DWELLING PROPERTY 3 – SPECIAL FORM COVERAGE ANALYSIS

(January 2021)

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ANALYSIS OF POLICY

The focus of this analysis is on the DP 00 03–Dwelling Property 3 – Special Form. An analysis of each section is included and, where possible, examples and relevant court cases will be referenced.

Note: This analysis is of the 07 14 edition of this form. Any differences between it and the previous edition (12 02) appear in bold.

Dwelling Property 1 - Basic Form Coverage Analysis

Dwelling Property 2 - Broad Form Coverage Analysis

Dwelling Policy Program Personal Liability Supplement Coverage Form Analysis

Agreement

The policy begins with the commitment to cover the insured’s described property as long as the insured pays the premium and obeys the policy conditions.

Definitions

This section is quite brief, containing definitions for the following:

“You” and “your” mean the named insured. The named insured is the individual that appears on the policy Declarations page. The term, named insured, also includes the individual’s spouse, but the spouse must live in the same household.

“We,” “us,” and “our” mean the company that issues the policy and, naturally, provides the coverage.

Coverages

This policy’s coverages refers to the property identified as the described location, subject to the existence of specified coverage limits and the causes of loss (perils) that qualify for protection under the policy.

A. Coverage A – Dwelling

1. The first section of this policy explains what is meant by a dwelling. The term dwelling applies to the building structure that is used mainly as a dwelling and which is described on the Declarations, and any structures which are attached to the dwelling.

Protection under Coverage A extends to materials and supplies which are located on or next to the dwelling which are being used to construct, alter, or repair the dwelling or other structures on the described location.

Example: Leslie Woodwurk's home is covered by a DP 00 03 form. She is upset because, on Friday, a builder's supply store delivered some lumber and fixtures to her property. On Saturday, a large windstorm came through and scattered and destroyed the material and fixtures.

Scenario 1: The material and fixtures were to be used to build a concession stand for a local soccer league's field. The loss is not covered by her fire policy.

Scenario 2: The material and fixtures were to be used to build an additional room onto the back of her home. It was to be used for a baby Leslie would soon be adopting. The loss of the materials and fixtures would be covered.

Finally, if coverage isn’t provided by another part of the dwelling policy, building and outdoor equipment that is used to service the covered structures is also insured under Coverage A.

2. The land occupied by the dwelling is not covered by the policy. The value used to insure all of the eligible structures must reflect the fact that the land’s value is NOT included. This point should be carefully explained to the insured so that he or she has the proper coverage expectations for the value of the home.

Example: Mollie’s modest home is insured under a DP 00 03. Mollie has a new door and nearly $1,000 in building materials lying in her backyard. The door and materials are intended to add a screened-in porch. Unfortunately, a fire starts after lightning strikes a dead tree in Mollie's yard. The fire spreads to the home. The fire destroys the tree, the building materials and part of the dwelling. In this case both the damage to the home and the loss of the materials are covered. However, the cost of repairing the lawn after the remains of the tree is removed is not covered since land isn’t eligible as covered property.

The limit of liability for this is the amount that is shown on the policy’s declarations page under Coverage A.

B. Coverage B - Other Structures

1. Coverage B, Other Structures, protects real property that is set apart from the dwelling and separated by clear space. Structures that are connected only by fences, utility lines or similar types of devices qualify under the “clear space” requirement.

2. The following situations are ineligible for coverage under Coverage B:

· Land, including the land upon which the other structure sits

· Other structures which are used in whole or part for business

Example: Kenny’s home is located outside a city on several acres of land. Besides his home, he has a large pole barn that was built a long time ago by the original owners. He does not use the barn. A couple of months ago, some friends approached him and they signed an agreement to lease the barn. His friends then use it as product storage for their micro-brewery. The barn is no longer eligible for coverage under Kenny’s DP 00 03.

· Other structures which an insured either rents or holds for rental to any person who is not a tenant of the dwelling UNLESS used only as a private garage

Example: Joan rents a home from George. Joan is a retired teacher and, since she has a lot of time, she decides to take advantage of a long-term hobby. Joan is a skilled mechanic. After getting approval from George, she advertises her business, "Joan's Small Engine Repairs" in the local paper and via a sign in front of the rental property. One day, a storm blows over a huge tree on George's property. It lands on the garage, heavily damaging it and destroying nearly a dozen lawnmowers and various engines. The loss is not covered.

Example: Paul has had a problem keeping tenants in one of his properties that is adjacent to a business district. While looking for a tenant for his property on Business Avenue, he gets money from “Wrecks to Riches,” a car detailing business that is next door to his rental. “Wrecks” uses Paul’s garage to hold customer vehicles which are awaiting detailing work. Further, “Wrecks” also rents Paul’s utility shed to store extra cleaning supplies, waxes, and detailing equipment. Any loss to these structures would be ineligible for coverage.

Both of these are examples of business use and they disqualify both garages and the utility shed from coverage under the DP 00 03–Dwelling Property 3 - Special Form.

How about a situation that would be covered?

Example: Another one of Paul's renters, Lydia Storcarz, could use a few extra dollars. There is a two-car garage on the rental and Lydia doesn’t drive. She gets Paul’s permission to rent the garage for parking to people who work in the area. If a loss occurs to the garage, it is still covered. Why? Well, even if it is not being used by either the structure’s owner or his tenant, the garage is still being used as intended, so it doesn’t pose a higher threat to loss.

The Dwelling Property 3 - Special Form has an interesting twist regarding a commercial situation. Coverage is more flexible so that a structure (not the dwelling) may be used to store commercial property that belongs to the insured or an insured's tenant. Therefore, a building used for commercial storage (except for fuels) is still an eligible building as long as a covered person is doing the storing.

· Gravemarkers (including mausoleums)

Example: The home rented by Paul has been in his family for generations. In fact, a small corner of his backyard includes a family cemetery. One Halloween, some rowdies kick over and destroy several markers. The loss is not covered.

The limit of insurance for other structures is the amount that is shown on the policy’s declarations page under Coverage B.

C. Coverage C - Personal Property

1. Covered Property

Personal property owned by or used by the named insured or members of the named insured’s family is covered as long as the property is at the described location and the family member is living at that location. Other coverages can be extended at the client's request. This coverage is automatically included in the policy and the named insured, rather than the owner of the items, must make the claim for coverage. Personal property is covered for guests or servants if the property is on the described location.

The limit of liability for personal property usually located at the described location is the amount that is shown on the policy’s declarations page under Coverage C.

2. Personal Property Not Covered

Under Coverage C - Personal Property, the following items are excluded:

· Accounts, bank notes, bills, currency of any type, any type of gold or silver (except eating utensils), manuscripts, medals, notes, passports, personal records or securities, tickets, and stamps. Technology has not been ignored. The current edition of the Dwelling Property 3 - Special Form also bars coverage for any type of card capable of storing monetary value, including gift cards. Money substitutes, such as scrip (money-like certificates issued by banks), are also ineligible for protection.

Example: Soo Myx discovers a tragedy when she returns home from running errands. A thief has ransacked her home. While straightening up the damage, she notices that $2,000 worth of grocery store and fashion clothing store cards are gone. Unfortunately, none of this property would be covered.

· Animals, birds, or fish

· Aircraft and parts. Aircraft is considered as meaning any contrivance used or designed for flight. An exception is made for model or hobby aircraft BUT ONLY if such aircraft is not used or designed to carry people or cargo.

Note: This wording is flexible enough that coverage already extends to use of certain types of drones. Those that are capable of carrying items would be ineligible for coverage.

· Hovercraft and parts - the policy mentions that the term applies to all air-cushioned vehicles.

· Motor vehicles or all other motorized land conveyances, including their equipment and parts and portable electronics that are designed to be operated solely by use of the power from the electrical system of motor vehicles or all other motorized land conveyances. Portable electronics refers to items designed to manage audio or visual signals and data. The exclusion of portable electronics applies only while the property is in or upon the vehicle or conveyance. Such property is considered to be better covered elsewhere—such as under an auto policy.

