HO 00 03–ISO HOMEOWNERS 3 - SPECIAL FORM COVERAGE ANALYSIS

(July 2020)

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This is an analysis of the ISO (Insurance Services Office) Homeowners Program’s Special Policy form, 05 11 edition.

Related Article: Homeowners Coverage Archive

Note: This article contains discussions of the 1991 and 2000 editions.

AGREEMENT

Under this provision, the insurance carrier agrees to provide homeowners insurance (as described in the following policy pages) in exchange for the named insured paying the policy premium AND complying with the required policy provisions.

Note: The named insured has to meet BOTH conditions in order to qualify for coverage.

DEFINITIONS

This portion of the Special Form policy defines the terms that are critical to understanding how the policy responds to coverage situations. The following is a summary of the defined terms that, throughout the policy, appear in quotation marks:

A. "You" and "your"

These are used in the policy to refer to the "named insured" that appears on the policy’s declarations. “You” and “your” also extend to the named insured's spouse, but only if the spouse lives in the same household.

Example: Joe and Tanya have a HO policy effective June 1, 2020 to June 1, 2021. The policy shows Joe on the policy as the named insured:

Scenario 1: On July 15^th, Joe, and Tanya both live at the address that appears on the HO declarations. At this point, both Joe and Tanya are named insureds.

Scenario 2: On September 29^th, Joe is still at the address that appears on the HO declarations. Tanya, fed-up with her marriage, now lives in an apartment on the opposite side of town. At this point, the term "you" and "your" no longer apply to Tanya since she doesn’t live at the described residence.

"Our," "us" and "we"

These three terms are used as references to the company providing the homeowner policy.

B. The HO 3 Special form policy also makes use of the following, defined terms:

1. “Aircraft Liability,” “Hovercraft Liability,” “Motor Vehicle Liability” and “Watercraft Liability”

“Aircraft Liability,” “Hovercraft Liability,” “Motor Vehicle Liability” and “Watercraft Liability” refer to legal liability for “bodily injury” or “property damage” that is related to the use or ownership of these items. Such liability would also encompass loss involving the following:

Unloading or loading a vehicle or craft	Vehicle or craft operation	Maintaining (including repairing) a vehicle or craft
Vehicles or crafts that belong to any person defined as an insured	An insured's negligent supervision related to vehicle/craft	An insured permitting another party to use a vehicle/ craft (entrustment)
An insured's vicarious liability related to vehicle/craft

The vehicle and craft definitions go further, describing the following:

Aircraft - refers to devices that are used or designed for flight. It does not include model or hobby aircraft that is not intended (designed) to carry people or cargo.

Hovercraft - refers to vehicles that are powered by force of cushioned air; naturally, such devices have motors. They must also be designed to travel over the ground, at ground level. This means a self-propelled motorized ground effect vehicle and includes, but is not limited to, Flarecraft (brand of air-cushion device) and other air-cushion vehicles; and

Watercraft - refers to devices that operate on or in water. Movement can be powered by wind, motors, or engines.

Motor Vehicle – please see separate definition that appears later in this section.

2. "Bodily injury"

This term refers to sickness, disease, or bodily harm, and includes any resultant death.

3. "Business"

“Business” refers to a trade, occupation, or profession, EVEN when such activity occurs only on a part-time or occasional basis. The policy’s definition does exclude the following instances from its business definition:

Activities that only reimburse volunteers for expenses that are directly related to the activity
An insured who provides home day care to his or her relatives

Mutual exchanges of home day care services

Example: Josie McBakerie volunteered to run her church’s annual fish fry. The program runs for a month and it is very popular. Josie was sued by another church member whom Josie recruited to operate a hot oil fryer. The church member was injured when Josie fell against him and the person’s hand fell into the hot fryer. The insurance company adjuster told Josie that she was not covered by her homeowner policy after he discovered that Josie received over two thousand dollars from the church’s treasurer for her work on the fish fry. Later, Josie explained that she shops and pays for all of the food and supplies used in the fish fry herself and then gets reimbursed by the church’s treasurer. Josie’s total expenses were more than $2,600. The adjuster then says that, since the money was just for fish fry expenses, Josie would be covered for the loss.

