1. Coverage A—Dwelling and Coverage B—Other Structures
Four separate property coverages are provided by the homeowners policy under Section I:
■Coverage B—other structures
■Coverage C—personal property
Coverage D—loss of use
Coverage A—dwelling covers the dwelling and structures attached to the dwelling as well as materials and supplies for repair and construction of those structures if they are located on or next to the residence premises (the dwelling listed in the declarations).
Coverage B—other structures covers buildings on the described premises that are separated from the dwelling by clear space.
Neither the dwelling nor other structures may be used for business purposes, except for the incidental occupancies mentioned earlier. An other structure rented to someone other than tenants of the dwelling is also excluded unless the other structure is rented as a private garage.
Neither Coverage A nor Coverage B is included in the HO-4 because renters and tenants can insure only their personal property. The HO-6, or unit-owners form, includes limited Coverage A for:
■alterations, appliances, fixtures, and improvements that are part of the building containing the residence premises;
■items of real property pertaining solely to the residence premises;
■property that is the insured’s responsibility under a condo association agreement; and
■structures other than the residence premises owned solely by the insured at the location of the residence premises.
The standard Coverage A limit for the HO-6 is $1,000.
2. Coverage C—Personal Property
Coverage C—personal property provides coverage for personal property owned or used by an insured while it is anywhere in the world.
At the insured’s request, coverage will also apply to property owned by others while in the part of the residence premises occupied by the insured or to the property of a guest or residence employee while in any residence occupied by the insured.
Property normally kept at a residence other than the residence premises shown in the declarations is covered for up to 10% of the Coverage C limit or $1,000, whichever is greater.
However, this restriction does not apply to property being moved from the residence premises to a new principal residence. In this situation, full coverage applies for 30 days from the start of the move.
Another exception applies when personal property is moved from the residence premises because the residence is being repaired or is unfit to live in. In this case, the personal property has full coverage while it is at the temporary residence.
Certain classes of property are specifically excluded from coverage:
■Animals, birds, or fish
■Motorized vehicles or aircraft, including equipment and accessories
■Property of boarders
■Property in an apartment held for rental by the insured
■Paper or electronic records containing business data, except for prerecorded programs available on the retail market
■Property rented to others off the residence premises
■Hovercraft and parts (hovercraft are self-propelled motorized ground effect vehicles such as air cushion vehicles and flarecraft)
■Water or steam (under earlier versions of the homeowners policy, it could be argued that water became the insured’s personal property after it passed through the insured’s water meter; this exclusion makes the intent of the policy clear)
2.1. Special Limits of Liability
Certain classes of personal property have special limits of liability that are lower than the overall policy limits that apply to personal property. These coverage restrictions are designed to encourage insureds with personal property of especially high value or of a hard-to-value nature to insure this property on a specific basis. You’ll learn about the forms used .to insure this property later in the course
|Personal Property with Special
Limits of Liability
|Personal Property with Special
Limits for Theft Losses Only
3. Coverage D—Loss of Use
Coverage D—loss of use provides two types of coverage. First, if a covered property loss makes the residence premises uninhabitable, the policy will cover additional living expenses related to maintaining the insured’s normal standard of living.
Second, if a covered loss to the insured’s property makes a part of the residence premises uninhabitable that is rented to others or held for rental by the insured, the policy will cover the loss of fair rental value, less any expenses that are not required while the premises is uninhabitable.
4. Additional Coverages
4.1. In All Homeowners Forms
In addition to the four coverages just discussed, the homeowners form contains certain additional coverages. The following additional coverages are included in all homeowners forms. Except where specifically noted, coverage is included in the policy limit.
■Debris Removal: Pays expenses to remove debris from covered property if a covered peril caused the loss and ash or other particles from a volcanic eruption caused direct loss to covered property.
Under specified conditions, it also covers removal of fallen trees from the residence premises.
For coverage to apply, the tree must have damaged a covered structure, be blocking access to a driveway, or be blocking access to a ramp designed for a handicapped person.
Removal expense is permitted for the insured’s trees only if the trees are felled by windstorm or hail
or the weight of ice, snow, or sleet. Removal expense is permitted for a neighbor’s trees only if the trees were felled by a peril insured against under Coverage C.
Except for fallen trees, debris removal is included in the policy limit; however, up to an additional 5% of that limit may be applicable.
No matter how many trees fall, a maximum of $1,000 is available for tree debris removal for one occurrence, with a maximum of $500 per tree.
■Reasonable Repairs: Pays the reasonable costs incurred by the insured for repairs necessary to protect covered property from further loss after being damaged by a covered peril.
■Trees, Shrubs, and Other Plants: Covers trees, shrubs, and plants on the residence premises for loss by fire, lightning, explosion, riot, aircraft, vehicles not owned or operated by a resident, theft, and vandalism or malicious mischief.
Coverage is limited to 5% of the Coverage A limit or a maximum of $500 for any one tree, shrub, or plant. (In the HO-4 and HO-6, the limit is 10% of the Coverage C limit or a maximum of $500 for any one tree, shrub, or plant.)
