PM 0003–AAIS PERSONAL EFFECTS COVERAGE FORM ANALYSIS

(May 2020)

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AGREEMENT

The policy's opening language states that the policy is subject to all of its terms and will provide the insurance coverages that are described in the policy. Coverage is provided, contingent on receiving payment from the named insured.

These coverages may be affected by various amendments (endorsements) and schedules (detailed property descriptions and limits) that are made part of a policy. The agreement also points out that there are a number of terms and references with special meaning and they are explained in the policy’s Definitions section.

DEFINITIONS

The definitions section appears immediately after the Agreement.

1. You and Your

The person(s) who appear on the declarations as insured(s). The named insured’s spouse is also defined as you, but ONLY if he or she lives in the insured's household.

2. We, Us, And Our

The company providing the personal effects coverage.

3. Declarations

This term refers to any document that is related to the personal effects policy and which may be called Declarations, Supplemental Declarations, or Schedules.

4. Insured

The term insured is the person or persons named in the declarations (named insured) and that person’s spouse who lives in the household. In addition, there are a number of persons who are insured based on conditions and circumstances:

Relatives of the named insured but only when they live in the same household as the named insured
Relatives of the named insured’s residential spouse that live in the same household as the named insured
Non-relatives of the named insured, who are under the age of 21, live in the household with and are in the care of the named insured or in the care of a relative of the named insured who also lives in the household.

5. Limit

The policy merely defines this as the amount of insurance.

6. Student

A person who was a member of an insured’s household, but currently attends school full-time at a location that is away from the insured’s residence. Full-time student status is determined by the applicable school’s rule.

Example: The Cardisens are insured under a Personal Effects form. Their daughter Jana is a college student, who goes to school an hour away from their home and takes 13 hours of semester hours.
Scenario 1 – She attends Collegeville Tech which requires 15 hours to be a full-time student. Jana would not be considered a member of her parents’ insured household.

Scenario 2 – She attends Collegeville Tech which requires 12 hours to be a full-time student. Jana would be considered a member of her parents’ insured household.

Example: Thelma turns in a claim for her son, Jeff. Jeff’s off-campus room was burglarized, and he suffered a loss of nearly $1,700. Thelma’s insurer turns her claim down. Jeff rents his own apartment, lives two hours away from Thelma and only takes part-time acting classes.

A person up to 21 years old may meet the student definition if he or she is in an insured’s care or in the care of a relative of an insured who is also a member of the insured’s household. A person up to 25 years old may meet the student definition if he or she is a relative of either the named insured or the named insured’s spouse.

7. Terms

Refers to any written policy components including exclusions, conditions, defined words, etc.

8. Vermin

Refers to a wide variety of creatures which, by their nature, damage property because of their tendency to infiltrate structures as a source for dining or housing. Policy examples include raccoons, possums, skunks, snakes, bats and…. armadillos.

9. Your Residence

The primary residence of the named insured but only if the named insured plans on returning to that residence following any traveling.

PROPERTY COVERED

Personal Effects

1. Coverage

The policy insures against tangible loss to personal effects that are both of the following:

Owned by and used by an insured
The type of property that is generally worn or carried by a tourist or traveler

Example: Custom-fit hiking boots used by an insured while enjoying a tour of the foothills in Rome.

2. Limit

Whatever limit appears in the declarations for personal effects acts as the highest possible amount that may be paid for the loss or destruction of that property.

Example: Emily’s Colorado ski trip takes a nasty turn. Her room is burglarized, and she loses nearly $3,000 in ski clothing and equipment. Unfortunately, her Personal Effects Policy only has a limit of $2,000. She’ll have to absorb a third of the loss if she replaces everything.

3. Coverage Limitation

The insurer has a more restrictive obligation on higher-valued property such as jewelry, watches and furs that include gold, silver or platinum as well as fur/fur-trimmed items. Losses involving such property are restricted to 10 percent of the policy’s personal effects limit. A single item is further subject to a maximum recovery of $250.