The policy’s “business” definition also makes an exception for activities that involve modest amounts of income. Specifically, an activity is not considered to be a business if it generates no more than $2,000 in compensation during the 12-month period before the homeowner policy period.

Note: This refers to the value of compensation, NOT merely cash. The details surrounding an activity greatly affect how the activity is treated.

Example: Scenario 1: Jim Surepay has a regular job but he is a genius with a video camera and he often makes extra money videotaping weddings, birthday parties and similar events. Jim bought a Special Form homeowner policy on 10/1/2019. In the 12 months before the policy began, Jim made $1,950 taping events. The following year, Jim made well over $3,000. Since the $3,000 was made in the 12 months before the RENEWAL date of 10/1/2020, does it qualify as a “business”? In this case, the activity changes from a non-business to a business situation from the policy inception period to the renewal period.

If an activity exceeds $2,000 in any 12 months before a policy period, does it retain its status as a business forever?

Example: Scenario 2: Let’s revisit Jim Surepay. Remember that Jim makes extra money videotaping weddings, birthday parties and similar events and that Jim bought a Special Form homeowner policy on 10/1/2019. However, his earnings are different. In the 12 months before the policy began, Jim made $2,450 taping events. Earnings in the following year are very slim and Jim only makes $1,200. Since the $2,450 was made in the 12 months before the INCEPTION date of 10/1/2019, does it qualify as a “business” for renewal periods even when it generates less than $2,000 income in the period prior to the renewal dates? From the policy wording’s inclusion of the phrase “for the 12 months before a policy period”, a given activity’s status may change from one policy period to another based on the volume of compensation.

Does the reference to total income include “non-monetary” compensation?

Example: Scenario 3: This time, in the 12 months before his homeowner coverage began; Jim made $1,850 in cash for taping events. However, one client received two video cameras as wedding gifts so he “paid” Jim by giving him one. The camera had a retail value of $1,395. Does this combination of payments qualify his taping as a “business” for the following policy year? If a loss occurred, Jim’s insurer could investigate the situation and a denial could be the result.

Does the reference to total compensation take gross or net receipts into consideration?

Example: Scenario 4: Let’s look at Jim Surepay again. In this instance, in the 12 months before the policy began, Jim made $2,250 in cash for taping events. However, Jim’s regular job puts him in a high tax bracket and his net income for taping is only $1,790. Since his net income is less than $2,000 does it qualify as a “business” for the following policy year?

Is the reference to total compensation in the 12 months before the inception date affected by the basis of collecting income?

Example: Scenario 5: Let’s look at Jim Surepay once again. In this instance, in the 12 months before the policy began, Jim earned $2,250 in fees for taping events. However, Jim gives his clients as long as 60 days to pay and, while he EARNS more than $2,000 in the 12-month period before the policy, he receives less than $2,000 in cash (collecting another $500 in fees AFTER the policy inception date). Since his cash income is less than $2,000 does it qualify as a “business” for the following policy year?

These issues are ones that will likely only be addressed when a loss occurs and then, the applicable insurer may be as confused as the insured over what qualifies as a business.

IMPORTANT: The definition of business is modified by mandatory ISO Form HO 06 53–Home-Sharing Host Activities Amendatory Endorsement. The mandatory form also adds several, unique terms that affect coverage. Optional form HO 06 63–Broadened Home-Sharing Host Activities Coverage Endorsement which can be used in place of the HO 06 53 should also be examined.

