6)

For owners of condominiums and cooperative apartments: personal property on a named perils basis, limited dwelling coverage (for improvements, betterments, and items of real property pertaining exclusively to the residence premises), loss of use, personal liability, and medical payments.

Homeowners Policy Contents Broad Form 4 (HO 4)

For tenants of houses or apartments: personal property on a named perils basis, loss of use, personal liability, and medical payments. No dwelling or other structures coverage except for building additions and alterations paid for by the insured.

Homeowners Policy Fundamentals

Homeowners insurance comes in a package policy that combines property and liability insurance. Six different homeowners forms are in current use. These forms differ only in the way they insure property. Liability coverage, which appears as Section II in all six forms, is identical.

Conditions and Selected Endorsements

Homeowners insurance policy conditions can affect property, liability, or all coverages. Policy endorsements may modify coverage of property, liability, or both.

Dwelling

Homeowners insurance term denoting the structure on the residence premises that is listed in the declarations and used principally as a private residence including attached structures. Examples of attached structures include carports and patio roofs.

Identity Fraud Expense Coverage (HO 04 55)

Identity fraud is the act of knowingly transferring or using an insured's identity with the intent to commit, or to aid another party to commit, any illegal activity. This fraud often involves the unauthorized use of the victim's Social Security number and other personally identifiable information. This endorsement provides coverage for up to $15,000 in expenses for a loss arising out of identity fraud, subject to a $250 deductible. Expenses include notarization costs, lost income, loan application fees, attorney fees, and long-distance phone charges.

Death

If a person named in the declarations or the resident spouse dies, the policy covers the legal representative of the deceased for the insured premises and property of the deceased.

Concealment or Fraud

If any insured intentionally conceals or misrepresents any material fact or circumstance, engages in fraudulent conduct, or makes false statements related to the homeowners policy, coverage is excluded for all insureds.

Appraisal

If the insurer and the named insured cannot agree on the loss payment amount, either party can invoke the appraisal process described in the policy to determine this amount.

Liberalization Clause

If the insurer broadens the policy's coverage without increasing the premium, the change automatically takes effect on the date of the change, as long as the change occurs within 60 days before or during the policy period. This clause does not apply to a general revision of a policy that both broadens and restricts coverage.

Power Failure Exclusion

Loss arising from a power failure occurring off the premises is excluded. However, any ensuing loss caused by a covered peril is covered.

Coverage D—Loss of Use

Loss of use coverage protects a policyholder whose residence premises cannot be used because of an insured loss. It provides three benefits: -additional living expense -fair rental value -prohibited use

Loss Assessment

Many homeowners belong to an association of property owners. If the association's coverage is inadequate or unavailable to cover a property loss, association members may be assessed to pay for the damage. The policy will pay up to $1,000 for these assessments.

Ordinance or Law

Municipal building codes often affect the repair of a damaged structure, especially an older one. The policy gives limited coverage for additional costs of compliance with current ordinances or laws if a covered peril causes the loss. -A limited amount of coverage—up to 10 percent of the limit on the dwelling—applies to increased construction, demolition, remodeling, renovation, or repair costs due to the enforcement of an ordinance or law. This coverage also pays for removal of debris from these activities.

Coverage C—Personal Property

Personal property includes more than the items in a dwelling, such as a television, washing machine, or clothing. Personal property includes items located outdoors, such as patio furniture or a lawn mower.

Credit Card, Electronic Fund Transfer Card, or Access Device, Forgery, and Counterfeit Money

Subject to restrictions and a $500 limit, this provision protects against unauthorized use of a credit card or electronic fund transfer (debit) card, forgery of a check or negotiable instrument, and use of counterfeit money.

Residence Premises

The "residence premises" is the single-family dwelling the named insured resides in; any two-, three-, or four-family dwelling where the named insured resides in at least one of the units; and the part of any other building in which the named insured lives, if the declarations list it as the residence premises.

Personal Property Subject to Sublimits

The homeowners form limits coverage for 11 types of property. These are sublimits that further restrict the usual coverage limits. They apply to property that is of higher value and attractive to thieves.

