Dwelling Property Broad Form Coverage Analysis

DWELLING PROPERTY 2 – BROAD FORM COVERAGE ANALYSIS

(January 2021)

 

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The ISO Dwelling Program’s DP 00 02–Dwelling Property 2 – Broad Form has five coverage sections: Coverage A - Dwelling, Coverage B - Other Structures, Coverage C - Personal Property, Coverage D - Fair Rental Value and Coverage E - Additional Living Expense. The policy, under the Other Coverages section, also extends coverage for:

The Dwelling Policy Program also offers a form called the Personal Liability Supplement.

Related Article: Dwelling Policy Program Personal Liability Supplement Coverage Form Analysis

Analysis of Policy

The focus of this analysis is on the DP 00 02–Dwelling Property 2 - Broad Form. An analysis of each section is detailed 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 appear in bold.

Agreement

The policy begins with the commitment to cover the insured’s dwelling 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 who 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 provides the coverage.

COVERAGES

The first section of this policy explains what is meant by a dwelling.

A. Coverage A - Dwelling

1. 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. 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 that is used to cover all of the eligible structures must reflect the fact 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 expectation.

 

Example: John’s rental home is destroyed by a fire. During the fire, cleaning solvents stored in the attached garage spill, flow onto the backyard and spread, scorching most of the lawn. The cost to replace the topsoil and reseed the lost lawn is not eligible for coverage.

 

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. Other structures on the described location are also covered under this form; however, the policy’s coverage is conditional on whether the structures meet certain criteria. The structure must be set apart from the dwelling and be separated by clear space. Structures that are connected only by fences, utility lines or similar types of devices qualify under the “clear space” requirement.

Again, this coverage does not apply to land, including the land upon which the other structure sits.

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

 

Example: George buys a home that he rents out to a close friend. The renter is a professional musician who gets George’s permission to use the large, detached garage as a commercial recording studio. The garage becomes ineligible for coverage when the studio use begins.

Storing Business Property - The ISO Broad Form policy is a bit more complicated when it comes to business use of a garage, outbuilding or other structure that is related to the covered dwelling. While the form bars coverage for structures that are used in a business operation (including farming), it does provide coverage under certain circumstances. Specifically, as long as the property does not include any form of fuel (except any amount contained in a vehicle’s fuel tank), there is still coverage for a structure that stores business property. However, it is the structure that is protected, not the property being stored.

 

Example: George buys a home that he rents out to a close friend. The home includes a large, empty utility shed. His friend pays George additional rent to allow him to store car-cleaning products that the renter uses in his sales job. This use does not disqualify the shed, but the car-cleaning products are NOT eligible for Coverage B’s protection.

The limit of liability 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.

Related Article: Personal Articles Floater

Note: This section states that coverage applies to property that is normally associated or related to residential occupancy. That wording would eliminate coverage for, solely, business property as well as exotic items.

2. Property Not Covered

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

·         Animals, birds, or fish

·         Aircraft and parts. Aircraft is considered to be anything 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.

·         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 or to 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).

Related Article: Eligibility Requirements for ISO Personal Auto Policy

Note: This exclusion does not apply to losses involving rowboats and canoes which, due to their modest value, do not pose a significant increase in exposure to loss under a dwelling fire policy.

1) Books of account

2) Drawings or other paper records

3) 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

3. Property Removed to a Newly Acquired Principle Residence

A final coverage item under this section 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.

Note: The total coverage C amount would apply proportionately between the value of items found at each location at the time of a loss.

 

Example: Terri’s current home is insured under a DP 00 02 policy. A personal property limit of $42,000 applies under the policy. She has lately been busy moving to a new home. Since money is tight, she has borrowed a friend’s pick-up truck and, in a week’s time, has moved most of her property to the new location. Sadly, a fire breaks out and destroys the home she was moving from. She puts in a claim for $23,000. After a thorough investigation, her insurance company determines that she had moved 75% of her property out of the old home. Instead of applying the full Coverage C limit, they only make $11,000 of coverage available for her property loss ($42,000 X .25 = $11,000).