■Fire Department Service Charge: Pays up to $500 when the fire department is called to save or protect covered property from a covered peril. No deductible applies to this coverage. This coverage is not available for property located within the limits of the city furnishing the fire department service.
■Property Removed: Covers property against direct loss from any peril while being removed from a premises endangered by a covered peril and for up to 30 days while removed.
■Credit Card, Electronic Fund Transfer Card or Access Device, Forgery, and Counterfeit Money: Pays up to $500 for the insured’s legal obligation to pay losses resulting from:
——theft or unauthorized use of these cards;
——forgery or alteration of the insured’s checks; or
——the insured’s acceptance in good faith of counterfeit money.
Coverage does not apply to loss arising out of business use or the dishonesty of an insured. No deductible applies to this coverage.
■Loss Assessment: Pays up to $1,000 for the insured’s share of a loss assessment charged against the insured during the policy period, by either a corporation or association of property owners, as a result of direct loss to the property owned by all members collectively and caused by a covered peril. For instance, this coverage might pay a condominium owner’s assessment for repair of a community clubhouse that was damaged by lightning. The deductible applies only once, regardless of the number of assessments in a single occurrence.
■Glass or Safety Glazing Material: Covers the breakage of glass that is a part of a building, including windows and storm doors.
4.2. In Selected Homeowners Forms
Other additional coverages are only contained in certain homeowners forms. The following table describes these additional coverages and the forms in which they are included. Except where specifically noted, coverage is included in the policy limit
|Additional Coverages Found In
Selected Homeowners Forms
5. Perils Insured Against
5.1. Basic Named Perils
The number and breadth of the perils insured against by each of the homeowners forms is the major distinction among the forms. At the base are the perils that are provided in all homeowners forms.
These basic perils include:
Interior damage from windstorm or hail is only covered if the wind or hail first makes an opening in the building. Watercraft, outboard motors, and related equipment are covered only while inside fully enclosed buildings.
ehicle damage caused by a vehicle owned or operated by any resident of the residence premises is not covered.
Smoke from fireplaces, agricultural smudging, or industrial operations is not covered. The smoke peril also covers puffback—the release of soot, smoke, vapor, or fumes from a furnace, boiler, or similar equipment
andalism or malicious mischief losses to property on the residence premises are not covered if the dwelling has been vacant for 60 or more consecutive days.
The theft peril includes loss of property from a known place when it is likely that the property has been stolen. It also includes attempted theft. It does not include:
|The HO-8 only insures against the basic perils.|
5.2. Broad Named Perils
The HO-2 adds some additional perils and expands the definitions of several others. The additional broad named perils are:
■weight of ice, snow, or sleet;
■accidental discharge or overflow of water or steam from within appliances or plumbing or related systems (does not include discharge or overflow of water from a sump);
■sudden and accidental rupture of a heating, air conditioning, fire protective sprinkler, or hot water heating system;
■freezing of plumbing or related systems; and
■sudden and accidental damage from artificially generated electrical current.
In addition, the HO-2 expands coverage for two perils.
■The vehiclesperil includes loss to a fence, driveway, or walk caused by a vehicle owned or operated by a person who lives in the insured household.
■The smokeperil includes loss caused by fireplace smoke.
The weight of ice, snow, or sleet peril does not cover damage to awnings, fences, patios, pavement, swimming pools, foundations, retaining walls, bulkheads, piers, wharves, or docks.
Damage to a building’s interior or contents by a falling object is covered only if the falling object first damages the roof or an exterior wall.
Damage to a tube, transistor, or similar electrical component by artificially generated electrical current is not covered.
The freezing of plumbing or related systems peril does not cover losses that occur while the residence is unoccupied unless the insured has made an effort to maintain heat in the house or has shut off the water supply and drained the system and appliances of water.
The HO-4 insures personal property against the same perils covered under the HO-2. (Remember, there is no Coverage A or Coverage B in the HO-4.)
The HO-6 insures personal property against these same perils, with one exception. In the HO-6, the accidental discharge or overflow of water or steam peril includes coverage for the costs to tear out and replace any part of the building necessary to repair the system or appliance from which the water or steam escaped. (Earlier, we discussed the limited Coverage A available under the HO-6.)
5.3. Special Form Coverage
The HO-3, or special form, provides open peril coverage for the dwelling and other structures, insuring against all risks of direct physical loss that are not specifically excluded in the policy. Personal property is covered on a named peril basis for the same perils insured under the HO-2.
Under Coverages A and B, the HO-3 excludes:
■any loss involving collapse, other than as provided in the other coverages section;
■freezing of a plumbing, heating, air conditioning, or automatic fire protective sprinkler system or a household appliance, or overflow due to freezing while the dwelling is vacant, unoccupied, or under construction, unless reasonable care was taken to maintain heat in the building or to shut off the water supply and drain the systems and appliances;
■freezing, thawing, pressure, or weight of water or ice to fences, pavement, patios, swimming pools, foundations, retaining walls, bulkheads, piers, wharves, or docks;
■theft in or to a dwelling or structure under construction, including theft of materials and supplies used in construction;
■vandalism and malicious mischief when the dwelling was vacant for more than 60 consecutive days at the time of loss (does not apply to dwellings under construction);
■gradual and expected losses, such as wear and tear, deterioration, inherent vice, latent defect, mechanical breakdown, smog, rust, corrosion, mold, wet or dry rot, and smoke from agricultural smudging or industrial operations;
■discharge, dispersal, seepage, migration, release, or escape of pollutants such as smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste (does not apply when caused by a peril covered under Coverage C);
■settling, shrinking, bulging, or expansion, including resulting cracking of pavement, foundations, walls, floors, roofs, or ceilings; and
■loss caused by birds, vermin, insects, and animals owned by the insured.
