Chapter 22 summary

 Eligible dwellings: a homeowner’s policy on a private dwelling is for 1, 2, 3, 4 family

households for residential purposes, or small business-like daycares or offices. If single

family residence, no more than two roomers and boarders or one additional family at a

time is permitted.

 Homeowners 2 (HO-2) policy: named-perils policy that insures the dwelling, other

structures (dethatched garage, shed), and personal property against loss from certain

listed perils.

o Covers damage from mother nature, cars, planes, vandalism, theft, falling

objects, accidental water/steam, sprinkler system failure, frozen pipes, electrical

damage, volcanoes

o Minimum $100,000 liability, medical coverage is $1,000/person

 Homeowners 3 (HO-3): insures the dwelling and other structures against direct physical

loss to property.

o All direct loses covered except those specifically named

o Losses paid according to full replacement cost w/out taking depreciation into

account

 Homeowners 4 (HO-4); designed for tenants who rent apartments, houses, or rooms.

Covers tenant’s personal property and liability.

o Follows named perils rules listed for HO-2, as well as 10% personal property

insurance applied to cover building additions

 Homeowners 6 (HO-6): designed for the owners of condos and co-op apartments
 o Covers personal property for same perils listed in HO-2, as well as $5,000 of

coverage that protects upholstery and built in appliances.

 Homeowners 8 (HO-8): 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 methods/materials.

o For older homes where replacement cost substantially > market value

o Limited coverage of theft/personal property

 HO-3 Policy persons included: “insured” is defined as one of three things in a HO-3

section I

o named insured and residents of the household who are your relatives

o other persons under 21

o full-time student away from home

o section II coverages “insured” include

 any person legally responsible for covered animals or watercraft

 for the motor vehicle covered, coverage applies to employees of named

insured or other previously defined insureds while working for the named

insured.

 HO-3 section I coverages:

o Coverage A: dwelling

 Covers the swelling on the residence as well as attached structures and

material bought intended for construction/repair of the dwelling.

 Excludes land
o Coverage B: other structures

 Separated from dwelling by clear space. Also connected to dwelling by

fence, utility line, or other similar structures

 Based on coverage amount specified in Coverage A (10%)

 Excludes land, structures rented out, where business is conducted, or

where business property is stored

o Coverage C: personal property

 Property covered anywhere in the world, including borrowed property or

the property of a guest or resident employee.

 Coverage 50% of Coverage A amount, which can be increased or

decreased.

 Loss of property in another residence like cabin or vacay home is covered

up to 10%, unless property is stored there for a renovation

 Property in storage units is covered up to 10%, unless stored for

renovation

 Certain items have certain amounts of liability coverage, unless you

schedule (list of covered property with specific amounts of insurance) the

items.

 Property not covered:

 Articles separated and specifically insured

 Animals, birds, fish

  Motor vehicles, except A/V equipment added to the car, or things

like ATV’s or tractors

 Aircrafts and parts

 Hovercrafts and parts

 Property of roomers, boarders, and other tenants, unless related

to named insured

 Property in a regularly rented apartment

 Property rented or held for rental to others off the residence

premises

 Business data

 Credit cards, electronic fund transfer cards, or access devices

 Water or steam

o Coverage D: loss of use

 Additional living expense: increase in living expenses actually incurred by

the insured to maintain the family’s normal standards of living

 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 for habitation

 Prohibited use: even if damage is not to insured dwelling, municipalities

may not allow you to return to your house, and expenses are covered

o Additional Coverage:

 Debris removal (up to 5% if total exceeds stated policy limit)

  Reasonable repairs

 Trees, shrubs, and other plants (coverage is provided only for fire,

lightning, explosion, riot, civil commotion, aircraft, other persons

vehicles, vandalism, malicious mischief, theft) 5% of stated policy

 fire department service charge

 property removal

 credit card, electronic fund transfer card or access device, forgery, and

counterfeit money

 loss assessment

 collapse (only if perils are covered in part C, unknown decay, vermin

damage, weight of objects, defective materials)

 glass or safety glazing material

 landlord’s furnishings

 ordinance or law

 grave makers

 HO-3 policy: section I Perils insured against

o Dwelling and other structures (coverages A and B): Insured against direct

physical loss to property, meaning direct physical losses are covered except

certain exclusions

 Exclusions:

 Collapse
  Freezing (unless reasonable care was taken, or a sprinkler system

is in place)

 Fences, pavement, patio, and similar structures

 Dwelling under construction

 Vandalism and malicious mischief (only if dwelling was vacant 60

days consecutively before loss)

 Mold, fungus, or dry rot (unless undetected and due to steam and

excess moisture)

 Other exclusions

o Wear and tear

o Mechanical breakdown, defects, vices

o Smog, rust, corrosion

o Discharge of pollutants unless caused by Coverage C peril

o Settling, cracking, pavement, patio, foundation, roof, walls

o Animals

o Birds, rodents, nesting’s, infestations

o Personal Property (Coverage C)