ISO Homeowners Optional Coverage Endorsements

ISO Homeowner Mandatory and Optional Home-Sharing Endorsements

4. “Employee”

This term refers to a person whose duties involve tasks that are NOT performed by a “residence employee” AND who either:

works for an “insured” on a direct basis, or
works for an “insured” through a leasing arrangement between an “insured” and a company that leases employees.

5. The Special Form homeowner policy considers all of the following to be insureds (with notes on any exceptions):

(refer to separate definition)

Your relatives if residents of "your" household

(meaning relatives who live at the insured location with the named insured)

Persons under the age of 21 residing in "your" household and in "your" care or in the care of "your" resident relatives

Note: Such persons must BOTH be younger than 21 AND have a named insured, his or her spouse or a relative of the named insured/spouse as their caregiver.

The definition of insured includes persons who are residents of the named insured’s household who are full-time students. In order for a full-time student to qualify as an insured, he or she must either be younger than 24 years of age and be related to an insured OR be younger than 21 years of age and be in the care of someone in the named insured’s household.

The following persons are insureds, but ONLY regarding section II, the liability portion of the homeowner policy:

Any party having legal responsibility for either animals or watercraft that is eligible for coverage under the homeowner policy.

Examples: Nancer Editbee’s home is insured by an ISO Special Form policy. Let’s look at whether the following are insureds under her policy:

Nancer’s 12-year-old neighbor who walks Nancer’s dog (yes, an insured)
Frank, who rented Nancer’s RV for the weekend (no, not an insured – due both to rental and type of property)
Jeri, a stranger who stole Nancer’s cat (no, not an insured)

· Paul, a friend from work who borrowed Nancer’s canoe (yes, an insured)

Related Court Case: Animal Liability Exclusion Stands as Written

However, anyone in possession of an insured’s watercraft or animal is denied insured status if any business purpose is involved.

Any person working for an insured while operating a motor vehicle that qualifies for homeowner coverage,
Any person who has the insured’s permission to use an eligible motor vehicle, but only while on the insured premises.

Examples: Tom Kinpushion’s large home (on four acres of land) is insured with a Special Form homeowner policy. Let’s look at whether the following are insureds under his policy:

Tom’s visiting childhood friend who hits Tom’s neighbor while driving Tom’s car out of his garage (no, not an insured)
Tom’s neighbor, Pete, while using Tom’s lawn tractor in his (Pete’s) lawn cutting service (no, not an insured)
Tom’s other neighbor’s daughter Nikki whom Tom hired to cut Tom’s 4 acres (yes, an insured)

· Tom’s son while using his electric wheelchair at the nearby grocery store (yes, an insured)

The 05 11 edition of the Special Form policy’s definition of insured continues using a clarification. Whenever the word “insured” immediately follows the word “an,” the phrase refers to one or more “insureds.” In other words, an “insured” means one or more persons who have covered status under the policy.

6. “Insured location”

This term refers to a variety of circumstances that includes the following:

The residence premises (please refer to the discussion of this defined term below).
Parts of other premises or structures that are used by an insured as long as these locations are shown on the policy declarations page OR have been acquired by the insured as a residence during the policy period.

Example: Annie’s home is covered by a Special Form policy. Annie also owns the lot next to her home. That adjacent lot contains a large garage. The garage was added to Annie’s homeowner policy by a separate endorsement. Via the endorsement, the garage becomes an insured location.

Any premises that is related to a property that is covered by a Special Form policy AND which is used by an insured.
A premise that IS NOT owned by an insured but is an insured location while it is used by an insured as a residence.

Example: A hotel room while reserved and used by an insured.

Vacant land that is owned by or rented to an insured EXCEPT farmland.
Land that contains a structure that will eventually be an insured’s (1 through 4) family residence.

Note: The building has to be for the insured’s residence. Land where an insured is building a residence that he plans to rent to another party would not be an insured location.