Example: George is insured by a personal effects policy and he is mugged while touring in the nation’s capital. His policy has a personal effects limit of $6,800. The thieves steal the following:
Item	Value
Full-length Leather Jacket	$1,150
Calf-skin Gloves	$200
Gold Wristwatch	$830
Total	$2,180
George turns in a claim after he returns home and, a couple weeks later, he receives a claim payment of $1,600. His coat and gloves were fully covered but the watch payment was limited to $250.

PROPERTY NOT COVERED

Some categories of property are ineligible for coverage under the Personal Effects form.

1. Accounts, Bill Securities and Valuable Papers

All such property is excluded from coverage. It refers to accounts, bills, securities (even negotiable instruments), property deeds, debt instruments, letters of credit, passports, all forms of passes/tickets and similar, valuable documents.

Example: Let’s slightly modify an earlier situation. George is insured by a personal effects policy and he is mugged while touring in the nation’s capital. His policy has a personal effects limit of $6,800. The thieves steal the following:
Item	Value
Full-length Leather Jacket	$1,150
Calf-skin gloves	$200
Gold Wristwatch	$830
1^st Class Plane Tickets	$1,150
Total	$3,330
George turns in a claim after he returns home and, a couple weeks later, he receives a claim payment of $1,600. His coat and gloves were fully covered but the watch payment was limited to $250 and the tickets are ineligible property.

2. Aircraft, Watercraft and Trailers

All such property is excluded from coverage, including campers. This exclusion also extends to parts, equipment and accessories. Coverage should be sought under primary policies that are specifically designed for such property.

3. Animals – No creatures, including aviary and marine life, are eligible for coverage.

Example: Jeffery’s camp cabin room is broken into and, apparently in the thief’s rush to steal items, Jeff’s aquarium is knocked over and smashed. His loss of tropical fish valued at more than $500 is not covered.

4. Bicycles

The PEF form offers no protection for bicycles.

5. Contraband

Illegal (stolen or illegally held) property is ineligible for coverage. There’s no valid insurable interest in either stolen property or in property that, even if actually owned by an insured, is possessed in violation of the law (such as smuggled property).

6. Money, Money Orders, and Travelers Checks

No coverage is available for paper or coin currency, bank notes, money orders or the popular money substitute, travelers checks.

7. Furniture

Specifically, the PEF will not respond to losses involving household furniture.

8. Limbs, Teeth, Lenses, or Hearing Aids

Under this form, no coverage is provided for loss involving prosthetics, false teeth, contact lenses or hearing aids. It is interesting that contact lenses are not covered but eyeglasses would be.

9. Personal Effects in You Residence or In Storage

Effects located at the residence described in the PEF or that are held in storage are not eligible for coverage. However, if such property is owned and/or used by an insured, it is protected while the insured is traveling.

10. Personal Effects of Student

Personal effects owned by a student who is an insured does not qualify for coverage when such property is located in a school, college, sorority or fraternity house, dorm or private off-campus housing (such as part of a private residence or an apartment rented by an insured while attending school). An exception does exist for loss involving fire.

11. Physicians and Surgeons Instruments

Doctor and surgical equipment or instruments are not protected by the PEF, regardless their location.

Example: Dr. Handover’s luggage is stolen while waiting at the airport for a friend to pick her up from a vacation overseas. While her clothing, jackets and shoes are covered, the stethoscope and tonometer she brought along were not.

12. Property More Specifically Insured

Personal property, regardless the category, that has separate, more distinct coverage, is ineligible for protection under this form.

Note: Refer to Valuation Section Insurance Under More Than One Policy to see how duplicate coverage would be handled.

13. Sales Samples and Merchandise for Sale

Property that can be classified as a sales representative’s property or merchandise is not covered under the PEF.