 

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. This is the fair rental value of that part of the described location which is rented or is held for rental, less any expenses that do not continue while the portion of the premises is unfit for living.

 

Example: Pamela’s home suffers a fire and it takes two months to make repairs and to live in it again. Pamela’s claim includes $1,600 for loss of two months’ rental income from her two renters. After studying Pamela’s loss information and related personal papers, her insurer reduces that part of her claim to $1,300. When Pamela protests, the insurer explains that, for the two months, Pamela does not have to pay $300 in utility bills connected with the rentals.

 

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.

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

4. There is no coverage available due to the cancellation of a lease or an agreement. In other words, your renter decides to break the lease and just live elsewhere due to a loss. Once the property is restored, coverage for fair rental value ends. If the property sits empty for three months after being repaired, you will not be reimbursed for the loss due to the cancellation of your lease.

E. Coverage E - Additional Living Expense

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 02–Dwelling Property 2 - Broad Form will pay for the 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; the option which takes the shortest amount of time is covered.

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.

The periods of time mentioned in this coverage part are not limited by the expiration date of the policy. However, expenses related to a terminated lease or agreement do not qualify for coverage.

Related Court Case: HO Claim Includes Structure, Contents And A.L.E.

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 applies 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 additional amount of coverage.

 

Example: A violent windstorm blows down Neisha’s new storage barn and destroys the roof above her front porch. Since the damage to her barn is well above the automatic limit applying under Coverage B, she asks her insurer to apply this additional coverage to handle the loss.

 

2. Debris Removal

Debris Removal coverage includes covering the expense of removing either of the following:

 

Example: Clayton isn't spending Halloween the way he'd like. He got a spooky surprise when a nightmare of a straight-line wind blew off half of his roof. Because of back problems, he hires a couple of neighborhood teens to spend two days picking up pieces of roofing from their front and back lawns and then to take the debris to a local dump. Clayton's insurer reimburses him for this clean-up and disposal cost.

 

·         Ash, dust, or particles from a volcanic eruption. This is on the condition that an eruption has damaged a covered building or the covered property that is within a building.

This expense is included in the limit of liability that applies to the damaged property.

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 02 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:

5. Rental Value and Additional Living Expense

The DP 00 02 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). Unlike other coverage extensions, exercising this coverage option DOES NOT REDUCE the protection available under Coverage A for the same loss.

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).

 

Example: Jenna stays at work several hours later than usual and, when she comes home, she discovers that she’s been burglarized and vandalized. Several windows were broken out and her back door has been ripped off its hinges. In the morning, she goes to her neighbor and pays him to go out and get materials to board up the doorframe. This expense would be eligible for reimbursement.

 

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 protect any property from further damage.

More information on this subject can be found in this analysis’ section on policy conditions.

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 02–Dwelling Property - Broad 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: A branch from the neighbor’s Chinese Elm breaks off and demolishes a section of Monty’s roof. A storm is forming and, fearing that water will come into the hole in his rec room ceiling, he gets the neighbor’s help to move that room’s furnishings to his parents’ home. A pool table is demolished when it is dropped while unloading it from his pickup. The loss of the table is eligible for coverage under the property removed provision.

 

8. Trees, Shrubs and Other Plants

The DP 00 02–Dwelling Property 2 - Broad 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:

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.

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.

Note: This is an additional insurance source of insurance (it does not reduce any other available protection) and no deductible applies 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.

 

Example: Cassie reports damage to her insurer. Her home, which was built 12 years ago, has developed cracks in two walls and in part of its foundation. The insurance company hires an engineer who reports that the damage was due entirely to the home’s settling. The insurer denies the claim, stating that its Broad Form Dwelling Policy does not cover losses due to settling.

