Chapter 6 Homeowner's Insurance Review PDF

Chapter 6 Review Homeowners insurance offers package policies with both property and liability coverages, mostly for owner-occupants of the insured dwelling or, for some forms, tenants or condo unit-owners. Eligible residential dwellings may have up to 4 residential units. Eligible dwellings may als...

Chapter 6 Review Homeowners insurance offers package policies with both property and liability coverages, mostly for owner-occupants of the insured dwelling or, for some forms, tenants or condo unit-owners. Eligible residential dwellings may have up to 4 residential units. Eligible dwellings may also have no more than 2 roomers or boarders per family. Certain incidental business occupancies are allowed, and better coverage for these occupancies may be provided by the Permitted Incidental Occupancies Endorsement. Dwellings under construction that will be the primary residence of the named insured are also eligible for coverage. The residence premises is the dwelling where the insured resides, including other structures and grounds. The insured location refers to the residence premises, temporary residences like hotel rooms, vacant land (except for farmland), and cemetery plots. Insureds under the policy include the named insured, their resident spouse, and relatives living in the household. Household residents who are under age 21 and in the care of the named insured are also covered. Students are covered even when living away at school, up to age 24 for relatives and up to age 21 for those in the insured’s care. For liability coverages, insureds also include those using an insured’s vehicle with consent, employees using a motor vehicle with consent, and any person legally responsible for animals (other than bailees). In the event of the named insured’s death, their legal representative is given rights under the policy. Six Homeowners forms are available. The Broad Form (HO–2) offers named perils coverage on the dwelling, other structures, and personal property. The Special Form (HO–3) offers open perils coverage for the dwelling and other structures, and named perils coverage for personal property. The Comprehensive Form (HO–5) offers open perils coverage for the dwelling, other structures, and personal property. These first forms are the most common for homes, and the other forms have specific purposes. The Contents Broad Form (HO–4) is for tenants. This Tenants Form only insures personal property on a named perils basis. The Unit-Owners Form (HO–6) is for condo unit-owners and offers specialized dwelling coverage and personal property coverage on a named perils basis. The Modified Form (HO–8) is for older buildings that are otherwise uninsurable on other Homeowners forms. Under this form, the dwelling, other structures, and personal property are insured against limited named perils. Across most of the forms, if coverage for the dwelling or other structures is provided, losses are settled on a replacement cost basis. Under the HO–8, dwelling and other structures coverages are provided on a functional replacement cost basis. If personal property coverage is provided by any form, losses are settled on an actual cash value basis. The Personal Property Replacement Cost Endorsement could be added to change the loss valuation basis for personal property to replacement cost coverage. However, this endorsement would not apply to certain fine arts or collectors items. Losses settled at replacement cost require the insured to maintain insurance to value, to at least 80% of the structure’s replacement cost immediately before loss. The insurer may pay the actual cash value until actual repair or replacement is complete. Most of the forms providing named perils coverage follow the Broad Form’s 16 named perils and the applicable exceptions. Those perils are: fire or lightning; windstorm or hail; aircraft; riot or civil commotion; vehicles; volcanic eruption; explosion; smoke, not including agricultural smudging or industrial operations; vandalism or malicious mischief; limited theft coverage; falling objects; weight of ice, snow, or sleet; accidental discharge or overflow of water or steam from a plumbing, heating, air conditioning, or automatic fire protective sprinkler system, or a household appliance; sudden and accidental tearing apart or bulging of heating or air conditioning systems; freezing of plumbing, heating, air conditioning, or automatic fire protective sprinkler system, or a household appliance; and sudden and accidental damage from artificially generated electrical current. For coverage from windstorm or hail, watercraft are covered while located in a fully enclosed building. Loss to personal property inside a building is covered against windstorm or hail if wind or hail caused the opening that led to the damage. VMM and accidental discharge or overflow of water is subject to a vacancy provision barring coverage for homes vacant for more than 60 days. Theft committed by an insured, theft to dwellings under construction, and off-premises theft to watercraft are all excluded. Little coverage is provided for mold, fungi, and wet rot, and it can be expanded by the Limited Fungi, Wet or Dry Rot, or Bacteria Coverage Endorsement. Section I of the policy provides property coverages. Coverage A covers the dwelling on the residence