Example: Fran’s apartment is broken into. She loses nearly $8,000 in the theft. When she turns in the claim, she only receives less than half of the loss reimbursed. During investigating the claim, her insurer discovers that $4,500 of the property stolen were electronics from her employer that she kept at home to deliver to customers.

14. Theatrical Property

Regardless the type of property, any item or object that is used by a theater for plays or musicals does not qualify for coverage under the PEF.

Example: Lara’s property kept in a locker behind the main stage of the acting camp she is attending is lost when the stage catches fire. As the property consists of costumes and props, they are not covered by her PEF.

15. Vehicles

Vehicles are excluded without exception.

OPTIONAL COVERAGES AND PREMIUM CREDITS

The Personal Effects Form includes the following features that apply IF the items are indicated in the form’s declarations page:

1. Additional Insured

The person appearing on the declarations under this option attains status as an insured. He or she will benefit from all coverage aspects of the policy, but ONLY while that person lives at the insured residence.

Note: This is, in all likelihood, a person who is a long-term or permanent member of the insured’s household. Of course, as long as the insurance company is willing to add a resident, this option will apply.

2. Personal Effects of Student

When this option is selected, it nullifies Property Not Covered item 10. so that effects located at any school-related residency become eligible for coverage.

3. Property in a Recreational Vehicle

a. Recreational vehicles loom large in the areas of vacationing and travel. This option allows the PEF to respond to cover personal effects when they are located in, or which use is related to a recreational vehicle. However, coverage only applies when the RV is owned, rented or leased by an insured. The coverage extends to furniture and furnishings located within such an RV.

Any reference to an RV includes the following:

· Folding camping trailers

· Motor homes

· Travel trailers

· Truck campers

b. Even when this option is selected, no coverage applies to items classified as RV accessories, equipment, parts or items that are typically attached to vehicles.

Example: Custom rims, worth $3,000, are stolen from Harriet’s rented RV. This loss is not eligible for coverage under her PEF.

c. The following exclusions are added to the Perils Excluded section but only as they relate to the coverage provided under this Optional Coverage:

· Electrical Currents

With the exception of what is caused by lightning, no loss or damage cause by arcing or other electrical activity is covered by the PEF.

· Mechanical Breakdown

Except for damage or destruction caused by fire or explosion, such damage or loss involving mechan0ical breakdown is excluded from the PEF’s protection.

· Temperature/Humidity

A personal effect that is damaged or destroyed by temperature or extremes in weather is ineligible for coverage unless such damage is caused by a resulting fire or explosion.

· Marring and Scratching

No form of this qualifies for coverage.

Example: Patty and some of her relatives join her on vacation. While giving her young niece a tennis lesson., she watches in horror as her niece picks up her custom racket and drags it around the perimeter of four tennis courts. One side of the racquet is heavily scarred and a quarter inch narrower than the other. The loss is not covered by the PEF.

d. Limit

The amount of coverage shown in the declarations for this property (furniture and furnishings in an RV) is the maximum available to respond to an eligible loss involving such property. This maximum applies to each, separate, eligible loss.

4. Residence Coverage

a. Coverage

This is an exception to item 9. Personal Effects in Your Residence or in Storage under the Property Not Covered section. Items carried or worn by a tourist are covered when owned and used by an insured within the named insured residence. However, the exception does not extend to items in storage.

b. Limit

This coverage does not have a separate limit. The limit for personal effects applies to these items. Any loss for these items reduced the amount of loss to pay for any other personal effects items in the same occurrence.

PERILS COVERED

The personal effects form obligates an insurer to pay for any tangible cause of loss to any covered property EXCEPT for any source that is specifically listed as being ineligible.

