RMI 3011 - Ch. 20 Homeowners Insurance

Coverage D: Loss of use - Prohibited use

Even if covered home is not damaged, a civil authority may prohibit the insured from using the premises because of direct damage to neighboring premises from an insured peril. The additional living expenses and fair rental value can be paid for up to two weeks. Ex: Heather may be ordered out of her home by a fire marshal because the house next door is unstable after an explosion occurred.

Sudden and accidental damage from an artificially generated electoral current

Ex: An electrical power surge that causes an electric clothes dryer to burn out would be covered.

Explosion

Ex: furnace explosion that damages personal property. Covered.

Smoke

Ex: if he fireplace malfunctions and smoke pours into the family room. Any smoke damage to the furniture, rugs or drapes is covered.

Vehicles

Ex: if suitcase, clothes and camera are damaged in an auto accident, the loss is covered. Likewise, if you carelessly back out of the garage and run over your bicycle, the loss is covered.

Weight of ice, snow or sleet.

Ex: if weight of snow causes the roof to sag, any damage to the personal property inside the house would be covered.

Acts or decisions

Exclusion applies to losses that result from the failure to act by any person, group, organization, or government body. For example: failure of govt to control flood losses, failure to develop a plan would not be covered.

Freezing of a plumbing, heating air conditioning, or automatic fire protective sprinkler system or household appliance.

Freezing not covered unless the insured used reasonable care to maintain heat in the building, or shuts off the water supply and drains the system.

Excluded losses - Freezing

Freezing of a plumbing, heating, air conditioning, or automatic fire protection sprinkler system, or household appliance is not covered unless the named insured uses reasonable care to maintain heat in the building, or the water supply is shut off and drained.

The following forms are used in the current ISO homeowners (HO) program:

HO-2 (broad form) HO-3 (special form) HO-4 (contents broad form) HO-5 (comprehensive form) HO-6 (unit-owners form) HO-8 (modified coverage form)

Persons insured (Section II)

-Any person legally responsible for covered animals or watercraft. (Coverage does not apply to person or organization having custody of animals or watercraft for business purposes, such as operator of a dog kennel or boat marina). -With respect to a motor vehicle covered by the policy, coverage applies to persons employed by the named insured or by other insureds as defined above while working for the insured. (Ex: employee mows your lawn with a riding mower that you own and someone is injured, he or she has liability coverage under your policy)

Duties after a loss:

-Give prompt notice -Protect the property -Prepare an inventory of damaged personal property -Exhibit the damaged property -File a proof of loss within 60 days after the insurer's request. Must include the time and cause of loss, interest of the insured and all others in the property..

Persons insured

-Named insured and residents of the household who are your relatives. (yourself, spouse, children, other relatives) -Other persons under age 21. (Foster child, ward of the court, foreign exchange student) -Full-time student away from home. (under age 24 and a relative of the named insured, or under 21 and in the care of the named insured or the care of a household resident who is your relative).

Excluded losses - Other exclusions

-Wear and tear, marring, deterioration -mechanical breakdown, latent defect, inherent vice (tendency of property to decompose) -Smog, rust or other corrosion, or dry rot -smoke from agricultural smudging or industrial operations -Discharge, seepage, or release is caused by a coverage C peril. -Settling, cracking, shrinking, bulging, or expansion of pavements, patios, foundations, walls, floors, roofs, or ceilings. -Animals owned or kept by an insured -Birds, rodents, or insects. -Nesting or infestation, or discharge or release of waste or secretion by animals.

Section I coverages

Coverage A: Dwelling Coverage B: Other structures Coverage C: Personal property Coverage D: Loss of use Additional coverages

Additional Coverages - Ordinance or Law

Named insured can apply up to 10% of the amount of insurance under coverage A to cover the increased costs of construction or repair because of some ordinance or law. Ex: ordinance may require the use of copper pipes rather than galvanized or plastic pipes when the pipes must be replaced after a loss.

Other exclusions:

Neglect, war, nuclear hazard, intentional loss, Governmental action.

Excluded losses - Fences, pavement, patio and similar structures

Not covered

Excluded losses - Vandalism and malicious mischief

Not covered if the dwelling is vacant for more than 60 consecutive days immediately before the loss.

Deductible

applies to each covered loss. Can be increased to reduce premiums.

Dwelling and other structures (coverage A and B)

are insured against "direct physical loss to property." This means that direct physical losses are covered except certain losses specifically excluded.

Excluded losses - Collapse

specifically excluded, except those covered under "additional coverages."

Replacement cost

the amount necessary to repair or replace the dwelling with material of like kind and quality at current prices. Ex: Home has replacement value of $250,000 and is insured for $200,000. If the home is damaged by a tornado, and repairs cost $50,000, the full $50,000 is paid with no deduction for depreciation. Maximum amount paid is $200,000.