premises, attached structures, and materials and supplies used to construct or repair the dwelling or other structures. For the HO–6, Coverage A covers alterations, appliances, fixtures, and improvements that are part of the covered unit’s building. Coverage B covers structures separated from the dwelling, not including those used strictly for business or rented to others as anything other than a private garage. The limit of insurance for other structures is an amount equal to 10% of the Coverage A limit. Coverage C covers personal property worldwide. The limit of insurance applying to contents coverage is an amount equal to 50% of the Coverage A limit. Certain articles have special limits of liability, including money, securities and passports, watercraft, trailers, portable electronic equipment, and on- and off- premises business personal property. Theft of jewelry, watches, furs, firearms, silverware, and goldware also has special limits. The insured may choose to insure some of these items on the Scheduled Personal Property Endorsement, which will provide open perils coverage limited to either the property’s agreed value or its actual cash value. Coverage C exclusions include animals, motor vehicles, property of roomers and boarders, and credit cards. Coverage D covers indirect losses, such as additional living expenses and fair rental value. The Debris Removal Additional Coverage covers expenses incurred for removing debris after a covered loss, including an additional amount equal to 5% of the applicable coverage limit if the expenses exhaust the limit of liability. The Trees, Shrubs, and Other Plants Additional Coverage covers damages to trees and plants from certain named perils, up to $500 for any one tree or plant. Up to $500 is provided for expenses incurred due to unauthorized use of credit cards through the Credit Cards, Electronic Fund Transfer Card or Access Device, Forgery, and Counterfeit Money Additional Coverage. The Loss Assessment Additional Coverage provides up to $1,000 for the insured’s portion of losses shared between property owner association members. Limited coverage for collapse of the building is provided as an Additional Coverage, as is up to $5,000 for grave markers. Section I excludes earth movement, but an Earthquake Endorsement is available to provide coverage. Exclusions are also made for off-premises power failure, neglect, war, and intentional loss. Certain water damages are also excluding, including damages resulting from flood, tidal water, sewer and drain backup, overflowing sump pumps, and water exerting pressure on foundations or buildings. Section II of the policy provides liability coverages. Coverage E covers personal liability for claims brought against the insured for bodily injury or property damage. Coverage includes defense costs at the insurer’s expense, and it has a per occurrence limit. Coverage F provides medical payments to others. Coverage is provided for necessary medical expenses incurred within 3 years of the accident. Payments under Coverage F are not an admission of liability and are instead meant as goodwill payments to lessen the chance of litigation. Coverage F does not pay medical expenses of any insured or regular resident, except for residence employees. The Coverage F limit applies per person. Supplementary payments for the insured’s expenses incurred at the insurer’s request, first-aid expenses, up to $1,000 for damage to property of others, and up to $1,000 for loss assessments are provided as Additional Coverages. The Damage to Property of Others Additional Coverage will not apply to damage caused intentionally by an insured who is age 13 or older. Section II does not cover personal injury, which covers liability resulting from defamation or an invasion of privacy, unless it is added by the Personal Injury Endorsement. Certain liabilities are not covered by Homeowners policies. Liability for bodily injury or property damage arising out of the ownership, maintenance, or use of a motor vehicle is excluded, unless the vehicle is in dead storage, is used exclusively to service a residence, or is a golf cart. Liability resulting from watercraft is also limited. Homeowners policies automatically cover liability arising from all stored watercraft, sailing vessels less than 26 feet long, and outboard motorboats that are 25 horsepower or less. Inboard motorboats and other watercraft not meeting these requirements have further qualifications when the insured rents or owns them. Aircraft and hovercraft liability is also excluded. Coverages E and F also will not cover bodily injury or property damage arising out of business pursuits, the failure to render professional services, transmission of communicable diseases, abuse done by an insured, or controlled substances. Section II offers excess coverage over other collectible insurance, unless the other insurance is excess insurance specifically. Under both Section I and Section II, the insured may waive their rights of recovery, or the insurer may require an assignment of the insured’s right of recovery—this is the Subrogation condition. Mobile homes may be covered by endorsement on the Broad Form or Special Form or by separate insurance. The Mobile Home Endorsement covers the mobile home, attached structures and appliances, and utility tanks under Coverage A.