PERILS EXCLUDED

1. The personal effects form does not respond to losses that involve a variety of sources. The policy wording attempts to make it clear that any instance of loss or destruction where an excluded cause of loss exists renders that situation ineligible for coverage. Where the excluded event occurs within a series of events and whether the excluded item occurs over a large area (is catastrophic) has no effect; the exclusion still applies. The sources of loss that are ineligible for coverage include the following:

a. Civil Authority

If civil authorities confiscate, destroy, quarantine or seize property that is covered under the personal effects form, there is no coverage. However, if the civil authority destroys property as a way to create a fire stop, the loss is covered, provided the fire would have been covered by the policy.

b. Intentional Acts

The policy does not cover intentional acts of any insured that acts alone or in collusion with another that results in a loss. The exclusion extends to losses resulting from intentional acts committed by persons acting on the directions of any insured.

Note: Not only must the act be deliberate, but also the intent must be to cause a loss. Further, when one insured intentionally damages property that is owned or co-owned by another insured, all insureds are barred from collecting payment of that loss. Under this exclusion, even innocent insureds lose their protection.

c. Nuclear Hazard

If nuclear reaction, radiation or radioactive contamination causes a loss, such loss is not covered. It makes no difference how the nuclear reaction, radiation or radioactive contamination is caused and whether it occurs under controlled or uncontrolled circumstances.

Any loss that is a consequence of the above is also not covered. Fire, explosion and smoke often are part of a nuclear incident, but even if these perils are covered under the policy, when they occur as part of a nuclear reaction, radiation or radioactive contamination loss, they are not covered.

There is one exception. If there is a direct loss by fire that is a result of the nuclear reaction, radiation or radioactive contamination, it is covered.

d. War and Military Action

War is an absolute exclusion, including undeclared wars and civil wars. Warlike action taken by a military force is not covered even if the action is one of defense by a governmental authority and not offense. There is also no coverage if a loss is caused by internal domestic disputes such as insurrection, rebellion, revolution, and usurped power including the action the government takes to curtail the event. The discharging of a nuclear war, intentional or accidental, is defined as a warlike action.

2. There is no coverage when loss or damage is caused by the following. These exclusions are not subject to the anti-concurrent cause wording that appears in exclusion 1.

a. Breakage

Coverage is excluded for fragile items that are vulnerable to breaking, but an exception exists. Protection is granted when breakage is due to fire, collision/overturn of transporting vehicle, or theft (including attempted theft).

Example: Rita has been enjoying her birdwatcher’s vacation, especially since she saved up her money and bought a high-powered, custom set of binoculars that cost her nearly $700.

Scenario 1: She and some friends had finished a roadside lunch and had popped into a rented jeep to head back up to a promising site. She hears a “CRUNCH” as the jeep backs up…. over her binoculars – this loss is not covered by the PEF.

Scenario 2: She and some friends are walking back to their hotel when a thief on a bike snatches her binoculars, breaking its strap. She lunges at the thief who falls off the bike. The binoculars are dropped, and they smash on the sidewalk – this loss IS covered by the PEF

b. Neglect

Insurance policies are contracts that obligate an insurance company to help a customer whose property is damaged or destroyed under described conditions. Insurance contracts are meant to respond to accidental loss so, inherent in the agreement, is the assumption that the insured will act to preserve or protect their property. In case an insured doesn’t act in this manner, the insurer is relieved of any obligation to pay for any damages caused by the insured’s failure. Of course, an insured is not required to go through heroic efforts to save property.

c. Repairing or Processing Work

Such handling exposures are under an insured’s control, so are not deemed as accidental exposures. No coverage applies to loss to effects while they are being repaired, processed or worked on for similar reasons.

Example: Patty is having little luck with tennis during her vacation. She takes her 2^nd favorite racquet to a sporting goods store to have it re-strung in time for a family tournament. The worker uses too much pressure and the frame snaps. The PEF will not handle this loss.

d. Birds, Vermin, Rodents, Insects or Animals

Loss and destruction created by, well, critters and bugs are ineligible for coverage. Damage caused by animals that are owned or in the custody of an insured is also excluded.