Note: The policy now refers to portable electronics and no longer makes reference to accessories, devices, or instruments. (07 14 change).

Important Exception: The dwelling fire policy does cover vehicles which do not require motor vehicle registration, but only if either of the following apply:

a. The vehicle services the property at the described location (such as a riding lawnmower or snow blower)

b. The vehicle is designed to assist handicapped persons (e.g., a motorized wheelchair).

· Watercraft, with the exception of rowboats and canoes

· Data, including such data stored in any of the following:

a. Books of account

b. Drawings or other paper records

c. Electronic data processing tapes, wires, records, discs, or other software media

Note: The cost of blank recording or storage media, and of pre-recorded computer programs available on the retail market is covered.

Related Article: ISO Valuable Papers Coverage Form

· Credit or fund transfer (debit) cards

· Water including steam

· Gravemarkers

3. Property Removed to a Newly Acquired Principle Residence

A final personal property coverage item involves moving property from the described location to a new principal residential dwelling. The insurance shown in the declarations page for Coverage C will apply to both the current and the new location for up to 30 days (UNLESS the policy expires first). The coverage begins immediately when you start moving property and the coverage limit is proportional to the amount of property at each location.

Example: Jay Citydweller has been living in a very old home on the outskirts of Bigtown. The home is written on a DP 00 03 policy and has $20,000 for Coverage C - Personal Property. Jay has just received a big promotion and he’s purchased a townhouse in the middle of Bigtown. To save money, he begins to move his personal possessions by car, making a trip or two after work. After the third day of such trips, he has about 40% of his belongings at his old house left. In this situation, Jay still has a total of $20,000 of insurance coverage. However, the coverage is now limited to $8,000 (40% of $20,000) at his current home and $12,000 (60% of $20,000) at his new townhouse.

D. Coverage D - Fair Rental Value

1. If a loss occurring under Coverages A, B or C makes part of the described location which is rented to others or is held for rental to others unfit for living, this coverage part will pay the Fair Rental Value. The term refers to the lost income of that part of the described location which is rented or is held for rental, minus any expenses that do not continue while the portion of the premises is unavailable as a residence.

Example: The top floor of your dwelling, which is rented, was heavily damaged by smoke. During the repairs to this floor, you have the utilities turned off. You normally pay the utilities for your tenants. The insurance company is not going to reimburse you for the average cost of your utilities while they are turned off, since this expense has temporarily ceased.

Payment under fair rental value will be for the time required to repair or replace the damage, whichever occurs first.

2. If a civil authority prevents your use of the described location as a result of direct damage to a neighboring premises by a covered cause of loss, Coverage C covers the fair rental value loss for no more than two weeks.

Example: The home next to your rental dwelling burns to the ground and a city inspector decides that it would be safer for your tenant to live elsewhere while the neighboring property site is demolished and cleared. The longest amount of time that the policy will pay is two weeks.

Example: Again, the home next to you is damaged. However, the damage was caused by your tenant who, instead of parking in the garage, slammed into the neighbor’s foundation. An inspector requires the tenant to move until the neighbor’s home is safely supported. In this case there is no fair rental value coverage because the damage was caused by the renter’s vehicle. This is not a covered cause of loss under your dwelling policy.

3. The periods of time referenced in this coverage part are not affected by the expiration date of the policy.

Example: Harry’s home was damaged by a tenant accidentally starting a grease fire in his dwelling’s kitchen on 2/10/20. Harry had already arranged to switch his coverage to a new insurer and the new policy switch was effective on 2/17/20. Harry’s lost rental coverage due to the home being uninhabitable will still extend under his old policy until 2/24/20 when the home is once again habitable.

4. There is no coverage available due to the cancellation of a lease or an agreement.

Example: Revisiting Harry’s loss, the tenant was Babe who, at the time of loss, had five months left on a 6-month rental agreement. A week after living with friends, Babe finds another rental home and breaks her lease with Harry. The loss caused by Babe’s abandoning her lease would not be eligible for coverage.

E. Coverage E - Additional Living Expense

1. Sometimes a covered cause of loss (peril) damages the dwelling, other structures or personal property and the damage makes the described location uninhabitable. When this happens, the DP 00 03–Dwelling Property 3 - Special Form will pay for extra costs incurred by the insured to maintain the insured’s normal living standard.

The payments for such extra expenses last only until the property is repaired, replaced or, if the insured moves to a new location, until the insured is settled at the new address, whichever option takes the shortest amount of time.

Example: Eric’s home is insured by a DP 00 03–Dwelling Property 3 - Special Form. An old refrigerator’s wiring overloads catches on fire and fills the entire house with thick, black smoke. It will take a week to make the home fit to live in again. Eric and his family rent a modest suite at a nearby hotel for a week. The additional living expense coverage reimburses him for the cost of renting the suite, and his dining costs (less his estimated weekly grocery bill).

2. If the insured is unable to live at the described location because of orders from civil authorities, the policy will pay for additional living expenses for up to two weeks. However, the order to temporarily vacate the described location has to be the result of a neighboring property being damaged directly by a covered cause of loss.

Example: Ola’s dwelling is covered by a DP 00 03–Dwelling Property 3 - Special Form. Her neighbor’s home is threatening to collapse because of a foundation that is crumbling due to the use of improper building materials. A city building inspector orders Ola and her family to live elsewhere for two or three days until supports are put in next door. There is no coverage for extra expenses. Why? The reason Ola’s family had to leave their home was due to damage from a neighbor’s weak foundation. That is not a cause of loss that is covered by the DP 00 03–Dwelling Property 3 - Special Form.

F. Other Coverages

1. Other Structures

A policy owner may apply up to 10% of the insurance limit applicable to the dwelling (Coverage A) to protect other structures. This option extends coverage from the dwelling to structures on the described location that are separated from the dwelling by clear space. Again, structures merely connected to the dwelling by a fence, utility line or similar property are still considered separated by a clear space and so are eligible for this extension of coverage.

Example: Pete Jones has an old home that is covered by a DP 00 03 policy. His declarations page shows the following:
Pete Jones DP 00 03 Insurance Limits
Coverage A	$35,000
Coverage B	$7,500
Coverage C	$15,000
Coverage D	$8,000
One day, his son is playing with matches and his garage catches on fire. Because it’s windy, burning embers spread the fire to a large utility shed. Both garage and shed are totally destroyed for a total loss of $9,000. Pete is upset because he thinks that he only has $7,500 of coverage. His adjuster says, “not to worry.” Pete has up to $3,500 of coverage (10% of Cov. A) which he can apply to the loss, so the whole amount will be covered.

Note: Using this option does not divert coverage from the dwelling. The situation would not change if the dwelling also suffered substantial damage because any of the 10% used for other structures would not affect the dwelling's coverage.

Example: In the Pete Jones fire loss above, here’s how the protection for his dwelling was affected by the payment on the garage and shed loss:
Coverage available to dwelling BEFORE the Loss	Coverage available to dwelling AFTER the Loss
$35,000	$35,000

2. Debris Removal

Debris Removal coverage includes the expense of removing remnants of insured property if that property is in pieces because of a source of loss that the policy protects against.

This expense is included in the limit of liability that applies to the damaged property. In other words, any payment made for getting rid of loss-related debris DECREASES the insurance available for repairing or replacing damaged property.

Note: This is a commercial insurance claim, but it illustrates the importance of debris removal coverage.

3. Improvements, Alterations and Additions

This is an optional coverage extension that is available to a named insured who is a tenant. If the named insured as a tenant has paid for an improvement, alteration, or addition to the property at the described location, it may be protected by applying up to 10% of the Coverage C limit. Use of this option DOES NOT reduce the amount of coverage available to protect personal property that may be damaged in the same loss.