Coinsurance: The 80 Percent Rule

The homeowners insurance form provides replacement cost coverage on buildings, with no deduction for depreciation, if the insured buys a limit of insurance that is equal to at least 80 percent of the actual cash value (ACV) of the building at the time of the loss. (Note that "actual cash value" is often defined as the building's current fair market value.) Then the insurer's actual payment will be the lowest of the: -limit of insurance that applies to the building -replacement cost of the damaged portion of the building, with material of like kind and quality and for like use -amount spent to repair or replace the damaged building

Duties After Loss

The insured has certain duties after a loss. If the insured fails to fulfill these duties and this failure weakens the insurer's ability to resolve the claim, the insurer can deny coverage.

Loss Payment

The insurer agrees to adjust the loss with the named insured unless another party is named in the policy (e.g., a mortgagee) and has the right to receive payment for the loss.

Repair or Replace Option

The insurer can repair or replace any damaged or stolen property instead of paying the insured for the loss, as long as the insurer gives the insured written notice within 30 days after getting the insured's proof of loss.

Subrogation

The insurer has the right to recover damages from a third party when the insurer has paid the insured for the loss. Through subrogation, the insurer asserts any claims that the insured had against the third party. This subrogation provision does not apply to medical payments coverage or damage to property of others coverage.

Loss Payable Clause

The insurer may pay proceeds to a party, other than the named insured, who has a security interest in the insured property. If the policy is canceled or nonrenewed, the insurer must notify that party in writing.

Abandonment of Property

The insurer need not accept property that the insured abandons. The insured remains responsible for the property unless the insurer agrees to take responsibility for it.

Debris Removal

The insurer will pay for debris removal if a covered peril causes the loss or any volcanic ash damages the covered home or personal property. The insurer may also pay $500 to $1,000 for each fallen tree owned by the insured that must be removed from the premises due to wind, hail, or the weight of ice, snow, or sleet. This payment also covers removal of a neighbor's tree from the insured's premises.

Reasonable Repairs

The insurer will pay for reasonable expenses to protect covered property from further damage following initial damage by a covered peril.

Mortgage Clause

The mortgage (mortgagee) clause protects creditors, such as banks and home loan institutions, that make loans secured by the insured property.

Loss to a Pair or Set

The pair or set clause applies to the loss of an item that is part of a pair or set. The insurer can either: repair or replace any part to restore the pair or set to its value before the loss pay the difference between the actual cash value of the property before and after the loss. This clause typically pertains to personal property, such as to a matching set of drapes, chairs, cufflinks, or earrings.

Landlord's Furnishings

The policy covers up to $2,500 in losses to appliances, carpeting, and other household furnishings, in each apartment on the residence premises regularly rented or held for rental to others. However, the loss must be caused by a covered personal property peril other than theft.

Grave Markers

The policy covers up to $5,000 of a loss from a covered peril to grave markers on or away from the residence premises.

Fire Department Service Charge

The policy pays up to $500 for fire department charges incurred when the fire department is called to protect property from a covered peril.

Watercraft

The standard homeowners policy offers little in the way of protection for watercraft. The typical policy has a sublimit of $1,500 for losses to watercraft, including their trailers, furnishings and engines, and provides coverage from covered perils only while the boat is docked.

Earthquake (HO 04 54)

The unendorsed homeowners insurance policy does not cover earthquake losses. This endorsement covers this peril for the dwelling, other structures, and personal property. All events that occur within a 72-hour period constitute a single earthquake incident. The earthquake endorsement excludes coverage for: exterior masonry veneer loss from flood or tidal wave, whether it was caused by, resulted from, or aggravated by an earthquake costs associated with filling land, as the result of an earthquake

Limited Fungi, Wet or Dry Rot, or Bacteria Coverage (HO 04 26 and HO 04 27)

The unendorsed homeowners insurance policy provides broad coverage for loss arising from mold. Mold growth may begin or increase from water damage. Water damage happens in a variety of ways, including the dousing of a fire, a break in a plumbing system, rain entering a building, and sprinkler leakage.

Scheduled Personal Property Endorsements (HO 04 60 and HO 04 61)

The unendorsed homeowners policy has limited coverage for certain items. A scheduled personal property endorsement expands coverage for these nine types of personal property: -jewelry -furs and garments -cameras and related items -musical instruments and related items -silverware and related items -golfer's equipment -fine arts -postage stamps -rare and current coins

Suit Against Insurer

There is a statute of limitations on the time during which an insured can sue the insurer regarding a claim. In most states, the insured cannot sue the insurer unless the insured has complied with the terms of the policy and the lawsuit begins within two years after the loss. In some states (e.g., California), the time within which an insured can file suit against the insurer is 12 months but may be extended to 24 months in the case of a state of emergency.