Homeowners 5 (Comprehensive form)

insures the dwelling, other structures, and personal property against direct physical loss to property

Additional Coverages - Grave markers

Including mausoleums, are covered for up to $5,000 for loss caused by a peril insured against under Coverage C. Does not increase the limit of insurance that applies to the damaged property.

Extended Replacement Cost Endorsement

pays up to an extra 20 percent or more above the policy limits, depending on the insurer.

Coverage C: Personal Property - Property NOT covered

1. Articles separately described and specifically insured. (to avoid duplicate coverage) 2. Animals birds and fish. (Too difficult to value). 3. Motor vehicles 4. Aircrafts and parts 5. Hovercraft and parts 6. Property of roomers, boarders, and other tenants not related to insured. 7. Property in a regularly rented apartment. 8. Property rented or held for rental to others off the residence premises. (ex. bike rental business) 9. Business data. 10. Credit cards, electronic fund transfer cards, or access devices. 11. Water or steam. (water in a swimming pool, water delivered through a public water system).

Exclusions to theft away from the residence premises

1. Temporary residence. (Not covered unless insured is temporarily residing there.) - Theft of personal property of an insured student while at a residence away from home is covered if the student has been there any time during the 90 days immediately preceding the loss. 2. Watercraft. 3. Trailers, semitrailers, and campers.

Exclusions to theft

1. Theft by an insured is excluded. 2. Theft in or to a dwelling under construction. (not covered until the dwelling is completed and occupied). 3. Theft from any part of the premises rented to someone other than an insured is not covered.

What is a fire?

1. there must be combustion or rapid oxidation that causes a flame or at least a glow. 2. The fire must be hostile or unfriendly. A hostile fire is outside its normal confines. A friendly fire is right where it is supposed to be.

Additional Coverages - Collapse

An abrupt falling down or caving in of a building or any part of a building with the result that the building or part of it cannot be occupied for its intended use. Is covered only if the loss is cause by any of the following: -Perils insured against in Coverage C -Hidden decay -Hidden insect or vermin damage -weight of contents, equipment, animals, or people. -weight of rain that collects on a roof -Use of defective materials or methods in construction, remodeling or renovation if collapse occurs during course of construction.

Analysis of Homeowners 3 Policy (Special Form)

Appendix A

Weather Conditions

Applies only to weather conditions that contribute to a loss that would otherwise be excluded. Ex: Landslide damage caused by excessive rain and heavy winds is excluded.

Additional Coverages - Tree, Shrubs, and other plants

Coverage is provided only for fire lightning, explosion, riot, civil commotion, aircraft, vehicles not owner or operate by a resident of the premises, vandalism, malicious mischief, or theft. Notice windstorm is not listed. Max limit for a loss under this coverage is 5% of insurance that covers the dwelling. However, no more than $500 of that limit can be applied to any single tree, plant or shrub.

Personal property

Covered losses to personal property are settled on the basis of actual cash value at the time of loss but not to exceed the amount necessary to repair or replace the property. No depreciation rate. You should consider insuring your personal property on the basis of replacement cost.

Coverage A: Dwelling

Covers the dwelling on the residence premises as well as any structure attached to the dwelling. Ex: Home and attached garage would be insured. Specifically excludes land.

Riot or Civl Commotion

Damage to personal property from a riot or civil commotion is covered. Each state defines the meaning or a riot. Usually defined as an assembly of three or more persons who commit lawful or unlawful act in a violent or tumultuous manner.

Falling objects

Damage to personal property from falling objects is covered.

Windstorm or hail

Damage to the interior of the building and its contents because of rain, snow, sand or dust is not covered unless there is an opening in the roof or wall caused by wind or hail that allows the elements to enter. Boat is stored in the driveway of the home and is damaged by a windstorm, the loss is not covered. Unless its in a fully enclosed building.

Additional Coverages - Landlord's furnishings

Homeowners policy will pay up to $2,500 for loss to the named insured's appliances, carpets, and other household furnishings in each apartment on the residence premises that is regularly rented out or help for rental by an insured. Coverage applies to all losses caused by the perils insured against (coverage C perils), with the exception of theft. Does not increase the limit of insurance that applies to the damaged property.

Additional Coverages - Credit Card, Electronic Fund transfer card or access device, forgery, and counterfeit money

If Credit Cards are stolen or lot and used in an unauthorized manner, any loss to the insured is covered up to a maximum of $500. Likewise, loss that results from the theft or unauthorized use of an insured's electronic fund transfer card is covered. If insured accepts counterfeit money in good faith, that loss is covered too.

