Final Exame Risk Management & Insurance
Homeowner Policy 3 Additional Coverage
Additional coverages in 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 (e.g. fire, lightning, explosion, riot, civil commotion, aircraft, or theft etc. Note that wind-storm is not listed) 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 money7.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, for certain perils 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
Jack and Jane are married and own a home insured for $150,000 under an unendorsed HO-3 policy. The replacement cost of the home is $250,000. Personal property is insured for $75,000. Jane has jewelry valued at $10,000. Jack has a coin collection valued at $15,000 and a motorboat valued at $20,000. ´. Assume that Jane operates an accounting business from the home. Her home business office contains a computer used solely for business, office furniture, file cabinets, and other business personal property. Explain whether her HO-3 policy would cover busi-ness personal property used in a home business.
Business personal property used in a home business on the premises is covered up to $2,500.
Todd has his home and personal property insured under a Homeowners 3 (special form) policy. The dwelling is insured for $120,000. The replacement cost of the home is $200,000. Indicate the extent to which each of the following losses would be covered under Todd's Homeowners 3 policy. (Ignore the deductible.) ´A living room window is broken in a hailstorm. The drapes are water stained and must be replaced. The actual cash value of the damaged drapes is $400. Replacement cost is $600.
Covered. The drapes are damaged from a covered peril. However, unless a replacement cost endorsement is added to the policy, personal property is covered on an actual cash value basis. Ignoring any deductible, $400 would be paid.
HO-3 Policy
Homeowners Policy Special Form — covers the dwelling and other structures 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 perils basis. ´The following persons are considered "insureds" under the policy: ´Named insured and spouse ´Resident relatives ´Other persons under age 21,who are in the care of the named insured/Resident relatives ´Full-time student away from home under age 24 who was a resident of the named insured's household. ´Section II coverage also includes: ´Any person legally responsible for covered animals or watercraft ´E.g. if you leave your dog with a neighbor, and the dog bites someone, does the neighbor have liability coverage under your policy? ´With respect to a motor vehicle covered by the policy (e.g., a riding mower), persons employed by the named insured, while working for the insured ´E.g. if an employee mows your lawn with a riding mower that you own and someone is injured, does he or she have liability coverage under your policy? ´Coverage A: Dwelling ´Coverage B: Other structures ´Coverage C: Personal property ´Coverage D: Loss of use ´Additional coverages
Jack and Jane are married and own a home insured for $150,000 under an unendorsed HO-3 policy. The replacement cost of the home is $250,000. Personal property is insured for $75,000. Jane has jewelry valued at $10,000. Jack has a coin collection valued at $15,000 and a motorboat valued at $20,000. ´Assume that Jack and Jane have a disagreement with their insurer concerning the value of the afore-mentioned losses. How would the dispute be resolved under their HO-3 policy?
The dispute is settled under the appraisal provision that appears in the Section I conditions. Jack and Jane would select their own appraiser. The insurer would select its appraiser. The two appraisers would then select an umpire. If the appraisers cannot agree on an umpire, a judge in a court of record will appoint one. If the appraisers disagree on the amount of the loss, their differences are submitted to the umpire. An agreement by any two of the three is then binding on all parties.
James and Megan Webb recently purchased a home for $300,000. The home is insured under an HO-3 policy for $250,000 with no endorsements attached. Megan collects antiques as a hobby. James has a stamp collection that contains several rare stamps. The couple also owns a 30-foot sailboat that they use on weekends. a) Explain how the HO-3 policy would be modified by each endorsement identified in your answer to (a).
The inflation guard endorsement periodically increases the amount of insurance under the various coverages as property values increase during a period of inflation. The watercraft endorsement would cover certain watercraft that is otherwise excluded under Section II. The personal injury endorsement would broaden the liability coverage to include personal injury loss exposures, such as libel and slander. In addition, an unendorsed homeowners policy provides only a maximum of $1,500 on stamps; this limit can be increased by adding a scheduled personal property endorsement to the policy. The personal property replacement cost loss settlement endorsement would cover personal property on a replacement cost basis rather than actual cash value.
Todd has his home and personal property insured under a Homeowners 3 (special form) policy. The dwelling is insured for $120,000. The replacement cost of the home is $200,000. Indicate the extent to which each of the following losses would be covered under Todd's Homeowners 3 policy. (Ignore the deductible.) Lightning strikes the roof of the house and severely damages it. The actual cash value of the damaged roof is $10,000, and it will cost $16,000 to replace the damaged portion.
The insured will receive the greater of either the actual cash value or an amount based on the coinsurance formula when the amount of insurance carried is less than 80 percent of the replacement cost. Actual cash value is $10,000. 120000/(0.8*200000)*16000=12000 Thus, Todd will receive $12,000 for the loss.
James and Megan Webb recently purchased a home for $300,000. The home is insured under an HO-3 policy for $250,000 with no endorsements attached. Megan collects antiques as a hobby. James has a stamp collection that contains several rare stamps. The couple also owns a 30-foot sailboat that they use on weekends.