Example: Randy’s camping gear is insured under a personal effects form. When Randy returns from a long day of hiking, he fully understands the camp’s warnings about leaving food out. A bear, attracted by the leftover sandwiches and chips, completely trashed the cooking and campfire area, demolishing his cookstove, lanterns, pots, pans and other gear. This loss is covered because while the bear is an animal, it is not in this case owned or in the custody of the insured.

e. Wear and Tear, Deterioration, or Inherent Vice

There is no coverage for loss caused, essentially, by the passage of time and handling/use of covered property, including wear and tear, deterioration (form refers to gradual deterioration, so a loss involving rapid deterioration may be an exception), inherent vice. This is to prevent the PEF from having to respond to loss due solely to property deficiencies.

Example: Rita has enjoyed using her customized, high-powered binoculars on weekend and vacation outings for bird watching. She watches a speckled flysniffer leave its nest and, sighing with satisfaction, she lets go of her binoculars. Unfortunately, the worn leather binocular strap snaps. The binoculars break as they hit the ground. Her insurer denies her claim, pointing out that her strap had aged and dried, making them incapable of supporting the binoculars.

WHAT MUST BE DONE IN CASE OF LOSS

1. Notice

When a loss occurs, the insured is obligated to do all of the following:

Promptly notify the insurance company or the insurance company’s agent

Note: The company providing coverage has a right to ask that the notification be in writing.

IF the act that causes the loss is a crime, the insured must promptly notify the police, and
The notification must describe the property affected by the given loss

The above actions serve important functions. First, they permit the company to begin the loss investigation process, including any action to protect its rights. Second, quick notification to the police may increase the chance for property recovery and third, the reporting duty also minimizes fraud on the part of an insured.

Related Court Cases:

Delay in Reporting Claim Relieved Insurer of Coverage

Absent Notice, What Is Insurer's Duty to Defend?

2. You Must Protect Property

A named insured is required to extend a good faith effort to protect covered property at and after an insured loss to avoid additional loss.

a. The company agrees to reimburse the insured’s REASONABLE costs incurred for necessary repairs or emergency measures performed solely to protect covered property from further damage. However, the preservation effort must involve covered property that is endangered by a covered peril or a covered peril that has already caused damaged. The insured named must keep an accurate record of such costs.

b. However, the insurer will not pay for such repairs or emergency measures performed on undamaged property. This provision does not increase the insurer’s policy limit.

3. Proof of Loss

If the insurance company requests it, the named insured is required to provide the insurer with a signed, sworn proof of loss. The proof of loss must be submitted within 90 days from the date of the insurer’s request and it must show the following:

The time, place, and the details of the loss
The (insurable) interest of the insured and the (insurable) interest of all others, such as mortgagees and lien holders, in the property. If a party cannot demonstrate an insurable interest in the damaged property, the insurer is not obligated to make payment to an insured.
Other policies that may cover the loss, since other policies may have to also provide coverage for an eligible loss
Changes in title
Detailed repair estimates and an inventory of lost items (other, similar information may also be requested by the insurer)

4. Examination

All insureds must agree to be questioned by the insurer with regards to a claim and the questioning can include answering questions under oath. This duty helps to protect a company against attempts to file false claims. On the positive side, it may also assist in getting the most details concerning a valid loss.

Note: While an insurance company has the right to make requests concerning gathering insured statements, seeing the damaged property and securing related records, the emphasis is on the insurer making reasonable demands. The request must be for the purpose of moving along their claims investigation and a formal decision on accepting or denying the claim.

5. Records

The named insured must show records, including tax returns and bank records of all canceled checks that relate to the value, loss, and costs, and permit copies to be made of them as often as the insurance company reasonably requests.

6. Damaged Property

The named insured must display the damaged property and allow the insurer to take samples of damaged property for inspection, testing, and analysis. Such requests can be made at the insurer’s discretion and the number of requests should be kept reasonable. Of course, what is considered reasonable is subjective.