4. World-Wide Coverage

The DP 00 03 also allows an insured to use up to 10% coverage available under Coverage C to protect personal property while it is anywhere else on the planet. This extension is subject to the following limitations:

· The personal property must be damaged by an eligible cause of loss

· The extension reduces the amount of coverage available under Coverage C for the same loss (of course, it’s hard to imagine a single loss that could apply simultaneously to separate locations)

· This extension is not available to the property of guests or servants

· The extension does not apply to rowboats or canoes

Example: Lily and Daniel suffered some truly bad luck during a cruise to celebrate their 20^th wedding anniversary. A galley fire erupts on the 3^rd day and the ship has to be evacuated. Their berth was close to the galley and that area is destroyed, along with all of their luggage and clothing. Fortunately, they may use the Coverage C extension of protection from their Dwelling Policy to handle their loss.

5. Rental Value and Additional Living Expense

The DP 00 03 also allows an insured to use up to 20% coverage available under Coverage A to cover a fair rental value loss (see description of coverage under Coverage D - Fair Rental Value) and additional Living Expense (see description of coverage under Coverage E - Additional Living Expense). Exercising this coverage option does not affect the protection available under Coverage A for the same loss.

Example: Chris Bumbles owns a modest two-family home. Chris lives on the 1^st floor and rents out the top floor. One day, Chris has a grease fire in his kitchen and both floors of his home suffer heavy smoke damage. Chris’s DP 00 03–Dwelling Property 3 - Special Form has $15,000 Coverage A Dwelling and $1,000 protection under Coverages D - Fair Rental Value and E - Additional Living Expense. Chris is relieved to find out that the $14,000 cost for repairs and cleaning expense is fully covered under Coverage A and that an additional $3,000 (20% of Coverage A) is also available to help with his extra costs.

6. Reasonable Repairs

Reasonable Repairs coverage covers the reasonable expense for repairs necessary to protect covered property damaged by an eligible peril (cause of loss) to protect any property from further damage. Please refer to the section of this analysis on policy conditions.

Example: Jenna’s home is one of dozens that are damaged by a windstorm that blew through hers and several other neighborhoods. A large limb from a tree in her front yard was ripped off and smashed against her roof. She calls her insurer, but due to the number of homes affected, she’s told it will be several days before anyone has a chance to inspect her home.

Scenario 1: Jenna hires a couple of handymen who remove the limb and cover the hole with a heavy tarp to protect against rain. Jenna spends about $300 for the tarp and the labor. Her insurance will likely cover the entire expense.

Scenario 2: Jenna hires a company that puts up an enclosure around her entire home that costs $3,000. Her insurer refuses to pay more than $200 (their estimate to get temporary repairs) because they deemed the enclosure as unnecessary.

Any reimbursements made by the insurer for such repairs reduce the amount of coverage available for the damaged property. Also, the insured is still obligated to fulfill its obligations as explained under Condition D.2.

7. Property Removed

If covered property is removed from a premises that is endangered by a covered peril, the relocated property is protected by the DP 00 03–Dwelling Property 3 - Special Form against ANY CAUSE OF LOSS for up to thirty days. This does not increase the amount of available coverage; rather it extends coverage while the property is being protected.

Example: Pearl Wizdum comes home from work and sees smoke and flame surrounding her home's upper story. She and her two teenaged sons are able to enter the home and save their computers, digital entertainment equipment and an expensive drum set. Pearl and her sons take the property to her ex-husband’s home, storing it in his basement. A week later, while Pearl's home is still being worked on, a burglar breaks into her ex-husband's home and steals her property. This loss would be covered by Pearl's Dwelling Property 3 - Special Form.

8. Trees, Shrubs and Other Plants

The DP 00 03–Dwelling Property 3 - Special Form protects an insured’s outdoor greenery on a limited basis. Up to 5% of the policy’s Coverage A limit may be used to cover trees, shrubs or plants that are damaged by the following:

· Fire or lightning

· Explosion

· Riot/civil commotion

· Aircraft

· Vehicles (as long as they’re not owned by the insured or a dwelling tenant)

· Vandalism or malicious mischief

· Damage by burglars (but not for actual theft)

The coverage does have a sub-limit. $500 is the most that the policy will pay for any single shrub, plant, or tree. This single item maximum applies, regardless of the insurance limits that appear on the declarations. Business pursuits involving this class of property are excluded. This coverage represents an extra source of coverage, so payment under this section does not affect any other policy limit.

9. Fire Department Service Charge

Fire Department Service Charge coverage applies in the following manner:

If the insured contractually assumes liability to help pay for fire department charges incurred when the fire department is called to save or protect covered property from a covered peril, the policy will provide coverage of up to $500. However, NO coverage applies if the insured property is located within the limits of the city, municipality or protection district which responds to the fire.

Example: Fred Philanthrope lives a half mile outside of Flametown. Fred, along with dozens of his neighbors, lives in "Flaming Acres," an unincorporated community. One summer, Fred's home, which is insured under a DP 00 03, suffers a fire. The fire is extinguished by one of Flametown's fire department units. A few weeks after the loss, Fred receives a bill for $450 from Flametown. The bill was for the cost of the fire department response to his emergency. Fred, when he bought his home, also signed an agreement to pay for the cost of fire department response. This charge would be covered under his dwelling policy.

Note: This is additional insurance (it does not reduce any other available protection) and the policy’s deductible is inapplicable to this coverage.

10. Collapse

This provision has been changed in the 07 14 Edition. The biggest difference is that the provision was edited and expanded in an attempt to clarify what is meant by collapse.

a. The provision opens with a statement that coverage is only meant to respond to loss involving abrupt collapse. Since the form is making this distinction, it may have made more sense to title this item “Abrupt Collapse.”

b. The policy includes an explanation of what is meant by collapse. Collapse is explained as an abrupt falling down of an entire building or part of a building. The collapse has to be severe enough to make the building or part of the building unusable for residential purposes.

c. Neither a building nor a building part that is in danger of collapsing NOR a part of a building which remains standing is considered as being in a state of collapse. The nonexistence of a collapse condition applies even when the remaining structure shows evidence of cracking, bulging, and sagging, bending, leaning, settling, shrinking, or expanding.

d. This additional coverage protects against direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following:

(1) Perils insured against in personal property (Coverage C). These perils apply to covered buildings and personal property for loss insured by this additional coverage.

(2) Hidden decay

(3) Hidden insect or vermin damage

Note: Under items (2) and (3), coverage is barred if any named insured is aware of such damage before a collapse occurs.

(4) The weight of contents, equipment, animals, or people wherever they are

(5) The weight of rain when that rain collects on a roof

(6) A collapse that occurs while construction, remodeling or renovation is taking place but only if the reason for the collapse is because defective material or methods are being used in that construction, remodeling, or renovation.

e. Collapse loss to an awning, fence, patio, deck, pavement, swimming pool, underground pipe, flue, drain, cesspool, septic tank, foundation, retaining wall, bulkhead, pier, wharf, or dock that is not attributable to a peril insured against is not covered. The only exception is when building collapses and these items are damaged because of that building collapse.

f. This coverage does NOT increase the limit of insurance that applies to the covered property.

Example: Paula Unfortunata has a DP 00 03 policy with a Coverage A Limit of $30,000. One day her home catches fire, causing extensive damage to the front part of the dwelling. However, while the fire department is putting out the flames, the rear half of the home unexpectedly collapses. An investigation reveals that the builder used a type of glue as a wood fastener instead of nails. The intense heat dissolved the glue and caused the rest of Paula’s home to cave in. While the loss from both the fire and the collapse are covered, total damages are close to $50,000. The policy will only pay the maximum amount of $30,000.

11. Glass or Safety Glazing Material

a. This provision covers against:

· Loss to glass or safety glazing material that is part of a covered dwelling. Eligible loss includes broken glass that is a component of storm door and storm windows.

