DWELLING PROPERTY 1 – BASIC FORM COVERAGE ANALYSIS

(January 2021)

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DP 00 01– Dwelling Property 1 - Basic Form provides named perils protection for the one- to four-family residence described in the Declarations. It also protects private structures that are used in in connection with residences, unscheduled personal property (on and away from the premises) and provides for loss of fair rental value that is created by an eligible accident. The basic form provides coverage against fire, lightning, and internal explosion. At the insured's option, the extended coverage perils can be added as follows: windstorm, hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, and volcanic eruption. Similarly, the insured may elect to add vandalism or malicious mischief coverage (for additional premium).

Related Article: Dwelling Policy Program Perils

The Basic Form has four coverage sections: Coverage A - Dwelling, Coverage B - Other Structures, Coverage C - Personal Property and Coverage D - Fair Rental Value. The following protection is extended under the Other Coverages section:

· Other structures

· Debris removal

· Improvements, alterations, and additions

ANALYSIS

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.

Agreement

The policy begins with the commitment to cover the insured’s eligible 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” means 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” means the company that issues the policy and 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

The term "dwelling" refers to the 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.

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.

Example: A powerful storm was building up when lightning struck and demolished a large tool shed next to Fredrica’s rental property. The shed was filled with lawn and garden equipment used to take care of her dwelling. The loss of the shed can be covered by her policy’s Coverage A limit.

Note: The land occupied by the dwelling is not covered by the policy. The insurance limit that is used to cover 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 expectation of the value of the home.

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 located independent of 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 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.

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

· Gravemarkers and mausoleums

*An exception is made for other structures used merely to house farming, manufacturing or commercial vehicles as long as they are owned by either the named insured of his or her tenant and only when any fuel storage is limited to what is contained in the applicable equipment’s fuel tank.

The limit of liability for such 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. (These are automatically included in the policy; the named insured must make the claim for the following types of items rather than the owner of the items.) 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.

Tenants would need to secure their own protection.

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, stored value cards, scrip, smart cards, and stamps

· 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.

Related Article: Aircraft Insurance Coverage Analysis

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. However, other issues may not be so clear.

Example: Fred’s older home is insured under a DP 00 01. His home suffers a fire and he loses his drone in the event. His insurer rejects that part of his loss, but Fred argues that the drone, which is equipped with a permanent camera, is not carrying cargo and should be eligible.

· Hovercraft, including parts.

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. They have been replaced by reference to portable electronics. (07 14 change).

Important: A significant exception exists. The dwelling fire policy does cover vehicles which do not require motor vehicle registration, but only if either of the following applies:

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

o The property 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:

o Books of account, drawings, or other paper records

o 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 coverage item involves moving your 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.

D. Coverage D - Fair Rental Value

1. This section responds when a covered loss has the additional result of affecting the use of the dwelling by a tenant. Coverage D will reimburse an insured who loses rental income. Any payment is based on a fair rental value.

Note: Fair rental value is typically a reasonable amount for similar rental property in a comparable or local rental market.

Any payment is net of discontinued expenses.

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

This coverage part now states that any payment is proportional to the total applicable rental amount per month as well as to the total number of months the property is made available for rental. (07 14 Change).

This change now makes such payments based upon the amount of total time covered property is made available for rent. Naturally, it results in a reduction in coverage, especially for those who rent out parts of their property for shorter time periods.

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. This provision’s coverage is unaffected by the expiration of a policy.

Example: Vessie’s neighbor’s home suffers a severe fire. The remains of the home create a chance that it may collapse onto Vessie’s property, so the fire marshal requires her family and tenant to vacate the premises. Vessie had just switched insurance companies and her current policy is set to expire the day after she is ordered out of her home. That policy will still provide up to a maximum of 14 days of coverage for the loss of tenant income.

4. If a lease or agreement is cancelled because of a loss, there is no coverage for that loss of rental value.

Example: An insured’s renter decides to break the lease and just live elsewhere due to a loss. The property is restored, but it sits empty for three months before another renter is found. Although the entire period was part of a lease with the previous renter, none of the rent loss due to the cancelled lease qualifies for reimbursement.

E. 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. Important: using this option reduces the amount of coverage available under Coverage A.

Of course, the choice of redirecting coverage from the dwelling is simple if the dwelling isn’t affected by a loss. The situation would change if the dwelling also suffered substantial damage. In such a case, any of the 10% used for other structures would no longer be available to the dwelling.

Example: Barry’s home is damaged by a fire. It started from a space heater that tipped over in his unattached garage. The garage is substantially damaged, but the home only had some heat and smoke damage to its wall nearest the garage. Barry’s adjuster gives him the good news that the garage damage can be fully covered by diverting pat of the 10% of Coverage A limit to the loss.

2. Debris Removal

Debris Removal coverage pays for the expense of removing both of the following:

Debris of covered property. However, the damage must be the result of a covered peril (cause of loss)
Ash, dust, or particles from a volcanic eruption. This is pain only if 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.