 

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 attributed to a peril insured against is not covered. The only exception is when a building collapses and these items are damaged because of that collapse.

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

 

Example: Sara files a recent loss on her rental property. Part of the rear wall of the home caved in. Her insurer investigates and discovers the home’s foundation had been settling and the action got to the point where the portion of the wall lost adequate support. The loss is ineligible for coverage.

 

11. Glass or Safety Glazing Material

This additional coverage offers protection against the following:

The covered property includes glass building blocks, windows, storm doors, storm windows, skylights, etc. Again, this coverage does not increase the limit of insurance for the covered property.

If a building has been vacant for longer than 60 days when a loss occurs, the damage is excluded. The extended vacancy is an unacceptable condition that greatly increases the chance that a loss, particularly theft or vandalism, is going to happen. However, the vacancy exception is ignored if the glass breakage is caused by earth movement. A building's occupancy has no bearing on that type of loss.

Other damage that is related to glass breakage (consequential rather than direct) is not eligible for coverage under this, additional coverage provision.

 

Example: Bruno is away for a two-week vacation. He comes back home to find that the glass in his home’s rear storm door and entry were shattered. Further, water and wind has damaged his carpeting and furniture and glass shards damaged some floor tiles. This portion of his policy would address the broken glass and damaged floor, but not the other damage.

 

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.

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

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

The DP 00 02–Dwelling Property 2 - Broad Form provides protection 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.

Related Article: Dwelling Policy Program Perils provides a more in-depth review of many of these perils.

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.

Related Article: Fire - A Discussion

2. Windstorm or hail

This peril should be self explanatory, but windstorm or hail doesn’t include:

 

Example: During a windy day, George is attempting to take some furniture out that he plans to donate to the Salvation Army. A gust of wind blows through the open door and topples his prize china cabinet. This loss is not covered under the windstorm or hail peril.

Related Article: Windstorm or Hail–A Discussion

3. Explosion

Related Article: Explosion–A Discussion

4. Riot or civil commotion

Damage caused by mob action is eligible for coverage under the DP 00 02.

Related Article: Vandalism, Riot or Civil Commotion - A Discussion

5. Aircraft, including self-propelled missiles and spacecraft

 

Example: Darrin loves that he lives so close to the State Fairgrounds. He’s not so pleased when, during opening day, a hot air balloon and its passengers crash through his roof. Luckily, the damage is covered.

 

6. Vehicles

Vehicle damage to your dwelling, other structures or personal property is covered. There is no coverage when a vehicle operated or owned by the insured or the insured’s tenant damages fences, driveways, or walks.

7. Smoke

Direct damage caused by smoke is covered except when it results from smoke from agricultural smudging or industrial operations.

 

Example: The wiring in Kevin’s home was very old. One day while he was at work, a section of wiring in the kitchen began to smolder. He returned from work and found his house inundated with smoke. This is an eligible loss under the smoke peril.

 

8. Vandalism or malicious mischief

Damage to the dwelling, other structures or personal property caused by vandals and troublemakers is covered unless:

9. Damage by Burglars

While the DP 00 02– Dwelling Property 2 - Broad Form does not offer coverage for property that is stolen from the property at the described location, at least it protects against damage that may occur during the burglary. No coverage is provided if the dwelling has been vacant for more than 60 days before the loss.

Note: A dwelling that is being built is not considered to be vacant.

10. Falling Objects

This coverage is similar to the windstorm or hail peril. The covered property is protected from direct damage from objects that fall onto the roof or walls. However, the inside of the property and contents are covered only if there is first damage to the exterior. Destruction of or loss to the fallen object is not eligible for coverage under this peril.

11. Weight of ice, snow, or sleet

If a covered structure is damaged because of heavy accumulation of ice, snow or sleet, the loss is covered, at least to the dwelling or other structures. There is no protection for awnings, fences, patios or pavement, pools, foundations, retaining walls, bulkheads, piers, wharves, or docks.