If a loss that is not otherwise excluded involves water damage from a plumbing, heating, air conditioning, or fire protective sprinkler system or
household appliance, the policy covers the loss caused by water and the cost of tearing out and replacing any part of a building necessary to repair the system or appliance. Loss to the system or appliance itself is not covered.
5.4. Comprehensive Coverage
Comprehensive coverage insures the dwelling, other structures, and personal property against loss by the package of special perils. In effect, form HO-5 provides coverage for personal property on the same basis as Coverages A and B on form HO-3, with only minor variations.
On HO-5, the coverage for theft of personal property is slightly broader than it is on HO-3. Although the special sublimits of coverage for theft of jewelry, watches, furs, precious stones, silverware, goldware, pewterware, and firearms remain the same, the comprehensive form says that these limits apply to “loss by theft, misplacing, or losing.” HO-5 is the only homeowners policy insuring these personal property items against loss by “mysterious disappearance.”
Certain fragile personal items, such as eyeglasses, glassware, statues, bric-a-brac, and porcelain items, are too delicate to be considered for all-risk coverage.
HO-5 limits the coverage for these items to losses caused by the specific perils of fire, lightning, EC, V&MM, theft, collapse of a building, water risks that are not excluded, and sudden or accidental tearing, cracking, burning, or bulging of a steam or hot water heating system, air conditioning, or fire sprinkler system, or an appliance for heating water.
If any excluded loss is followed by a loss that is not excluded, the comprehensive form does cover the additional loss.
All homeowners forms contain exclusions that apply to the property coverages we’ve just discussed. They exclude losses due to:
■enforcement of law or ordinance regulating construction, repair, or demolition;
■earth movement, including earthquake and mine subsidence;
■water damage, including flooding and overflow from a sump pump;
■power interruption that takes place off the residence premises;
■the insured’s failure to save and preserve property after a loss, or to protect it from loss;
■losses caused intentionally by the insured or by someone else at the insured’s direction; and
■destruction, confiscation, or seizure of property by the government or a public authority.
The homeowners policy contains many of the conditions we’ve already discussed regarding the insurer’s and the insured’s responsibilities under the policy, including duties after loss, mortgage condition, pair or set, appraisal, and other insurance.
The loss settlement condition is similar to the one found in the dwelling broad and special forms examined in an earlier unit. Losses to the following are paid at actual cash value, but not more than the cost to repair or replace them:
■Awnings, carpeting, appliances, outdoor antennas, and outdoor equipment
■Structures that are not buildings
Losses to the dwelling and other structures are paid at replacement cost as long as the insured carries an amount of insurance equal to or greater than 80% of the building’s replacement cost. If the insured carries less than 80% of replacement cost, the insured will be paid the actual cash value of the loss or a proportion of the replacement cost, whichever is greater. (Of course, the insured can never receive more than the policy limit.) The formula used to determine proportional replacement cost is:
In addition, replacement cost is only available if the actual repair or replacement is complete, whichever is applicable, unless the amount payable is less than a specified amount.
The insured cannot collect a check for what the replacement amount would have been and then not actually replace the items or repair the damaged property.
The insurance company may initially pay the insured an amount based on the actual cash value of the damaged personal property that is covered under the loss.
Once the insured has actually replaced those covered items (the policy typically has a designated time period that specifies how long the insured has to do this) and produced the necessary receipts, however, the insurance company will then reimburse them for the difference.
If the insured chooses not to replace the covered items, the actual cash value of the property is all they will receive. A policy will not pay beyond the policy limits.
8. Limits of Liability, Deductible
Because the homeowners policy is a package policy, the policy requires a specific minimum limit of liability for each of the major property coverages, which is based on the primary amount of insurance selected by the insured.
For all forms except the HO-4 and HO-6, the primary amount of insurance is Coverage A. For the HO-4 and HO-6, the primary amount of insurance is Coverage C.
The following tables show how these limits of liability are determined:
|Homeowners 3, Homeowners 2,
Homeowners 5, and
|Homeowners 4 and
These limits are provided as separate amounts of insurance. Suppose the insured’s single-family home is insured under an HO-3 with a Coverage A limit of $100,000.
If the house and its contents were totally destroyed by a covered loss, the insured would receive $100,000 for the house and $50,000 for the contents (subject to any deductibles, special limits, and other policy conditions that might apply).
The homeowners form also provides for a deductible that applies to coverage under Section I. Typical deductibles are $500, $1,000, or $2,500; other deductible amounts may also be available.