Example: Natalie’s dwelling is insured for $53,000. It is destroyed by a winter storm’s straightline winds. Parts of her home are scattered over the property of several neighbors. It costs $2,350 for a clean-up crew to remove the debris. When Natalie finds out her home’s destruction will be settled for $46,000, she asks that the part of the remaining limit be used to handle the debris clean-up.

3. Improvements, Alterations and Additions

This is an optional coverage extension that is available when the named insured is a tenant. If a named insured 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. Of course, this does 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 01 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.)

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

· The extension does not apply to rowboats or canoes

Example: Bart is on a month-long hunting trip when his canoe and other property are destroyed by a fire at his campsite. His cottage-sized home (two states away from his vacation area) is insured for $41,000 and his total loss breaks down as:

Canoe - $2,050

Fishing Equipment - $710

Cooking Equipment - $230

Total - $2,990

While 10% or $4,100 is more than enough to handle the loss, only $940 of the loss is paid (the canoe is ineligible for coverage).

5. Rental Value

The DP 00 01 also allows an insured to use up to 20% of coverage available under Coverage A to cover a fair rental value loss (see description of coverage under Coverage D - Fair Rental Value). The extension reduces the amount of coverage 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). 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.

7. Property Removed

If covered property is removed from a premises which is endangered by a covered peril, the relocated property is protected by the DP 00 01–Dwelling Property 1 - Basic Form against ANY CAUSE OF LOSS for up to five days. This does not increase the amount of available coverage; rather it extends coverage while the property is being protected.

8. 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 eligible 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: Frank’s rural home was miraculously saved from substantial fire loss when a crew of firefighters made it to his home within 15 minutes of getting his call. A month later, he receives a bill from the Hokedayle Fire Division for $275 for the emergency run. Frank lives a mile out of the Hokedayle service area and his taxes don’t support the department. Frank’s dwelling policy will reimburse him for the expense.

Note: This is additional insurance (it does not reduce any other available protection) and no deductible applies to this coverage.

PERILS INSURED AGAINST

The DP 00 01–Dwelling Property 1 - Basic 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 that 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.

1A. Fire or lightning

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

Example: Tim had thought he and his family had made it through the severe storm unscathed, until he heard a loud “BOOM”! He ran outside after the storm passed and inspected his home. He found nothing until he looked up and saw the sheared, smoldering remains of his home’s chimney – struck by lightning. This loss would be eligible for coverage.

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?”

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

There is no coverage due to any ordinance or law concerning building construction, repair, or demolition. This provision also includes requirements involving any incidences of polluting activity, such as monitoring, testing, clean-up/remediation, etc. The amount of any loss in property value attributed to the ordinance or law or any increased cost to repair or replace the damaged property would not be covered.

A major reason for this exclusion is to prevent coverage for the expense of complying with 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.

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.

Example: Ned is in shock as he watches flames dance throughout his home. Earlier in the day, an earthquake hit the area and a corner of Ned’s home sunk nearly a foot. The home’s movement tipped over a large fuel can located next to the sunken wall. Sparks caused by the tank’s metal shell bouncing off the cement floor ignites the fuel. Ned suffers another shock because of the following results:

Ned's Coverage A limits - $61,000

Total Loss - $34,000

Total Loss Payment - $19,500

The low payment was due to the insurer's loss investigation determining that less than half of the total damage was caused by the fire.

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

The Basic 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.

Related Court Case: Damage From Seepage Through Brickwork Excluded

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, as described by this policy, is covered.

Related Court Case: Damage From Seepage Through Brickwork Excluded

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 01–Dwelling Property 1 - Basic 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 loss caused by the covered cause of loss.

The exclusion applies if power failure is caused by damage to a power station or utility equipment 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 means the neglect of the insured to make a reasonable effort to save and preserve property during or 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 that 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. Further, the section is worded to extend the exclusion to innocent insureds. However, some jurisdictions allow innocent insureds to recover under the contract as a matter of public policy.

Example: Sophia and Rick had been arguing due to serious, mounting money problems. Sophia left home to spend a few days with her parents who live in a neighboring state. One night, while starting a fire in the fireplace, a burning log rolls out onto the floor. Instead of putting it back, Rick decides this would be a great way to solve things. He leaves the log on the floor, watches as it starts a fire and he leaves. Their insurer later discovers Rick’s act and they deny the fire claim.

Although it is counter to the policy language, a court rules that Sophia is entitled to have her claim for her insurable interest honored as she was totally innocent of any wrongdoing.

9. Governmental Action

Except for actions by authorities involving destroying property to create a fire break, loss, or damage to insured property is not covered when caused by governmental action.

Example: Hanna’s home is rented out to Geena and Rick. She turns in a claim for her home which was bulldozed by order of her town’s authorities. Unfortunately, her loss is not eligible for coverage. The house was destroyed after Geena and Rick were arrested and convicted of operating a meth lab in the rental. Testing showed that it was totally permeated by the processing chemicals.