This distinction MAY be to allow coverage for damage related to breakage of door and window glass that occurs at times when they are not installed on covered structures.

· Damage caused by such material

The covered property includes glass building blocks, windows, storm doors, storm windows, skylights, etc.

Example: Paula Unfortunata is really unlucky. Last year her home was rebuilt after being destroyed by fire and collapse. Just last week a severe thunderstorm came through her part of town. Winds shattered the glass in her garage panels. The force of the wind was so great that the shards of glass became embedded in the drywall which covers the garage’s rear wall. Paula takes consolation in the fact that both the wind damage and the damage suffered by the wall are covered.

b. Losses under this coverage are excluded if, as of the date of loss, the dwelling has been vacant for more than 60 days. Buildings under construction are not considered to be vacant.

No coverage exists for damage that results from broken glass or safety material, except direct damage to covered property that is caused by broken glass shards, etc.

This minor exclusion is likely for avoiding the possibility of double coverage.

Example: Let’s add a twist to the Paula Unfortunata incident. Again, last week a severe thunderstorm came through her part of town. Winds shattered the glass in her garage panels. The force of the wind was so great that the shards of glass became embedded in the drywall which covers the garage’s rear wall. However, windblown rain also is forced through the broken windows, soaking the drywall. Paula turns in a claim, seeking for coverage due to both causes of damage. Her insurer pays to repair the damage only under the glass portion. The result is that it indemnifies her (instead of enriches) against the loss.

c. This coverage does not increase the limit of insurance for the covered property.

12. Ordinance or Law

a. This extension (which applies as an additional amount of coverage) allows a covered building owner or tenant to apply a limited amount of their policy's protection to a loss that involves a requirement to make repairs or replacement in compliance with a construction-related law. Specifically, the coverage extension will handle an increased expense caused by the enforcement of a law related to any of the following:

· Building, renovating, demolishing, repairing a covered structure which has suffered a loss

· Demolishing and rebuilding an undamaged portion of a covered structure which is required to be totally demolished because of covered damage to another part of that covered structure

· Working upon (remodeling, remodeling, or replacing) an undamaged portion of a covered structure in order to complete rebuilding, remodeling, or replacement of a damaged portion of that covered structure

Note: Coverage for such instances applies ONLY when the damage to the covered structure is due to a cause of loss that is eligible under the policy

Example: Joe owns a home that he rents out to others. After a flood causes the front half of the dwelling to cave in, the city points out that the home is now subject to a revised building code so the remainder of the dwelling has to be demolished. This cost is ineligible for protection under the Ordinance or Law provision because the loss was not created by an eligible peril.

b. The named insured may use up to:

· 10% of his Coverage A (or Unit-Owners Building Items) limit – when coverage under either item is written under the applicable policy

· 10% of his Coverage B limit – when no coverage is written for a structure under Coverage A

c. If the named insured is a tenant up to 10% of his policy's coverage for Improvements, Alterations and Additions – that applies to a given Described Location may be used.

Related Court Case: Homeowners Challenge Code Enforcement Limit

d. The applicable limit under this provision may also be used, either in total or in part, for the cost of cleaning up debris caused by post-loss, construction-related efforts that are covered by this provision.

e. This coverage is unavailable to handle any diminished property value. That remains an assumption of risk on the insured's part. Further, none of this coverage applies to a requirement to monitor, test, remediate, or otherwise respond to a situation involving pollutants.

PERILS INSURED AGAINST

A. Coverage A - Dwelling and Coverage B - Other Structures

1. The DP 00 03– Dwelling Property 3 - Special Form provides protection for dwelling and other structures against the possibility of direct losses.

2. There is no coverage for:

2a. Any item referenced as excluded by the policy’s general exclusions section.

2b. Collapse

Please refer to the previous paragraphs on collapse. This provision has been changed in the 07 14 Edition. It has been edited and expanded in an attempt to clarify what is meant by collapse.

The Special Form policy excludes coverage for collapse, except for what it protects against under Other Coverage, item 10 Collapse.

Example: John Nye Eve has just bought his dream home, a 1,100 square foot dwelling located in Lots O’ Lumps Estates. John insures the home with a DP 00 03. A couple of months later, after a particularly rainy spring, John notices that there’s an eight-inch drop from his front lawn to his front entrance. Two weeks later, John returns from work and finds that his home has completely collapsed. An engineer explains to John that the land chosen by the Lots O’ Lumps builders was totally inadequate to support dwellings. The soft ground couldn’t possibly support a large structure without it rapidly settling. This cause of loss would not be covered under the policy’s collapse coverage.

Related Court Case, , Collapse Coverage Did Not Apply to Replace All Stucco
Note: Although this involves a commercial case, it helps illustrate the complexity of determining what is meant by collapse.

2c(1). Loss caused when a residential system or appliance freezes while the home is vacant, unoccupied or under construction.

Systems or appliances include plumbing, heating, air conditioning, fire sprinklers, washers, refrigerators, water heaters, etc.

This exclusion applies only if the insured failed to make a reasonable effort to keep the dwelling heated, shut off the water supply, or drain the system or appliance.

Example: Erin Gobraw and her kids are leaving their home tomorrow to go for a two-month summer vacation in California. For the last two weeks, she’s reminded her ex-husband about coming by their home the night before to turn off the water and to drain the water pipes. Her “ex” calls to say that he won’t be able to make it and for Erin to do the work herself. Erin, lacking her “ex’s” handyperson skills, strength or tools, does her best to close the main water valve and she thinks that she’s drained her pipes. When Erin returns from her trip, she finds that her family room carpet and some of her furniture are destroyed by mildew. Her ex-husband comes by and explains that she needed to drain her water heater and to use an electric pump to properly drain her pipes. Luckily, since Erin did do her best under the circumstances to protect her home, the loss to her property is covered.

Note: Sump systems and gutter systems are not considered part of a structure’s plumbing system.

2c(2). Loss caused by the freezing or thawing, pressure or weight of ice or water to non-building structures such as the following:

· Fences, pavement, patios, or swimming pools

· Foundations, retaining walls or bulkheads

· Piers, wharves, or docks.

2c(3). Theft of property that is not a building structure

Example: Let’s use Erin Gobraw again. This time Erin’s ex-husband decides to make up for the water loss fiasco by erecting a wooden playground set in his kids’ backyard. He puts all of the major pieces together and stops work when it gets dark. He tells Erin that he’ll come back tomorrow morning to finish the job. Unfortunately, during the night, someone comes by and steals the playset. The loss is not covered by the DP 00 03 since the structure was not part of a building.

2c(4). Any theft that occurs within or to any structure that is being built.

2c(5). Wind, hail, ice, snow, or sleet losses to the following:

· Outdoor antennas and aerial. This exclusion includes any related wiring, towers, and masts. Although the language has not been updated, the exclusion likely extends to newer cable and satellite set-ups.

· Trees, plants, lawns, and shrubs

2c(6). Vandalism, malicious mischief, theft, and attempted theft but only if the dwelling is vacant for more than 60 days before such losses (again note that dwellings under construction are not considered vacant).

2c(7). Continuous or a pattern of seepage or leaking water or steam:

The discharge must come from a covered dwelling’s household appliances or plumbing, heating, air conditioning or fire sprinkler system to be excluded.

2c(8). Loss caused by any of the following:

· Wear, tear, marring or deterioration

· Inherent vice, latent defect, or mechanical breakdown

· Smog, corrosion, mold, or rot (wet or dry)

· Smoke caused by agricultural or industrial operations

· Pollution (of any type or source)

· Foundations, retaining walls, pavement, floors, roofs, or ceilings which have shrunk, expanded, cracked, settled, or bulged

· Birds, domestic animals, rodents, or insects

· Damage that is related to presence of creatures and insects including creating living areas (nests), creature/insect excrement (waste and secretions). 0714 Change

Exception to exclusion 2c(8) - Any type of water damage to the covered property that originates from a household appliance or plumbing, heating, air conditioning or fire sprinkler system which is NOT excluded in the policy is covered. In such instances, the coverage will include the cost of gaining access to the system or appliance (such as tearing out floors or walls) and repairing the damaged floors or walls. However, coverage would not include repairing any damaged appliance or system.