To deal with the problem of possible inflation on property values, an inflation guard endorsement should be added to the policy. The couple also owns a 30-foot sailboat. Since the homeowners policy excludes coverage on sailboats 26 feet or more in length, a watercraft endorsement could be added to cover this exposure. A personal injury endorsement could also be added to cover libel, slander, defamation of character, and similar exposures. A scheduled personal property endorsement could be added to cover the valuable stamp collection. A personal property replacement cost loss settlement endorsement could be added to cover personal property on a replacement cost basis.
Jack and Jane are married and own a home insured for $150,000 under an unendorsed HO-3 policy. The replacement cost of the home is $250,000. Personal property is insured for $75,000. Jane has jewelry valued at $10,000. Jack has a coin collection valued at $15,000 and a motorboat valued at $20,000. A burglar broke into the home and stole a new television, jewelry, and several paintings. The actual cash value of the stolen property is $4,000. The cost of replacing the property is $9,000. In addition, the coin collection was taken. Indicate the extent, if any, to which an unendorsed HO-3 policy will cover these losses.
Unless a replacement cost provision is added to the policy, personal property is indemnified on the basis of actual cash value. Ignoring any deductible, the actual cash value of the stolen property ($4,000) would be paid. Because of the limits on certain types of property, only $200 would be paid for the theft of the coin collection.
Jack and Jane are married and own a home insured for $150,000 under an unendorsed HO-3 policy. The replacement cost of the home is $250,000. Personal property is insured for $75,000. Jane has jewelry valued at $10,000. Jack has a coin collection valued at $15,000 and a motorboat valued at $20,000. A fire damaged one bedroom of the home. The actual cash value of the loss is $10,000. The cost of repairs is $16,000. How much will the insurer pay for the loss?
b. Jack and Jane will receive the higher of (1) the actual cash value of $10,000 or (2) an amount based on the following formula: 150000/(80%*250000)*16000=12000 The insurer will pay $12,000.
Homeowner 3 Policy Coverage A
´Coverage A covers the dwelling on the residence premises and any structure attached to the dwelling ´ ´The home and an attached garage or carport would be insured under this section ´ ´Materials intended for construction are included ´ ´The coverage specifically excludes land
Todd has his home and personal property insured under a Homeowners 3 (special form) policy. The dwelling is insured for $120,000. The replacement cost of the home is $200,000. Indicate the extent to which each of the following losses would be covered under Todd's Homeowners 3 policy. (Ignore the deductible.) ´The water heater explodes and damages some household contents. The actual cash value of the damaged property is $2,000, and the cost of replacing the property is $3,200.
Covered. The household contents are covered for their actual cash value of $2,000. Explosion is a covered peril for personal property. However, the replacement cost provision does not apply to personal property unless a replacement cost endorsement is added to the policy.
homeowner policy B
´Coverage B insures other structures on the residence premises that are separated from the dwelling by clear space ´Includes a detached garage, tool shed, or horse stable, etc. ´Structures connected to the dwelling only by a fence, utility line, or other similar connections are considered to be "other structures." ´ ´Land damage is excluded ´Structures that are rented out or used for a business are excluded ´ ´The amount of coverage is based on the amount of insurance in Coverage A ´10 percent of the insurance on the dwelling applies as additional insurance to the other structures.
James and Megan Webb recently purchased a home for $300,000. The home is insured under an HO-3 policy for $250,000 with no endorsements attached.a) For each of the following losses, indicate whether Section II of the homeowners policy would provide full coverage for the loss. If full coverage not explain why. Megan entertains members of a local garden club in her home and serves the guests a buffet lunch-eon. Two guests become seriously ill and sue Megan, alleging she had served them contaminated food. The court awards each guest damages of $60,000. James is an architect. The roof of a new addition to a client's home collapsed. The client alleges that the roof collapsed because of faulty design. The cost of rebuilding is $40,000. The client seeks to recover that amount from James. During a visit to a friend's home, Megan accidentally breaks a figurine that she picked up to admire. The figurine has a value of $47
(1) The two claims are considered to arise out of one occurrence. The total amount paid is $100,000, which is the maximum liability limit under an unendorsed HO policy. (2) The loss is not covered. Business pursuits and professional liability are specifically excluded. (3) The loss is covered under Damage to the Property to Others. The amount paid is $475.