Concurrent Causation Exclusions

These exclusions prevent recovery for excluded perils under the legal doctrine of concurrent causation. This doctrine holds that, if a given loss has more than one cause and at least one of the causes is not excluded, the loss is covered even if the policy specifically excludes another cause of the loss.

Loss Settlement

These property losses are settled on an actual cash value (ACV) basis at the time of the loss: -personal property -awnings, carpeting, household appliances, outdoor antennas, and any outdoor equipment, whether attached to the building or not -structures that are not buildings -grave markers, including mausoleums

Scheduled Personal Property Endorsement (HO 04 61)

This endorsement does not provide agreed value loss settlement. Instead, for most types of property, the insurer will pay the lowest of the: -cost to repair the item -item's actual cash value -item's replacement cost -applicable policy limit

Scheduled Personal Property Endorsement (HO 04 60)

This endorsement offers agreed value loss settlement provisions for personal property insured under the scheduled personal property endorsement. It pays the full agreed amount specified in the schedule, regardless of any appraised value.

Personal Property Replacement Cost Loss Settlement (HO 04 90)

This endorsement settles losses to most types of personal property on a replacement cost basis, not on the unendorsed policy's standard actual cash value basis. When this endorsement is attached, the personal property coverage limit should be increased to ensure adequate coverage.

Ordinance or Law Exclusion

This exclusion eliminates coverage on the dwelling (Coverage A) and other structures (Coverage B) for extra expenses, over the cost of replacing damaged property, that are necessary to comply with building code upgrades or other ordinances. (However, the policy's ordinance or law additional coverage helps pay some of these expenses.)

Fair Rental Value Coverage

When a covered loss makes part of the residence premises that is rented to others uninhabitable, the insurer covers the fair rental value of the residence premises. Any usual expenses that stop while the residence is uninhabitable are subtracted from the insurance payment.

Additional Living Expense Coverage

When a covered loss makes the residence premises unfit to live in, the insurer covers any increased living expenses so that the household can maintain its normal standard of living while the insured residence is undergoing repair or until the named insured establishes another residence.

Recovered Property

When the property for which a claim has been made is recovered by either party or by the police, the insurer may readjust the loss. The named insured can keep the property or surrender it to the insurer. If the insured keeps the recovered property, the insurer will adjust the loss payment on the basis of the amount the named insured receives for the property.

A typical HO policy

has an insuring Agreement; Definitions; Deductible; Section I Property Coverage (which includes Coverages A, B, C, and D); Additional Coverages; Section I Perils Insured Against (under Coverages A, B, and C), Exclusions, and Conditions; Section II Liability Coverages (under Coverages E and F), Exclusions, Additional Coverages, and Conditions.

Property Removed

his coverage protects covered property from direct loss due to any cause while it is being removed from premises that is endangered by a covered peril and for up to 30 days while it is removed.

Endorsement HO 04 26

is used with HO 2, HO 4, HO 6, and HO 8.

Endorsement HO 04 27

is used with HO 3 and HO 5.

If, at the time of the loss, the amount of insurance is less than 80 percent of the actual cash value of the building just before the loss, the insurer will pay the larger of the following amounts, but not more than the policy's limit of insurance:

the actual cash value of the damaged portion of the building the proportion of the cost to repair or replace, after applying any deductible and without deducting for depreciation, the damaged part of the building which the total amount of insurance bears to 80 percent of the replacement cost of the structure

Vicarious Liability

the liability of a principal for the acts of its agents. Vicarious liability can result from the acts of independent agents, partners, independent contractors, employees and children.

impairment

the loss of a physical or mental function as a result of an injury or illness. Impairment can be temporary or permanent.

Boat-owners

the most common type of watercraft policy for individuals and families. This policy combines property, liability, medical payments and uninsured boatowners coverage. It fills the coverage gap found in most homeowner policies, particularly with regard to property coverage.

HO 3

the most popular policy form used to insure the building and contents of an owner-occupied residence.