Coverage D: Loss of use - Additional living expense

If a covered loss makes the residence premises not fit to live in, the insurer pays the additional living expenses that the insured may incur as a result of the loss

Insurable interest and limit of liability

If more than one party has an insurable interest in the property, the insurer's liability for any one loss is limited to each insured's insurable interest at the time of loss but not to exceed the maximum amount of insurance.

Additional Coverages - Property Removal

If property is removed from the premises because it is endangered by an insured peril, direct loss from any cause is covered for a maximum of 30 days while the property is removed. Ex: Furniture being moved and stored in a warehouse because of a fire in the home

Aircraft

Including damage from self-propelled missiles and spacecraft, is covered. Ex: if a commercial jet crashes into your residence, damage to your personal property is covered.

Duties after a loss

Insured must perform certain duties after a loss occurs. The insurer has the right to deny coverage for a loss if the insured does not comply with his or her duties and such failure is prejudicial to the insurer.

Coverage B: Other structures

Insures other structures on the residence premises that are separated from the dwelling by clear space. Like a detached garage, horse stable. 10 percent of the insurance on the dwelling applies as additional insurance to the other structures. Land damage is excluded. No coverage if the other structure is rented to someone who is not a tenant of the dwelling. No coverage if business is conducted in a detached garage. Coverage on structures used to store business property owned by the insured, provided such property does not include gaseous or liquid fuel.

Homeowners 3 (special form)

Insures the dwelling and other structures against direct physical loss to property. Not covered if excluded. Paid on the basis of full replacement cost, no deduction for depreciation if certain conditions are met. Same perils for HO-2 policy

Percentage deductibles

Used by states that are vulnerable to catastrophes. Depending on the state and insurer, percentage deductibles for windstorm and hail losses, may be mandatory in some coastal areas.

Volcanic Eruption

Loss resulting from a volcanic eruption is also covered. However, losses caused by earthquakes, landshock waves, or tremors are excluded.

Proximate cause

Means there is an unbroken chain of events between the occurrence of a covered peril and damage or destruction of the property.

Dwelling and other structures

Paid on the basis of replacement cost with no deduction for depreciation. Most valuable feature in a homeowners policy. If the amount of insurance carried is equal to at least 80% of the replacement cost of the damaged building at the time of loss, full replacement cost is paid up to the limits of the policy.

Additional Coverages - Reasonable Repairs

Pays the reasonable cost of necessary repairs incurred by the insured to protect the property from further damage after a covered loss occurs. Ex: broken window may have to immediately be boarded up after a hurricane to protect from further damage.

Coverage C: Personal Property

Personal property owned or used by an insured is covered anywhere in the world, including borrowed property. In addition, after a loss and at the named insured's request, the insurance can be extended to cover the personal property of a guest or resident employee while the property is in any residence occupied by an insured. (Ex: guests coat burns in a fire, can be covered). Amount of insurance on personal property is equal to 50% of the amount of insurance on the dwelling, which can be increased if desired. Covers you both on and off premises. Ex: College student lives in dorm, thief comes in and steals laptop. Laptop will be covered. Important limitation applies to personal property away from the premises if he property is usually located at another residence, such as personal property in a vacation home or cabin. In such cases, the off-premises coverage is limited to 10 percent of coverage C, or $1,000, whichever is greater.

Water Damage

Property damage from certain water losses is specifically excluded. The following types of water damage losses are not covered: - Floods, surface water, waves (including tidal and tsunami), tides, tidal water, and overflow or spray from a body of water whether or not driven by wind, including storm surge. -Water that backs up through sewers or drains or overflows from a sump pump -Water below the surface of the ground that exerts pressure on or seeps through a building, sidewalk, driveway, foundation, swimming pool or struture -waterborne material carried or moved by any of the above.

Coverage D: Loss of use

Provides protection when the residence premises cannot be used because of a covered loss. Amount of additional insurance under this coverage is 30 percent of the amount of insurance on the dwelling (Cov. A). Three benefits are provided: 1. Additional living expense 2. Fair rental value 3. prohibited use

Concurrent Causation Losses

The exclusion means that if a single loss is caused by two or more perils that occur concurrently or in any sequence, and one peril is covered under the policy and the other peril is excluded, the entire loss is excluded.

Guaranteed replacement cost

The insured agrees to insure the home to 100 percent of its estimated replacement cost rather than 80 percent. If a total loss occurs, the insurer agrees to replace the one exactly as it was before the loss even if the replacement cost exceeds the amount of insurance state in the policy.

Loss to a pair or set

The insurer can elect either 1). to repair or replace any part so that the pair or set is restored to its value before the loss occurred. 2). pay the difference in actual cash value of the property before and after the loss.