Indicate whether the following losses are covered under Section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answers. a) The named insured's dog bites a neighbor's child and also chews up the neighbor's coat. b) A son living at home accidentally injures another player while playing softball. c) A guest slips on a waxed kitchen floor and breaks an arm. d) A neighbor's child falls off a swing in the named insured's yard and breaks an arm. e) The named insured accidentally falls on an icy side-walk and breaks a leg. f) While driving to the supermarket, the named insured injures automobile. g) A ward of the court, age 10, in the care of an insured, deliberately breaks a neighbor's window. h) The named insured paints houses for a living. A can of paint accidentally spills onto a customer's roof and discolors it. i) The named insured falls asleep while smoking a
(a) Covered. In this case, there is both bodily injury and property damage. A suit or claim because of animals owned by the insured is covered. (b) Covered. The medical expenses of the injured player would be covered under Coverage F. (c) Covered. Persons injured on the premises are covered. The medical expenses are covered under Coverage F, and if a lawsuit ensues, there is coverage under Coverage E. (d) Covered. The child's medical expenses are covered under Coverage F. (e) Not covered. Medical expenses incurred by the named insured and resident household members (other than a residence employee) are not covered. (f) Not covered. Liability arising out of the negligent operation of an automobile is excluded. (g) Covered. Property damage to others is covered up to $1,000 without having to prove negligence. If the damage is deliberately caused by someone age 13 or older, the coverage does not apply. (h) Not covered. Liability arising out of business activities is excluded. (i) Covered. This is covered under fire legal liability and is an exception to the care, custody, and control exclusion. (j) Not covered under Section II. The theft, however, is covered under Section I.
Homeowner Policy 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 ´E.g., Claire, age 20, is a college student who is temporarily away from her parents' home during the academic year. If a thief breaks into her dormitory room and steals a laptop computer, Is the loss covered under her parents' policy? ´This provision also includes borrowed property. ´After a loss and at the named insured's request, the insurance can cover the personal property of a guest or resident employee while the property is in any residence occupied by an insured. ´Coverage C insures personal property owned or used by an insured ´The amount of coverage is 50% of Coverage A, but can be increased if desired ´Coverage for personal property at another residence, such as a vacation home, is limited to 10% of Coverage C or $1000, whichever is greater ´Certain types of personal property have maximum dollar limits on the amount paid for any loss. ´A schedule can be used to insure certain personal property for a specific amount ´Coverage C also excludes certain types of property, for example: ´Articles separately described and specifically insured ´Animals, birds, and fish ´Motor vehicles, aircrafts, hovercrafts, and parts ´Therefore, cars, motorcycles, and motor-scooters are excluded under the policy. Likewise, the theft of a car battery or tire rims from a car would not be covered. ´However, a garden tractor, riding lawn mower, or electric wheelchair would normally be covered under the policy. ´Coverage C also excludes certain types of property, for example: ´Property of roomers and other tenants ´Property in a regularly rented apartment ´Property away from the premises that is rented ´Business data ´Credit cards or electronic fund transfer cards
Homeowner Policy 3 Coverage D
´Coverage D provides protection when the residence premises cannot be used because of a covered loss ´Coverage is 30% of Coverage A ´Three benefits: additional living expense, fair rental value, and prohibited use. ´ ´Additional living expense 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
Homeowner Policy 3 Section 1 Perils
´The dwelling and other structures (Coverage A and B) are insured for all direct physical losses unless specifically excluded: 1.Collapse 2.Freezing 3.Fences, pavement, patio, and similar structures 4.Theft to a dwelling under construction, or of materials and supplies used in construction 5.Mold, fungus, and dry rot 6.Wear and tear, mechanical breakdown ´Personal property (Coverage C) 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 ´Proximate cause means there is an unbroken chain of events between the occurrence of a covered peril and damage or destruction of the property. ´Named perils include fire, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism, falling objects, etc. ´In Coverage C, theft losses are covered, including the attempted theft and the loss of property when it is likely that the property has been stolen. ´But there are several 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
Homeowner 3 Policy Section 1 exclusions
´The policy excludes the following causes of loss: ´Concurrent causation losses ´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 (for example, windstorm) and the other peril is excluded (for example, flood), the entire loss is excluded. ´Any loss due to an ordinance or law, except as described in the Additional Coverages Losses due to earth movement. ´The policy excludes the following causes of loss (continued): ´Certain water losses ´Losses due to power failure or faulty design ´Losses which are due to neglect or intentional ´Losses due to war, government action, failure to act, or nuclear hazard ´Losses due to certain weather conditions
Jack and Jane are married and own a home insured for $150,000 under an unendorsed HO-3 policy. The replacement cost of the home is $250,000. Personal property is insured for $75,000. Jane has jewelry valued at $10,000. Jack has a coin collection valued at $15,000 and a motorboat valued at $20,000. a. Assume you are a financial planner who is asked to evaluate the couple's HO-3 policy. Based on the facts given, do you believe that Jack and Jane's coverages are adequate? If not, make several recommendations for improving the coverage.
• Insurance on the home should be increased to at least $200,000 to comply with the coinsurance requirement so that partial losses will be settled on a replacement cost basis. An extended replacement cost or guaranteed cost endorsement could be added, which requires the home to be insured to $250,000. • Jewelry is covered only for a maximum of $1,500 if the jewelry is stolen. The jewelry should be scheduled and specifically insured to its full value. There is only $200 of coverage provided for the coin collection. The coin collection should also be scheduled and insured for its value. • The homeowners policy provides only limited coverage on boats. The boat should be specifically insured under a separate "all-risks" boat insurance policy. • A personal property replacement cost endorsement could be added that provides replacement cost coverage on personal property.