Example: A rental home has been vacant for nearly five weeks when a radiator valve develops a leak. The valve is next to an electrical outlet that becomes covered with condensation and violently short circuits. The electrical sparking starts a fire that causes thousands of dollars in damage. The broken valve and damage caused by the steam (ruined adjacent plaster walls) is excluded, but the resultant (ensuing) electrical and fire damage is covered by the policy.

Important: This policy’s water damage exclusion that references surface water and underground water does NOT apply to the exceptions stated above.

Note: An important qualifier is that the policy will pay for losses to buildings which follow (ensue) the occurrence of either collapse (2b) or freezing (2c). However, the ensuing loss must be the result of a covered cause of loss.

B. Coverage C - Personal Property

The DP 00 03–Dwelling Property 3 - Special Form provides protection for personal property against the perils listed below, with the exception of items that are contained in the GENERAL EXCLUSIONS section of the policy.

Note: The coverage applies to direct damage to the covered property. In order for coverage to apply, a limit of insurance must appear next to the Coverage C section on the policy declarations.

1. Fire or lightning

Please remember that we are talking about hostile fire and natural lightning, as opposed to friendly fire or artificially generated electricity.

GENERAL EXCLUSIONS

There are a number of exclusions which are clearly spelled out in the DP 00 03–Dwelling Property - Special Form. This section is the first place to look in order to answer the question often asked by insureds, "Is this covered by my policy?”

A. The exclusions listed here are categorically excluded. Unless an exception appears, it doesn’t matter if the loss is direct, if it originated with some other cause or even if it happens at the same time (concurrently) as another cause of loss. The GENERAL EXCLUSIONS prohibit the following sources of loss:

1. Ordinance or Law

a. There is no coverage due to any ordinance or law concerning building, construction, repair, or demolition. The amount of any property loss attributed to the enforcement of an ordinance or law, or any, related, increased cost to repair or replace the damaged property is not covered.

b. This exclusion also bars claims involving loss of property value that is created by construction-related ordinances or laws.

c. No coverage exists for costs in any way connected to dealing with pollution events. The exclusion also applies to obligations to monitor, test for, assess or remediate the effects of pollution.

A major reason for this exclusion is to prevent coverage for building codes that were changed or created after the insured property’s construction. Commonly, after a building has been damaged, new requirements for wiring, plumbing, or materials may apply. Other instances involve laws which prevent the repair of a building which has suffered damage of 50% or more of its value. Without this exclusion, the policy would have to replace an entire structure rather than pay for a partial loss.

Example: Clem Huggle owns a single-story home that is insured by a DP 00 03 policy. The home was built in 1925 and is located in a part of town that, in the last decade, has become a very hot area for restaurants, bars and clubs. The town council enacted a law five years ago which forbids private residences to be built in the area and, if a residence suffers damage to more than 49% of its structure, it must be totally demolished. Clem’s home is struck by lightning. The lightning strike and resulting fire destroys half of the home. Clem files a claim for the total value of the policy, plus expenses to build a new home at a new location. The policy excludes coverage for the claim, reimbursing Clem only for the actual monetary damage to his house.

Note: This exclusion does not apply to the limited amount of protection available under the policy's ordinance or law additional coverage.

2. Earth Movement

The earth movement exclusion further clarifies the limitation mentioned under the coverage for volcanic eruption by specifically excluding mine subsidence from coverage. Mine subsidence is when earth collapses into the spaces created by underground mines. While the damage to a home is the same, mine subsidence wasn’t originally interpreted by claimants, courts and regulators as falling under the exclusion. Coverage for losses caused by any movement of the earth, whether or not it accompanies volcanic activity, or involves underground excavation is specifically excluded. The policy wording clarifies that the event that causes any earth movement, including an act of nature, is irrelevant as damage from such a loss remains excluded. There is no longer a reference to loss events involving human or animal forces. (07 14 change).

There is an exception for fire damage that may be triggered by earth movement. In that case, the policy will respond to loss that can be attributed to the subsequent fire.

3. Water (Retitled from “Water Damage. 07 14 Change)

The Special Form policy does not cover a loss caused by any of the following:

a. Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind. (Adds reference to exclude loss caused by storm surge, tidal waves, and tsunamis. 07 14 Change).

b. Water which backs up through sewers or drains or which overflows from a sump;

c. Water below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool, or other structure.

d. The excluded situations mentioned under water damage also apply to damage caused by waterborne material. So, a distinction exists between damage caused by water and damage caused by items borne (carried) by water. The reference, allegedly, is intended make the exclusion definitive in barring coverage for damage caused by debris-laden water or sewage.

This exclusion applies regardless of whether it is connected to acts of nature. No specific reference to acts of human or animals is included. 07 14 Change.

Besides excluding damage from water and waterborne material, this exclusion attempts to make its intent clearer by stating that it also bars coverage from water (and material carried by water) that escapes or overflows from any containment system. The systems referenced in the form include:

· Dams

· Levees

· Seawalls

· Other boundaries

· Other containment systems

This clarification is a 07 14 Change.

Note: Direct loss by fire or explosion resulting from water damage, as described by this policy, is covered.

4. Power Failure

The exclusion of loss caused by “power failure'' warrants special attention, because such losses have revealed general uncertainty and have resulted in claim problems. The DP 00 03–Dwelling Property 3 - Special Form simply excludes power interruption. Power interruption refers to the interruption of power or other utility service if the failure takes place off the residence premises. If a covered cause of loss then damages the described location, the insurance company will pay only for loss caused by the covered cause of loss.

It is clear that the exclusion would apply if a power failure were caused by damage to a power station or utility equipment located away from the premises. But if, for example, lightning struck and damaged wiring on the insured premises, the exclusion would not apply and the policy would pay for damage to covered property resulting from power failure caused directly by the lightning.

5. Neglect

This refers to any instance when the insured does not make a reasonable effort to save and preserve property during and after the time of a loss. This effort to protect property only applies when the property is threatened by a covered cause of loss.

Example: Bernie’s roof is severely damaged when a large tree limb falls from an old, neglected tree. The limb pierces the roof in the area over an unused bedroom that is used for storage. It happens the night before a long-planned, three-day trip that Bernie and his girlfriend have been looking forward to for nearly a year. Bernie decides that he can go on the trip and handle things when he returns. He comes back from a great trip but discovers that a heavy rainstorm occurred while he was away. When the insurer sends out an adjuster, Bernie’s told that the extensive, additional damage caused by water entering the home through the roof won’t be covered.

This exclusion emphasizes the insured's obligation to protect their own property which may face damage or destruction. However, the obligation calls for reasonable steps as opposed to heroic actions. The insured is not required to risk his or her personal safety (such as entering a smoke-filled house to retrieve furniture).

6. War

The term “war'' includes undeclared war, civil war, insurrection, rebellion, revolution, warlike acts by a military force or military personnel, destruction or seizure or use of property for a military purpose. It also includes any consequence of any of the above.

Note: Discharge (which is a broad term) of a nuclear weapon is considered to be a warlike act, even if it was discharged by accident.

7. Nuclear Hazard

The policy refers the reader to the Condition section’s Nuclear Hazard Clause, which defines the term and explains what events are excluded from coverage.

8. Intentional Loss

This exclusion applies to loss caused by and intended by an insured and denies coverage for all insureds when any insured commits an intentional loss. This provision even includes acts which are performed at the request of an insured. In other words, if an insured either directly or indirectly causes any intentional damage to covered property, the damage is not covered.