 

Example: Nick is watching a basketball game on TV when he’s startled by a horrendous creaking noise, then a large crash. He looks up and sees that the roof of his porch has collapsed. A loss investigation indicates that heavy snow accumulation was too much for the roof to handle. The area had experienced record snowfall a few days before the loss. The damage is covered.

 

12. Accidental discharge or overflow of water or steam

a. Coverage is available under the Broad Form Dwelling policy for loss caused by water or steam that suddenly bursts or overflows from plumbing, heating, air conditioning or sprinkler systems. Protection also exists for water or steam bursting or overflowing from appliances. The coverage includes the cost of gaining access to a damaged system, such as tearing through drywall and the repair of that drywall but does not pay to repair the system.

 

Example: Glen was away for a long weekend. He was surprised when he opened the door to his home and set foot on a soaked carpet. In fact, all the floors in his home were slightly submerged. The supply line to his refrigerator’s ice maker and water dispenser burst in his absence. The damage to the floors and cost of clean up is eligible for coverage.

 

b. Coverage DOES NOT include loss caused by gradual or repeated leaks. Coverage is also excluded for all of the following:

c. Sump pumps, sumps and other sump system components, roofs, gutters, and downspouts do not qualify as plumbing systems.

d. Only with regard to this particular peril, this policy’s water exclusion is inapplicable.

13. Sudden and accidental tearing apart, cracking, burning, or bulging

Losses from such an event are covered when they involve steam or hot water heating, air conditioning or protective sprinkler system. Losses involving hot water appliances are also covered. In this case, damage to the system itself is covered. Loss caused by freezing is excluded unless covered in item 14. in this section.

14. Freezing

Damage to the covered property that results from the freezing of a plumbing, heating, air conditioning, protective sprinkler system or any appliance is covered if the insured has done one of the following:

Note: When a covered property includes a fire sprinkler system, the system must be allowed to continue to function, even when no one is occupying the home for an extended period.

The provision clarifies that its reference to a plumbing system only includes components and piping that facilitate normal, internal movement of water for regular residential use. Therefore, it does not consider items such as sump pumps and related equipment as part of the plumbing system.

15. Sudden and accidental damage from artificially generated electrical current

Tubes, transistors, and other similar components are not covered for loss due to this peril.

16. Volcanic Eruption

As long as the damage is caused directly by volcanic action, such as flowing lava or flying objects caused by the explosion, the loss is covered up to the limits shown on the policy. The incidental causes of damage such as quakes, shocks and tremors are excluded here and, in the policy’s, general exclusions.

GENERAL EXCLUSIONS

There are only eight exclusions, which are clearly spelled out in the policy. Qualifying language, that is exceptions to the exclusions, is kept to a minimum. This section is quite important since it is the first place to look in order to answer the question often asked by insureds, "Is this covered by my policy?”

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 happened 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.

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

Earth movement is defined as an earthquake and includes land shock waves or tremors that occur before, during or after a volcanic eruption; landslide; mine subsidence; mudflow; earth sinking, rising, or shifting. This source of loss is excluded regardless of whether it is connected to any natural (force of nature) activity.

There is an important element of this exclusion. IF a fire, theft, or explosion occurs after any earth movement, the policy will pay for the damage caused by the subsequent loss. However, any damage resulting from earth movement would be excluded from any payment made to care for theft, explosion, or fire damage.

Note: Such events are often referred to as ensuing losses.

There is no longer a reference to loss events involving human or animal forces. (07 14 change).

Related Court Case: Earth Movement Exclusion Challenged

3. Water (The 07 14 edition changed this exclusion from Water Damage to just Water)

The Broad Form 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 (In the 07 14 edition, part 3.a. also makes reference to exclude loss caused by storm surge, tidal waves and tsunamis.).

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, explosion or theft resulting from water damage is covered.