7. Volunteer Payments

A named insured must not make payments, pay or offer rewards, or assume obligations or other costs, except at the insured's own cost. This stipulation does not apply to costs that are allowed by this policy. The policy allows an insured some leeway to make payments in order to respond to emergencies or to help mitigate problems. However, an insured has to take great care in making payments that fall outside of the parameters permitted by the company.

8. Abandonment

Property cannot be abandoned to the insurer without the insurer’s permission. Of course, if the insurer agrees to accept the damaged property, the act is NOT abandonment.

Note: Agreeing to accept property relinquished by an insured must be in writing.

9. Cooperation

The named insured must cooperate with the insurer in performing all acts required by this policy. The policy requires that the named insured work with, rather than against, the insurer in order to investigate and process a possible claim.

Related Court Case: Insured Did Not Fail to Cooperate

VALUATION

1. Actual Cash Value

Property losses are adjusted on an actual cash value basis. That means that a current value determination includes consideration of depreciation, reducing any loss payment.

2. Loss to A Pair or Set

Under this provision, any property that is part of a pair or set that is lost or damaged is settled by either replacing the item or repairing the item. The insurer may choose to pay an amount that reflects the difference between the pair or set’s pre-loss and post-loss value. Finally, settlement may be made by paying the value of the particular lost or damaged part.

HOW MUCH WE PAY

In this portion of the policy, the company’s obligation to provide insurance protection to the insured is described, including explanations of limits, deductibles, and loss settlement terms.

1. Insurable Interest

The insurance company’s obligation to pay for an eligible loss is constrained by the total insurable interest held by the named insured; regardless what may appear as limits or the property’s applicable value.

2. Deductible

This provision explains that, any loss paid, is net of any deductible selected and appearing for any given class of property that is protected by the personal effects form.

3 Loss Settlement Terms

This provision explains that the applicable insurance company has the option to pay according to the property’s valuation (determined at the time of loss), what it takes to repair an item, what is needed to replace the property (substituting property that is comparable in value and quality), the policy’s applicable insurance limit or according to the cost to replace the property with the best substitute practically available. Further, the insurer has the right to use whichever option is the cheapest; though this term is subject to the policy’s other “How Much We Pay” provisions.

4. Insurance under More Than One Coverage

If more than one coverage of this policy applies to a loss, no more than the actual loss itself will be paid. This condition assures that a person is not allowed to benefit from the fact that coverage under the policy exists from more than one area.

5. Insurance under More Than One Policy

When there is other insurance that applies to the loss, the insurance company providing coverage under this form is only obligated to pay its share of the loss which exceeds what is provided by any other coverage source. This is true even if such other sources of loss are not collectible. Further, any shared/excess payment is still subject to any limit applying to such damaged or lost property.

6. Coverage under a Service Plan

The policy’s available coverage is directly affected when a service plan or similar agreement (such as warranty plans and product protection plans) applies to an occurrence. In such instances, the policy responds on an excess basis and is subject to any applicable insurance limit.

LOSS PAYMENT

1. Loss Payment Options

This section may cause insureds confusion since it could be interpreted as treading the same ground as the earlier, “How Much We Pay” section’s “Loss Settlement Terms” provision.

a. Our Options

When a loss occurs, this provision states than an insurer may choose the most cost effective of the following:

· Pay the lost, damaged property’s immediate, pre-loss value

· Pay to repair the damaged property to its immediate pre-loss condition

· Pay the cost to replace the lose/damaged property with substitutes that are comparable in quality and nature

· Pay based on any value previously establish via agreement or appraisal (whether the situation involves partial or total loss).

b. Notice of Our Intent to Repair, or Replace

When an insurer decides to either repair or replace covered property, it must let the insured know of its intent. The notification has to take place within 30 days after the insurer receives a valid proof of loss.