The provision is worded in a manner that denies coverage even when incidents also involve other insureds who may be innocent of any intentional act.

Example: Ned and Marcy Toughluv have an incident just before Christmas. As a surprise, Marcy and her son spend hours putting together an extensive model railroad setup for her husband Ned. Ned is a serious railroad hobbyist. When Ned arrives home the next morning, instead of being thrilled, he’s enraged. His wife failed to buy him the model and layout he preferred. He sets fire to the railroad set-up. By the time the family extinguishes the fire, the model, all of the other gifts, their expensive artificial Christmas tree and their living room are all destroyed by smoke and flames. The Toughluvs ask for coverage under their policy, but their insurance company denies the claim since it was an intentional act. They also notify the Toughluvs that it does not matter that Marcy was not involved in setting the fire.

However, some jurisdictions have rendered decisions that preserve the insurable interest of innocent insureds. In these instances, state laws protect innocent insureds.

Related Court Cases:

"Intentional Act Exclusion Held Not Applicable When Severe Injury Was Not Intended"

"Intentional Damage Exclusion Held Applicable Although Damage Was More Severe Than Expected"

9. Governmental Action

With the lone exception of property that is destroyed in order to create a fire break, the special form policy does not cover any damage or loss related to acts of any unit of government.

Examples of losses that are not covered:

· New porch ordered to be demolished because it violates a city's easement.

· A storage barn is removed because a city inspector says it was not approved for the particular construction zone.

· A home is demolished by city order because an insured (a local science teacher) dropped a boxful of thermometers and mercury spills out onto the home's flooring.

· The sheriff's office seizes thousands of dollars of electronics and computer equipment from an insured's home. The insured innocently purchased the items from someone who stole the items in a semi-trailer hijacking.

B. Items listed in this part apply to property described under Coverage A - Dwelling and Coverage B - Other structures.

Direct losses caused by the following sources of loss are excluded. However, these losses may be covered if they follow (ensue) any source of loss that isn’t excluded elsewhere in the policy.

1. Weather conditions

This exclusion applies ONLY IF weather conditions have any effect on a cause of loss that is listed in part 1 of the General Exclusions.

Example: A very powerful thunderstorm rages through Bigtown, centering over the Bigtown Nuclear Plant. A series of freak lightning strikes destroys the plant, causing a disastrous meltdown. The irradiated homes that are insured with a DP 00 03–Dwelling Property 3 - Special Form are not covered for the nuclear accident, even though it was caused by lightning.

2. Acts or decisions

There is no coverage under the policy for losses caused by the act or failure to act on the part of individuals, groups, organizations, or governmental bodies.

3. Any loss that is caused partially or totally by the following if faulty, inadequate, or defective:

Planning, zoning, development, surveying, or siting
Design, specifications, workmanship, repair, construction, renovation, or remodeling
Grading or compaction
Materials that are used in repair, construction, renovation, or remodeling
Maintenance of any kind

This applies whether the property is on or off the described location.

CONDITIONS

Instead of focusing on what is or is not covered, the conditions section is primarily concerned with what is required by the insured or insurer as well as how the insurance contract operates.

A. Insurable Interest and Limit of Liability

Regardless of the number of people who have an insurable interest in the property covered, the most that the policy will pay for any single loss is limited. The insurer does not have to pay more than the lesser of:

· The amount of the insured person’s interest in the covered property. The amount of interest is only that which exists at the time of the loss.

· The applicable limit of liability.

This was previously Condition B. 07 14 Change

Example: Jan Tazia insures her home for $20,000. A month later, the volcano that’s down the block erupts and buries her home with volcanic ash. The island’s records established that the house was worth $75,000 and Jan has an outstanding mortgage of $40,000. Regardless of Jan’s mortgage and the home’s market value, she is only entitled to the policy’s limit of $20,000.

B. Deductible

Any coverage paid under the DP 00 03–Dwelling Property 3 - Special Form is net of any deductible that applies to a given loss. That deductible is shown on the policy declarations.

In the instance of a loss that qualifies for the application of more than a single deductible, the only amount actually applied will be the highest deductible amount. 07 14 Change.

This item previously appeared directly after the policy’s Definitions paragraph. 07 14 Change

Related Court Case: Disputed Legal Fees Held Obligation Of Insured Law Firm Up To Amount Of Policy Deductible – though this does not involve a dwelling policy, it illustrates the enforceability of a valid deductible.

C. Concealment or Fraud

If the person insured by the policy has deliberately hidden or lied about any important fact connected with securing the insurance or having a loss covered, the insurance contract may be nullified. Insurance contracts are legally enforceable ONLY when all of the parties to the contract deal with each other in an honest manner.

Example: Evo Darksyde is covered by a DP 00 03 policy for the following amounts:
Coverage A	$30,000
Coverage B	$5,000
Coverage C	$20,000
Coverage D	$3,000
Unknown to his insurer, Goodfolks Insurance, Evo only owns an old T.V. and a couch, worth a total of about $80. Evo’s home catches fire and burns to the ground. Instead of filing a loss on the two pieces of furniture, Evo submits a ten-page list of new furniture and false store receipts. Goodfolks Insurance not only denies Evo’s entire claim, but they also send him formal notice that the insurance contract is considered void (nonexistent). They also promptly report his actions to the local authorities.

Note: This is a condition that may create ambiguity because of its wording. The text says that it will “provide coverage to no persons” who aren’t truthful about information that affects an insurer’s decision to grant coverage. The phrasing appears awkward and could be interpreted in various ways, resulting in possible litigation.

D. Duties after Loss

Whenever a loss occurs, the policy owner is responsible for:

1. Quickly telling the insurer or its agent about the loss

2. Protecting the damaged property, including arranging for needed repairs and keeping track of the related expenses

Related Court Case: Law Bars Suit Against Public Adjuster

3. Cooperating with the insurance company by agreeing, whenever needed, to display the damaged property, provide the insurance company with records and documents that they request and allow them to make copies

4. Creating an inventory of damaged personal property. The inventory must show the quantity, description, actual cash value and amount of loss. The "insured" should also attach any bills, receipts and related documents that will justify the figures reported in the inventory.

5. Further, the policy owner must agree to submit to examinations under oath. Such examinations are made while not in the presence of any other "insured" and the policy owner must sign any statement.

The requirement for cooperation is quite important. The insured is generally the primary source used by an insurance company in investigating a loss. It is vitally important that the insured is flexible in assisting the insurer in its investigation. However, the insurance company is obligated not to abuse this provision. The requests for examinations and information must be reasonable in relation to the loss circumstances.

6. Sending the insurance company a sworn proof of loss. The proof of loss must be signed and sent in within 60 days after it is requested by the insurance company.

The signed statement must accurately include the following:

a. The time and cause of loss

b. Property involved, including parties (such as creditors) who have liens on the property

c. Information on any other insurance which may cover the loss

d. Details of any changes in title or occupancy during the term of the policy

e. Any specifications of damaged buildings and detailed repair estimates

f. An inventory of damaged personal property

g. Valid receipts for additional living expenses and records that support the fair rental value loss

E. Loss Settlement

The settlement provision of the DP 00 03 policy depends upon the class of property that suffers a loss.

1. Settlement on damage to:

Personal property
Awnings, carpeting, appliances, outdoor antennas, and outdoor equipment, and
Structures that are not buildings

If items such as the above covered property are damaged, the loss is settled at actual cash value at the time of loss. However, the settlement will not be more than the amount necessary to repair or replace the property.

Example: Your client has a ten-year-old sofa that is destroyed in a fire. The insurance company discovers that the same model costs $1,700 today. However, they consider the age and information from the insured about its condition, stains, etc., and determine that its actual cash value is only $319 and that is all that will be offered.

Related Article: Actual Cash Value Guide

Remember, the purpose of insurance is to restore an insured to approximately the same position they enjoyed before the loss. Without this provision, an insured whose loss was based on new or replacement value would be financially enriched by a loss.