Related Court Case: Temporary Removal Of Shingles From Roof To Make Repairs Did Not Affect Coverage

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 02–Dwelling Property 2 - Broad 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 insurer will pay only for damage created by the covered cause of loss.

 

Examples:

An insured’s home suffers damage related to power failure caused by a fire that shuts down its servicing power station – loss is excluded.

An insured’s home suffers damage related to power failure caused by a lightning strike that severs the utility line connected to that home – loss is covered.

 

5. Neglect

This means neglect of the insured to 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.

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.

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 consequences of any of the above. Discharge 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.

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 broad form policy does not cover any damage or loss related to acts of any unit of government.

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: Millie’s home is destroyed during a torrential storm! The home is insured for $67,000; however, investigation reveals that she is only a part owner of the home. Two other, separate parties own equal shares of the dwelling and they were never listed on the application. Millie’s insurer only pays Millie her interest in the home to settle the loss.

 

B. Deductible

Any coverage paid under the DP 00 02–Dwelling Property 2 - Broad 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.

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.

Related Article: Disputable That Insurer Properly Voided Policy

D. Duties after Loss

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

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

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

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. The interest of the "insured" and all others in the 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 02 depends upon the class of property that suffers a loss.

1. Settlement on damage to:

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.

Note: The actual cash value is the replacement cost of the item minus depreciation.

 

Example: Bonnie’s large screen TV is among the items destroyed when a wall collapses. It was purchased three years earlier:

Original Cost - $2,600

Replacement Cost - $3,100

Actual Cash Value - $1,250

Any settlement to Bonnie for her loss will be based on the actual cash value.

 

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:

Regardless of 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:

Note: 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 a 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.

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.

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:

 

Example: Bonnie’s home is insured for $82,000. Bonnie and her insurer can’t agree on the amount of the collapse loss to her home. She claims a loss of $29,000; her insurer offers a settlement of $18,000. She demands an appraisal, with the following results:

Amount of appraisal award - $27,800

Total cost of appraisal - $1,290

Bonnie is entitled to a payment of $27,800 (minus her deductible) and she must pay $645 (half of the appraisal costs).

 

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.

Under this provision, any payment under the policy may 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 broad form policy. In such circumstances, the broad form policy becomes an excess insurance contract.

I. Subrogation

Subrogation is a right owned by the insured to recover 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.

Related Court Case: Significant Other Not Subject To Subrogation

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 such limitations even when a claim has taken longer than that time period to pay. 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: Insured Not Entitled To Specific Performance Of Appraisal Provision – this case has elements regarding both a given policy’s “Suits Against Us” and “Appraisal” conditions.

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 receives the policy owner’s signed proof of loss and has the value 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 named insured. The payments must recognize each party’s interest and any order of precedence.

Related Court Case: Second Mortgagee Entitled To Foreclosure Proceeds After Fire Loss

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 date 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.

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:

o    the insured has seriously misrepresented an important fact; or

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

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.

 

Example: Acme Insurer’s underwriter has finished reviewing Trikki’s dwelling fire policy. With four reported losses in the last two years, he decides that the home doesn’t qualify for continued coverage. On April 6th he has a notice of non-renewal delivered, notifying Nikki that, effective the current policy period’s expiration date of May 14th, coverage will not be renewed.

 

Related Court Case: Insurer Ignores Change Of Address 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:

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

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.

T. Assignment

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

 

Example: Emma has just retired and plans to move to Phoenix, AZ. She sells her home and makes a gift of the rental property. She transfers ownership of a two-family dwelling occupied by tenants to her favorite niece. She sends a note to her insurer instructing them to switch the owner name from her to her niece. The insurer sends a letter that they will honor the change and endorse the policy once they receive proof of the change in ownership.

 

In a situation such as in the above example, insurers typically prefer to cancel a policy and re-issue coverage for a new owner.

U. Death

If the policy owner 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.

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 triggered by the nuclear event.

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.

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