 Fire or lighting

 Proximate cause: there is an unbroken chain of events between

the occurrence of a covered peril and damage or destruction of

the property
  Fire: combustion or rapid oxidation that causes flame to glow, and

fire must be hostile and unfriendly

 Windstorm or hail

 Explosion

 Riot or civil commotion

 Aircraft

 Vehicles

 Smoke

 Vandalism or malicious mischief

 Theft

 Theft by insured is excluded

 Theft in or to a dwelling under construction

 From any part of the premises rented to someone other than an

insured is not covered

 Exclusions include when away from premises:

o Temporary residence

o Watercraft

o Trailers, semitrailers, and campers

 Falling objects

 Weight of ice and snow

 Accidental discharge or overflow of water or steam

  Sudden and accidental tearing apart, cracking, burning, or bulging of a

steam, hot water, air conditioning, or automatic fire protective sprinkler

system, or appliance for heating water

 Freezing of a plumbing, heating, air conditioning, or automatic fire

protective sprinkler system, or household appliance

 Sudden and accidental damage from artificial electrical current

 Volcanic eruption

 HO-3 Section I exclusions:

o 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

and the other peril is excluded, the entire loss is excluded.

o Ordinance of Law

o Earth movement (earthquake endorsements can be added)

o Water damage (floods, sewage, pools)

o Power failure

o Neglect

o War

o Nuclear hazard

o Intentional loss

o Government action

o Weather conditions

o Acts of decisions
 o Faulty planning and design

 HO-3 Section I conditions

o Insurable interest and limit of liability

o Deductible (either flat deductible or percentage deductible depending of the

peril)

o Duties after loss

 Give prompt notice

 Protect the property from further damage

 Prepare an inventory of damaged personal property

 Exhibit the damaged property

 File a proof of loss within 60 days after the insurer’s request

o Loss settlement

o Personal property (actual cash value)

o Dwelling and other structures (replacement costs)

 Max amount payed for total destruction of a policy where less than 80%

of the replacement cost is covered is either the actual cash value of the

damage or the (amount of insurance carried/.8*replacement cost)*loss

 For losses less than 5% of insured amount and less than $2,500 the

insured must repair or replace the property to receive full replacement

cost. Insured can also submit a claim for actual cash value and collect

additional amount when the repair/replacement is completed, if w/in

180 days of loss

o Extended guarantee and guaranteed replacement cost

 Extended replacement cost endorsement: pays up to an extra 20% or

more above policy limits if building material cost rises after catastrophe

occurs. Only if building is insured for full replacement cost and report if

remodeling increases value of dwelling

 Guaranteed replacement cost: if a total loss occurs, the insurer agrees to

replace the home exactly as it was before the loss even if the

replacement cost exceeds the amount of insurance stated in the policy.

only if insured agrees to insure dwelling for 100 percent of replacement

cost.

o loss to a pair or set

 loss to a pair or set: insurer can either (1) repair or replace any part so

that the pair or set is restored to its value before the loss occurred or (2)

to pay the difference in actual cash value of the property before and after

the loss.

o Appraisal clause

 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 an appraiser who then select an umpire, or a judge will

select one after 15 days of dispute. If parasails differ, umpire rules which

is proper amount, appraisal fees are paid individually, and umpire cost is

split.
o Other insurance and service agreements

 If other insurance covers section I loss, insurer pays proportion of loss

that its liability limit bears to total insurance covering the loss.

 Pro rata does not apply to personal property separately described and

specifically insured.

 Homeowners typically purchase home warranty contracts or appliance

service agreements and HO insurance is to cover excess cost

o Suit against insurer

 No legal action can be brought against insurer unless all provisions have

been met and the legal action occurs w/in 2 years of loss

o Insurers option

 After notifying insured, insurer can repair or replace any part of property

with like property instead of paying cash

o Loss payment

 Required to make payment directly to named insured unless some other

person is named in the policy or is legally entitled to receive the loss

payment, like mortgagee or legal representative if named insured cannot

collect.

o Abandonment of property

 Insurer is not obligated to accept any property abandonment by the

insured after a loss occurs. Difference between what is left and what is
 salvageable is either payed out or salvageable items taken, and face value

of insurance is payed

o Mortgage clause

 Mortgage clause: designed to protect the mortgagee’s insurable interest,

where the property serves as collateral for the loan given. Under this

provision, if the mortgagee is named in the policy, the mortgagee is

entitled to receive a loss payment from the insurer to the extent of its

interest, regardless of any policy violation by the insured.

o Policy period

o Concealment or fraud

 HO-3 section I and II conditions

o Liberalization clause: if insurer broadens coverage 60 days before inception of

policy/before policy period, it automatically applies to said policy. doesn’t apply

to general changes made

o Waiver or change of policy provisions: must be approved by insurer in writing

o Cancellation: insured can cancel at any time if (1) premium is not payed (2) any

reason if w/in first 60 days and not auto renewal policy (3) material

misrepresentation of facts that would’ve changed coverage (4) if renewal policy,

can be cancelled on anniversary date with proper notice

o Nonrenewal of policy

o Assignment of policy: cant be assigned to another party w/out insurers consent

o Subrogation
o Death of named insured or spouse