B. Part B of the GENERAL EXCLUSIONS prohibits coverage for any damage to the following:

· Lawns

· Plants

· Shrubs

· Trees

whenever these items are outside of a covered building.

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 in the covered property

* The applicable limit of liability

This was previously Condition B. 07 14 Change.

B. Deductible

Any coverage paid under the DP 00 01–Dwelling Property 1 - Basic 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.

Example: Clara and Jim’s fire loss claim on their rental property was denied. The insurer, who had just issued a policy to the couple two weeks before the loss, discovered fraud. The home was not actually owned by Clara and Jim….they had filled an application out on an abandoned home which was then destroyed by a suspicious fire.

D. "Your" 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.

3. Assist the insurance company with claims investigation. The insured must be open to helping with any aspects of investigating a loss when requested by the insurance company.

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. Whenever needed, the insured must be willing to display the damaged property; provide the insurance company with records and documents that they request and allow them to make copies. 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 include the time and cause of loss; the interest of the "insured" and all others in the property involved, including parties (such as creditors) who have liens on the property. The proof of loss should have information on any other insurance which may cover the loss; details of any changes in title or occupancy during the term of the policy; and a detailed description of any damaged buildings (with detailed repair estimates). It is also important to provide the insurer with an inventory of damaged personal property; and valid receipts for additional living expenses and records that support the fair rental value loss.

E. Loss Settlement

Damage to covered property 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.

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 could be substantially enriched by a loss.

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.

G. Glass Replacement

Glass that is damaged due to a covered cause of loss will be repaired or replaced using safety glazing materials but only when required to do so by ordinance or law.

While this provision allows a policy owner to comply with local law, the settlement comes at a price. The increased cost of special materials has to be covered within the limits of coverage shown on the Dwelling Property 1 - Basic Form declarations page. The provision does not increase the total amount of available insurance.

H. 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 who is chosen (appraisers will choose an umpire within 15 days of their being selected)

· 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 the 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 their own appraiser and split the cost of the umpire and other appraisal expenses.

I. 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.

This provision does not just consider other existing insurance policies. It also considers special arrangements, such as home warranties and similar agreements. These are not considered proportional though. Instead, the dwelling policy coverage responds on an excess basis over any amounts paid by such agreements.

Example: A blouse gets caught in a dryer vent, the item overheats, then smolders and smokes. The dryer is destroyed. The service plan must pay up to its limit and then the insurer will pay in excess of that payment.

J. 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.

Example: George asks his good friend Neera to look over his house when he is on vacation. When George gets back, he finds that his house has been severely damaged by smoke. His insurer pays for the loss, but then demands reimbursement from Neera because she left the home with a pan of grease left on the stove.

K. 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.

Example: The Bakers' rental home is insured under a DP 00 01 from Stonepay Casualty. The home is severely damaged by windstorm on 3/08/19. The Bakers file a claim on 4/11/20. The couple and Stonepay argue over the settlement amount and other issues for a long time when, on 6/03/21, the Bakers file a lawsuit. The court bars the suit because the time limit for filing passed on 3/08/21.

Courts have upheld this limitation even when a claim has taken longer than that 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.

L. 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.

M. 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 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.

N. 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.

O. 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.

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.

P. 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.

Related Court Case: Bailee Clause Does Not Bar Coverage

Q. 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.

R. 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.

Note: The information above concerns only what is in the Dwelling Property 1 - Basic Form 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 policy provisions. The differences commonly revolve around the reasons, time of notice, proof of notice and length of advance notification.

S. 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.

T. Waiver or Change of Policy Provisions

An insured may 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: Part of Clem’s claim involves loss to a piece of furniture that he describes as an heirloom. His insurer requests an appraisal on the piece. The fact that the appraisal takes places does not affect the fact that the insurer is still determining whether it will pay the claim.

U. Assignment

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

Example: Jordan died and, in his will, he left a rental property to his brother, Landon. The executor of Jordan’s estate sends a letter to the insurer instructing them to switch the owner name from Jordan to Landon. The insurer replies that it is canceling the policy and Landon would have to send in a new application.

V. Death

If the policy owner dies, the policy will still provide coverage to the deceased’s legal representative or to the party that controls the covered property. The coverage is limited to the covered property or to a person in control of the property, but only until the property is assigned to a legal representative.

W. 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.

X. 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.

Example: Mitch had a difficult time dealing with his last tenant. He couldn’t prove it, but he thinks the tenant was responsible for setting up a burglary where he lost several new appliances. Mitch’s insurer paid $1,400 for the lost items. A couple weeks later, he happened upon two of his stolen items in a pawn shop. They were returned to him when he showed the pawn owner his receipts with serial numbers. Mitch contacted his insurance company and sent them a check for half of his settlement.

Y. 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.

Z. Loss Payable Clause

When a party appears as an additional insured interest on any covered property, this condition makes the carrier responsible to treat that party as an insured. Such parties will be told in writing if the carrier decides to terminate coverage.

AA. 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.