2. Adjustment and Payment of Loss

This provision addresses settlement according to the ownership of the lost/damaged property:

a. Your Property

If no other insurable interest (including a loss payee) exists and if no third party exists (that is also responsible for payment), then any payment will be settled between the insurance company and the insured.

b. Property of Others

When the policy pays for damage to or loss of property that belongs to a third party, the insurer has the option of making payment either to the named insured (who is then responsible to getting payment to the applicable party) or directly to the property owner. This provision also states that such payments will not be duplicated. Only one party will be paid for a given, eligible loss. Finally, the provision states that the insurance company has the option to handle the expense of defending an insured.

3. Conditions for Payment of Loss

Here the form states that an insured is due payment for a loss no later than 60 days after the amount of a given loss is determined. The determination may result from a written agreement between the insurance company and the insured, the final filing (entry) of a judicial award or after an appraisal award has been filed with the insurer.

Example: Jana has almost lost her love of camping. She and her insurer hotly disputed the value of her clothing, boots, and other camping gear that were destroyed when her car top carrier was stolen off her car. On March 11 she received a letter from her insurer, agreeing to a payment of $1,734. The letter is dated March 8. She calls the insurer and says she’ll expect payment no later than May 7.

CONDITIONS

In this portion of the policy, the policy’s general provisions are described.

1. Appraisal

If the insurer and the named insured do not agree over the value of the covered property or the amount of the loss, each party has 20 days (after receiving a written request from the other party) to select an appraiser. The two appraisers will select an umpire.

If, within 15 days, they do not agree on an umpire, the two appraisers may ask a judge of a court of record of the state where the described location is located to make the selection. If the two appraisers agree in writing, that sets the amount of the loss. However, if they do not agree, the differences are submitted to the umpire and then the written agreement of any two of the parties sets the amount of loss. Each party will pay its appraiser and the two parties will share the cast of the umpire and related expenses equally.

Notes:

An appraisal is about the amount of an eligible loss not whether coverage applies.
This provision does NOT state that this decision is binding

2. Assignment

No insured or other party can sign this policy and its coverages over for use by any other party unless, first, getting the insurance company’s permission (in writing). Of course, assignments can arise via separate channels.

3. Benefit to Others

This policy is not intended to provide protection for the direct or indirect benefit to parties who are paid to assume custody of the covered property. In other words, such persons or organizations should secure their own insurance instead of piggybacking onto an insured’s coverage.

4. Change, Modification, or Waiver of Policy Terms

Only the insurance company has the option of waiving or changing this policy’s terms and such waiver or change must be in writing. If the insurer initiates either an appraisal or any examination under oath, the requests do not affect any other policy terms, so an insured may not consider other policy provisions to be waived or rendered moot.

5. Conformity with Statute

Terms in conflict with the laws of the state in which the premises shown on the declarations is located, are changed to conform to such laws. This provision is rarely relied upon since amendments or endorsements are added to policies to match the state where the policy is used. However, there are instances where the condition is relied upon.

6. Death

If the named insured or the named insured’s in-resident spouse dies, the legal representative of the person who died becomes an insured as respect to the deceased insured’s premises and property but only for the coverage provided by the policy at the time of that person’s death.

Recognizing that the status of the residents in the household change in the policy once the named insured or spouse dies, the definition of insured is changed for the time of transition following the death. Specifically, the definition is expanded to include members of the deceased person’s household who were members at the time of death but only while residing at the described premises. In addition, if a person is granted temporary custody of the covered property belonging to the deceased, that person is an insured but only for that property and only until a legal representative is appointed.

7. Inspections

The insurer reserves the right to inspect the property it insures, and it can do so with its own personnel or it can have another organization inspect on its behalf. The condition also warns the named insured that, while an inspection and related information about the results of the inspection may imply a type of warranty or guarantee about the fitness of the insured location, that is not an assumption that should be made.