2. Settlement on damage to dwelling and other structures:

Loss settlement for this type of property is more complicated. If such property is damaged, settlement may be based on replacement cost (where no deduction is made for depreciation). However, the use of replacement cost is conditional upon the following:

The limit of insurance written on the damaged property must equal at least 80 percent of the structure’s full replacement value.

Although the loss is settled according to replacement cost, the maximum to be paid under the policy is the least expensive among the following:

The limit of liability shown on the declarations for the covered property
The replacement cost of the portion of structure damaged (using similar materials)
The amount necessary to replace or repair the damaged structure

Regardless the option, there will be a deduction for the policy deductible.

The settlement is different when the limit of insurance at the time of loss is less than 80% of the structure’s full replacement value. Under this circumstance, the policy will pay the greater of:

The actual cash value of the damaged structure
The proportional replacement cost value of the damaged structure. The proportion is based upon the relationship between the actual percentage represented by the limit of insurance to the 80% required to trigger full replacement cost coverage.

IMPORTANT: The loss payment will still subtract the deductible and it will be no more than the actual limit of insurance.

In order to determine the amount needed to meet the 80% of full replacement cost requirement, only include the value of the structure that is above the structure’s foundation walls or the lowest basement floor, whichever is applicable.

Only actual cash value of the loss will be paid unless one of the following applies:

a. the damage is fixed

b. the loss amount is less than $2,500 AND less than 5% of the limit of insurance.

Finally, the policy owner has the right to have the loss settled on an actual cash value basis and has up to 180 days (from the loss date) to make claim for any additional amount on a replacement cost basis.

F. Loss to a Pair or Set

If there is a loss to a pair or set, the insurance company has a choice. It may pay the amount that represents the loss of value (on an actual cash value basis) to the property before and after the loss.

Example: Kendra was startled awake by her apartment's smoke alarm. As she ran outside, she managed to grab her cat and a handful of jewelry from the top of her dresser. Her apartment and several others are gutted. She finds that she only saved one of her heirloom emerald earrings. As an intact set, the earrings were worth $500. Kendra requests that amount as part of her claim. Her insurer pays her $275 after discovering that the lone earring still has a value of $225.

An insurer may also choose to repair or replace the damaged or lost property. The policy wording obligates the insurer to restore the property's pre-loss value. This could create some ambiguity. Let's use Kendra's situation again, but with a different twist.

Example: Kendra was startled awake by her apartment's smoke alarm. As she ran outside, she managed to grab her cat and a handful of jewelry from the top of her dresser. Her apartment and several others are gutted. She finds that she only saved one of her heirloom emerald earrings. As an intact set, the earrings were worth $500. Kendra requests that amount as part of her claim. Her insurer locates a match for her remaining earring. They found it at a local pawn shop and only paid $100 for it.

In the first example, Kendra receives a higher cash payment, but only one earring. In the second, she has her earrings, but the set may not be worth as much as the original. Kendra may be able to have the "new" set appraised and, if it is worth less, may be due additional compensation.

G. Appraisal

If the insured and the insurance company can’t agree on the amount of loss, either may demand a loss appraisal. This provision requires both parties to do the following in order:

· Choose a competent appraiser

· The appraiser has to be selected within 20 days of getting a written appraisal request

· Accept the umpire which is chosen by their appraisers (an umpire will be chosen within 15 days)

· Accept the selection of the umpire by a judge of a court of record in the same state of the described location. But this is only if the appraisers can’t agree on an umpire

· Allow their appraisers to separately set the amount of loss. If the appraisers agree on a cost, the insurance company uses the amount to settle the loss. If they disagree, the umpire joins the process and agreement by any two sets the amount of loss

· Pay its own appraiser and split the cost of the umpire and other appraisal expenses

H. Other Insurance and Service Agreement

If a loss covered by this policy is also covered by other insurance, the insurance company will pay only its share of the loss. The insurance company’s share is determined by how much coverage is written under the policy and how much total coverage is available to cover the loss.

Example: A. Abel has DP 00 03–Dwelling Property 3 - Special Form protecting his home. The policy has $25,000 written under coverage A. Coincidentally, the bank that lent A. the money to buy the home bought a separate fire policy on the same dwelling. The 2^nd policy was for $35,000. A’s home has an $8,000 dollar loss. While investigating the loss, the insurance company finds out about the other policy. The insurer determines that the loss is covered and they pay A. $3,200. The $3,200 is roughly 40% of the loss, which is the insurance company’s share of the total amount of insurance written by both policies ($25,000/$60,000 [sum of two policies] = 41.67%).

This provision allows an insurer considering a loss payment to take into consideration any protection that is available under a non-insurance contract, such as a maintenance, warranty, or similar arrangement. That other source of coverage must respond to the loss before any coverage is provided by the special form policy. In such circumstances, the special form policy becomes an excess insurance contract.

I. Subrogation

A subrogation is a right owned by the insured to recovery any payment made under the insurance policy from the party that’s responsible for the loss. This right to recover payment is passed onto the insurance company. An insurer, after paying their insured, may try to recover any money it’s paid out, so it is very protective of this right. An insured may, in writing, waive this right to recover payment. However, such a waiver has to be in writing and has to be done prior to a loss.

Example: Jerry Atrick invites some friends over for a dinner party. The party is cut short by a fire which started in the bathroom by a burning cigarette that Jerry’s friend, Sally, threw into a waste basket. Jerry’s insurance company pays $3,500 in damages to Jerry. A week later, Sally receives a certified letter from Jerry’s insurance company, demanding to be reimbursed $3,500. The insurer has just subrogated Jerry’s claim against Sally.

J. Suit Against Us

As mentioned earlier, a policy is a contract between the insurance company and the insured policy owner. Under this provision, the insured cannot attempt to sue her insurance company until the insured or claimant uses all of the avenues within the policy. In other words, legal action can’t begin until after the policy provisions have been complied with. Finally, the action has to start within two years after the date of loss.

Courts have upheld this limitation. Of course, the issue that controls a policy owner's right to sue is whether he or she has complied with the policy provisions, not how long it takes for a payment to be made (or for an insurer to investigate a claim). An insured may preserve the right to bring suit by seeking expert advice regarding when and how to file a claim against the insurance company.

Related Court Case: Insurer Waived Suit Limitation Clause

K. Our Option

If the insured is given written notice within 30 days after the insurance company receives the insured's signed, sworn proof of loss, the insurance company may repair or replace any part of the damaged property with similar property.

It is important that insurance consumers understand that paying a loss in cash is just one option available to an insurance company to settle a claim. The insurance company can actually replace the damaged property with new, used, or similar property. This provision is meant to balance the insured’s right to recover for an eligible loss against the insurer’s right to settle losses at a reasonable cost. As time passes, it may be difficult or impossible to find exact material or property to replace or repair what has been lost or damaged.

L. Loss Payment

The insurance company is obligated to handle any loss, including payment, with the insured policy owner. If a payment is made, the payment will go to the insured. Exceptions to this exist when another person is named in the policy or has a legal right to receive payment.

Once the insurance company gets the policy owner’s signed proof of loss and the value has been established through one of the following:

· an agreement with the insured

· notice that a final judgment is entered

· an appraisal award has been filed

the insurance company has 60 days to pay the insured.

M. Abandonment of Property

The insurance company is not required to accept any property which is abandoned by the insured. This provision keeps the insurance company out of the junkyard or realty business. An insurance company’s goal is to protect property, not to accumulate real or personal property.

N. Mortgage Clause

An insurance company is obligated to recognize the financial interest of the mortgagee which is not always the same as the insured’s interest.

1. When one or more mortgagees appear on a policy, any loss payments made involving the dwelling or other structures coverage will be paid to the mortgagee(s) and the insured. The payments must recognize each party’s interest and any order of precedence.