Additional Coverages - Loss Assessment

The insurer pays up to $1,000 for any loss assessment charged against the named insured by a corporation or association of property owners because of the direct loss to property collectively owned by all members. Ex: Property owners in a subdivision may belong to a homeowners association that collectively owns a clubhouse, swimming pool, tennis courts, fences and a sign at the entrance. Tornado destroys clubhouse. If homeowners association insurance policy does not cover the entire loss, each property owner may be assessed his or her share of the loss.

Additional Coverages - Fire department Service Charge

The insurer will pay up to $500 if the named insured is liable by a contract or agreement for a fire department charge when firefighters from another municipality are called to protect covered property from an insured peril.

Additional Coverages - Glass or safety glazing material

The policy covers the breakage of glass or safety glazing material that is part of a covered building, storm door, or storm window. Ex: If a baseball breaks a storm window, the glass damage is covered. If causes damage to a lamp near under, damage to the lap is also covered. Does not increase the limit of insurance that applies to the damaged property.

Theft

Theft losses are covered, including the attempted theft and the loss of property when it is likely that the property has been stolen.

Excluded losses - dwelling under construction

Theft to a dwelling under construction, or of materials and supplies used in construction, or of materials and supplies used in construction, is not covered until the dwelling is both completed and occupied.

Coverage C: Personal Property - Special Limits of Liability (see exhibit 20.2)

There is a desire by the insurer to limit its liability, certain types of property have maximum dollar limits on the amount paid for any loss.

Appraisal Clause

Used when the insured and insurer agree that the loss is covered, but the amount of the loss is in dispute. Each party selects a competent and impartial appraiser. The appraisers then select an umpire. If they cannot agree on an umpire after 15 days, a judge in acorn of record will apoint one. If the appraisers fail to agree on the amount of the loss, only their differences are sumitted to the umpire.

Schedule

a list of covered property with specific amounts of insurance. Expensive valuables should be insured separately.

Homeowners 8 (modified coverage form)

a modified coverage form that covers loss to the dwelling and other structures on the basis of repair cost, which is the amount required to repair or replace damaged property using common construction materials and methods. Payment not based on replacement cost. Designed for an older home whose replacement cost substantially exceeds its market value. Ex: an older home with a replacement cost of $300,000 may have a market value of only $200,000. Insurers will not insure a home for replacement cost when its current market value is substantially lower. Only limited coverage for theft of personal property.

Homeowners 2 (broad form)

a named-perils policy that insures the dwelling, other structures (detached garage or tool shed), and personal property against loss from certain listed perils. Covered perils include fire, lightning, windstorm, hail, explosion and others. Covers additional living expenses or fair rental value in the event a covered loss makes the dwelling uninhabitable.

Fire or Lightning

covers a direct physical loss to property from fire or lighting. Ex: assume a fire starts in the bedroom of your home. Firefighters spray water in the other rooms to keep the fire from spreading, and the water causes considerable damage to your books, furniture, and drapes. The entire loss is covered, including the water damage, because fire is the proximate cause of loss.

Homeowners 4 (Contents Broad Form)

designed for tenants who rent apartments, houses or rooms. Covers personal property against loss or damage and provides personal liability insurance.

Homeowners 6 (Unit-Owners form)

designed for the owners of condominium units and cooperative apartments. Covers personal property of the unit owner for the same named perils in HO-2. Minimum of $5,000 of insurance on the condominium unit that covers certain property like carpets, kitchen cabinets and wallpaper.

Excluded losses - Mold, fungus, or dry rot

excluded unless an undetected loss - mold, fungus or dry rot within the walls, ceilings, or beneath the floor caused by the accidental discharge of water or steam from a plumbing, heating, air conditioning, household appliance, or fire sprinkler system - is covered under the policy.

Coverage D: Loss of use - Fair Rental Value

is also paid when part of the premises is rented to others.

Personal Property

is covered on a named- peril basis. The policy pays for direct physical loss to personal property from the perils discussed in the following...

Additional living expense

is the increase in living expenses actually incurred by the insured to maintain the family's normal standard of living. Ex: Heather's home damaged by fire. Rents a furnished apt. for three months, $800 a month. Additional living expense of $2400 would be covered.

Fair Rental Value

means the rental value of that part of the residence premises rented to others or held for rental less any expenses that do not continue while the premises are not fit to live in. Ex: Heather may rent a room to a student for $200 a month. If home is uninhabitable after a fire, and it takes three months to rebuild, Heather would receive $600 for the loss of rents (less expenses that do not continue).

Power Failure

no coverage for loss caused by the failure of power or other utility service if the failure takes place off the residence premises. Ex: freezer food spoils because of power outage. However if the power failure is caused by an insured peril on the residence premises, any resulting loss is covered.