What purpose does this serve? This is a warning and a notice to an insured that a company inspection cannot be used as evidence of the worthiness of the property. A company has its own underwriting rules and philosophy for providing coverage and will not permit its actions to be used to the benefit of other parties. This also prevents the company from being held liable to other areas of authority concerning the property.

8. Liberalization

Sometimes a program undergoes revisions that affect coverage for all policies, yet there may not be any additional premiums involved. If such a change occurs during a policy period or if it occurs no later than 60 days of the current term’s effective date, the applicable policy automatically changes to reflect those revisions.

Note: No changes take effect when overall program changes are implemented via a program edition change or via a separate endorsement.

9. Loss Payable Clause

If the form includes a loss payee with an insurable interest in any covered contents, that loss payee (appearing in the declarations) is granted status as an insured. However, any coverage is only to the extent of the amount and nature of their interest in any personal effects that is protected by this policy. A copy of any termination notice or non-renewal sent to the insured will also be sent to the applicable loss payee.

10. Misrepresentation, Concealment, or Fraud

Any intentional concealment or misrepresentation on the part of any insured can void the policy’s protection for all insureds. If an insured lies or hides a material fact or any circumstance that relates to the insurance that is granted by this policy, that act or omission may eliminate the insurer’s obligation to provide coverage for any insured. This may occur either before or after any loss (depending when an act or concealment is discovered).

Simply put, the company should be able to rely on the statements made by the insured in making its decision to insure a person or property. If the statements are seriously in error, the insurance contract has no right to exist and the company has no obligation to honor it.

11. Policy Period

The policy period sets the time frame in which a loss must occur in order for it to be covered under the policy. In other words, a loss must take place within a stated policy period in order to qualify for coverage during that given period.

12. Recoveries

There are instances when the insurer pays for a loss and then, later, the property is recovered. Similarly, after the insurer’s payment, damage payments are received from those responsible for the loss. When this happens, the named insured and the insurer are obligated to inform each other. The costs of the recovery efforts are paid first.

The named insured can decide to keep the property or give it to the insurer. If the recovery is not wanted, then nothing changes. but if the named insured wants the property, claim payments received from the insurer, or some lesser agreed upon amount, must be returned to the insurer. If the named insurer did not receive a complete payment for the claim, due to a deductible or a coverage limitation, the recovery is prorated based on the interest of each party in the loss.

Related Court Case: Insured Has Right to Claim Recovered Property

What is important about recoveries is that they are resolved in a manner that is fair to the insurer and the insured. One party should not significantly benefit from the recovery of property or money if it comes at the expense of the other party.

13. Restoration of Limits

This provision states that partial losses have no affect on the total insurance limit available for subsequent, eligible losses. Therefore, policy limits are restored to their full amount after such losses.

14. Subrogation

When an insurer pays damages, it may ask the insured to transfer his or her right to attempt to recover damages from another party. The insured must agree, in writing, to do so and to fully cooperate with the insured in pursuing the recovery. This act of seeking payment from a party responsible for a loss is called subrogation. This right is very valuable to an insurer. In fact, if an insured harms this right to recover payment after a loss has occurred, the insurer may no longer be obligated to pay for the loss.

The insured may waive all rights to recover before a loss occurs—but this waiver must be in writing. Signing this waiver AFTER a loss does not affect coverage under the policy.

Subrogation problems do arise under homeowner policies. Many insurers aggressively assert and protect their rights to subrogate against other parties. In some instances, insurers are taking legal action against their clients who harm this right.

15. Suits against Us

While, during a serious dispute, an insured has a right to sue the insurer to resolve the situation, that right may only be sought AFTER complying with the personal effects form’s terms. Also, any lawsuit has to be filed within two years of the date the insured first becomes aware of the applicable loss.

Note: The policy provision makes an important exception. It permits an insured to file a lawsuit according to the time period allowed by applicable state law.

16. Territorial Limits

The coverage provided by the PEF applies to eligible property on a global basis.