Example: Joe Overdrawn borrowed money from Bank A to buy his home and garage. Joe insured both on a Special Form Dwelling policy with Bygone Insurance, listing Bank A as the mortgagee. Later, Joe borrows more money to pay some bills. He borrows this additional amount from Bank B, which insists on using his home as collateral. However, Bank A insists that Bank B be listed as an additional interest which can’t claim any payment until after Bank A’s interest is handled. A year later, Joe’s home is totally destroyed by a windstorm. Bygone Insurance pays the policy limits to Bank A. Even though Bank B is listed as an interest, it couldn’t claim any of the insurance proceeds since the entire amount was needed to satisfy Bank A’s primary financial interest.

2. After investigating a loss, the insurance company may reject (or deny) a claim by a policy owner. However, the rejection of the policy owner’s claim may not apply to a mortgagee’s claim. A mortgagee can preserve a separate right to payment by sharing any information it may have regarding a change in ownership, occupancy or level of risk, paying premiums when the policy owner fails to do so and by complying with the policy’s proof of loss, appraisal, lawsuits and loss payment provisions. Of course, this only applies after the mortgagee has been notified that the insured has failed to comply with the provisions.

3. If the insurance company decides to cancel or not to renew the policy, the mortgagee will be notified at least 10 days before the cancellation or non-renewal takes effect. This separate, advanced notification allows the mortgagee time to arrange for replacing coverage.

4. In the event that the insurance company denies coverage to the insured, but pays a mortgagee, the insurance company may either pay just the loss or choose to pay off the entire mortgage debt.

5. The insurance company also has the option of obtaining all subrogation rights under the policy. Therefore, the insurer, after paying the mortgagee, could pursue reimbursement from the insured or other responsible party.

O. No Benefit to Bailee

The insurance company isn’t obligated to honor any assignment or provide any coverage that benefits a person or organization holding, storing, or moving property for a fee regardless of any other provision of this policy. In other words, the insurance contract recognizes the interest of the insured and any valid interests, with the exception of extending coverage to parties that have temporary control over the insured property. This provision forces such parties to take full responsibility for their actions instead of enjoying the benefit of coverage purchased by others.

AN IMPORTANT NOTE ON THE CANCELLATION AND NON-RENEWAL CONDITIONS:

The following information concerns only what is in the dwelling policy regarding cancellation and non-renewal. Most states have their own provisions which supersede these provisions. The reader must be familiar with the requirements of their operating states as these provisions may differ substantially from the basic dwelling policy provisions. The differences commonly revolve around the cancellation or non-renewal reasons, time of notice, proof of sending notice and length of advance notification.

P. Cancellation

1. The insured has the right to cancel coverage whenever he or she wishes by surrendering the policy or by sending written notice to the insurance company. The notice has to include the effective date of the cancellation.

2. The insurance company may cancel the policy, but the policy limits the conditions when it can cancel the policy. The insurance company must give advanced, written notice of cancellation and it can only do so when:

· The insured fails to pay the premium and is given (at least) 10 days notice;

· The policy has been active less than 60 days; it can then be canceled for any reason as long as (at least) 10 days notice is given;

· The policy has been active more than 60 days (or the policy is a renewal)and it gives (at least) 30 days notice IF:

o The insured has seriously misrepresented an important fact; or

o There has been a significant change in the subject of the insurance

· The policy has a term of more than one year if the insurer gives (at least) 30 days notice prior to the anniversary date.

3. The insurer must return any premium based on the date of the cancellation until the policy expiration date.

4. Any refund due, if not returned along with the cancellation notice, must be returned within a reasonable time after the cancellation date.

Q. Non-Renewal

If the insurance company decides not to issue a renewal of the expiring policy, it must give the insured at least 30 days advanced notice.

R. Liberalization Clause

An insurance company has the right to make changes to the coverage it offers. However, if the changes expand the coverage under the policy and does so without charging more premium, the company must automatically provide the coverage under this policy if the change meets both of the following criteria:

Its effective date falls within the policy term or 60 days prior to the start of the policy term
Is approved in the same state where the policy is effective

The Liberalization requirement does not apply when changes involve items that both broadens and restricts coverage via either a new policy edition or a required (mandated) endorsement.

Example: Bygone Insurance decides to add expanded coverage, free of charge, to all of its DP 00 03– Dwelling Property 3 - Special Forms issued in BigState. The free, expanded coverage is effective August 1, 2018. Jane Everfair’s policy, with a described location that is in BigState, renewed on June 14^th. On August 10^th, her property suffers a loss which is the type which is covered by the expanded coverage. Because the change was implemented during Jane’s policy period, she receives the broader benefit.

However, Tom Woeful is also covered by Bygone Insurance under their DP 00 03–Dwelling Property 3 - Special Form. His policy renews on August 5th and he suffers a loss that could be handled by the expanded coverage. Unfortunately, his property is in LittleState. Since Bygone did not expand coverage for its LittleState policies, Tom’s policy is not liberalized, regardless of his policy term.

S. Waiver or Change of Policy Provisions

An insured may ask to waive or change a policy provision, but the request must be approved by the insurance company and the insurer must agree to the change in writing, otherwise the waiver or change is no good. An insurance company may ask for an appraisal or an examination without giving up any of its rights under the policy.

Example: Bygone insurance is not comfortable with the circumstances of a loss or with the value of the damaged property that is claimed by the Patricia. While it is still trying to determine whether the loss qualifies for coverage, Bygone may ask for an appraisal. The fact that it asked for an appraisal does not block it from possibly denying coverage when its investigation is complete.

T. Assignment

A policy owner may not assign his or her policy to another party without getting written approval from the insurance company.

U. Death

If the named insured dies, the policy will still provide coverage according to the policy's provisions while the covered property is the responsibility of the deceased’s legal representative or a party that controls the covered property. The coverage applies only to the covered property. When the situation involves a person who temporarily controls the property, coverage applies only until the property is assigned to a legal representative.

Example: Sollie's home was insured by a dwelling policy with effective dates of 6/10/2020 to 6/10/2021. On Jan 13, 2021, Sollie dies. His old friend and next-door neighbor looks in on the property for the three weeks it takes to have someone appointed as Sollie's executor. For that three-week period, the policy would respond to a loss, treating Sollie's neighbor as the insured.

Examples:

During the three-week period that Sollie's home is in his neighbor's control, a thief breaks into Sollie's home and steals a home entertainment center - that loss is covered.
A week after Sollie's home is in his neighbor's control, a thief breaks into the neighbor's home and steals a home entertainment center - that loss is not covered.

V. Nuclear Hazard Clause

"Nuclear hazard" is defined as any controlled or uncontrolled nuclear reaction, radiation, or radioactive contamination. Nuclear hazard includes any consequence of such events.

Any loss caused by nuclear hazard, as it is defined, is not considered loss caused by fire, explosion, or smoke, whether or not these perils are specifically named in or included as eligible causes of loss covered by the policy. The one exception is that coverage will apply to any direct fire loss that is a result of a nuclear hazard.

W. Recovered Property

If the insured or the insurance company recovers any property for which the insurance company has made payment, the recovering party will notify the other party. The insured may choose to keep the recovered property and have the loss settlement adjusted accordingly.

Related Court Case: Insured Has Right To Claim Recovered Property

X. Volcanic Eruption Period: All volcanic eruptions that occur within a 72-hour period will be treated as one eruption. This limits the amount of times the full amount of coverage under the policy will be available to respond to separate losses and also the number of deductibles that can be applied.

Y. Loss Payable Clause: This condition obligates the insurer to treat a legitimate insurable interest that is listed on the policy as an insured, including an obligation to send advanced notice in case the policy coverage is terminated.

Z. Policy Period

This is the period of time that appears on the policy declarations page. A loss that is caused by an eligible peril must occur within this time period in order to qualify for coverage. This was previously Condition A. 07 14 Change