Other situations that qualify as an insured location include:

- An insured’s individual or family cemetery plots or burial vaults

- Part of a premises which is rented and used by an insured but only if for non-business purposes

Example:

Scenario 1: Carson Prairie has a home insured by a Special Form policy. Carson is an alumnus of GardenView College. Every August, Carson rents his old dormitory room. He uses the time to recharge his batteries from his full-time job as an owner of a Pet Repo Service. The old dorm room is an insured location.

Scenario 2: Again, Carson Prairie, the GardenView College alum, rents his old dormitory room every August. He uses the room as a location to interview incoming student-athletes and publish an online sports newsletter about GardenView. GardenView is subscription-based and sold to other sports-minded alumni. Besides the furniture from the college, Carson rents computers, copier, and postal equipment to assist in his summer work. In this instance, his old dorm room is NOT an insured location.

Related Court Case: “Defamation Suit Denied - Unrelated To Insured Location” – Illustrates how an insurer’s obligation to provide coverage is affected by the relationship between a loss and the location of its occurrence.

7. “Motor vehicle”

A motor vehicle is a vehicle that is self-propelled, runs on land or on water, and includes any trailer that is towed or carried by such a vehicle. All of the following would qualify as motor vehicles:

cars	trucks	vans	recreational vehicles	certain golf carts
motorcycles	mopeds	all terrain cycles	all terrain vehicles	snowmobiles
sports utility vehicles	motorized carts	self-propelled mowers	lawn tractors	motorized bikes, scooters, and similar vehicles

Any vehicle that is motorized and self-propelled is considered to be a motor vehicle. Both of these elements must be present.

Items such as sleds, non-motorized carts, bikes, and similar property do not qualify as motor vehicles.

8. “Occurrence”

This term refers to an accident and also to repeated exposure to similar conditions. However, in order for the accident or repeated exposure to be considered an occurrence it must cause "bodily injury" or "property damage" and that BI or PD must take place during the policy period.

Related Court Case: Does Policy Cover Host Who Served Minors?

9. "Property damage"

This term refers to direct damage to tangible property (including its destruction) or the direct or indirect damage caused by the loss of use of tangible property.

Example: Marty owns a home that is insured under a Special Form policy. Marty’s friend, Lisa, lets Marty use her condo for his vacation. Marty causes a lot of fire and smoke damage when he leaves a small grill unattended on the balcony. A gust of wind tips it over, sending hot charcoals onto the condo’s carpeting. Lisa sues Marty for reimbursement of the damage as well as the cost of renting another condo as it was unavailable for her own vacation. Lisa’s loss of use claim would qualify as property damage under Marty’s policy.

Note: It is likely that the property damage definition will be revisited in light of the loss exposures accompanying the recent viral epidemic. Lawsuits continue to arise that challenge the understanding of what constitutes property damage. Merely the high volume of such claim allegations have caused state regulators and legislatures to consider creating a new coverage obligation in this area.

10. "Residence employee”

Refers to a person hired directly by a person who, by definition, is considered to be an insured. It also applies to a person an insured hires to work for him or her via a contract with a firm that leases workers. In either case, the worker’s duties have to be related to maintaining or using the insured premises.

Note: A person who performs such duties for an insured, but at a different location, also qualifies as a residence employee as long as that work is not connected to an insured’s business.

Example: Jim does Penelope a favor, sending his gardener to work around Penelope’s home for a week to help her get prepared for a wedding that will be held there. During that week, the gardener is still considered a residence employee under Jim’s policy.

11. “Residence Premises"

Refers to any of the following that are used mainly for family residential purposes:

One-, two-, three- or four-family house, (the insured MUST live in one of the units)
The part of ANY other building where an insured lives as well as any other structures and grounds that exist at that location.

HOWEVER, any of the above must be listed on the policy declarations of the residence premises.

IMPORTANT: This definition has been modified by the introduction of the ISO’s mandatory HO 06 48-Premises Definition Amendatory Endorsement. The HO 06 49-Broadened Residence Premises Definition Optional Endorsement can replace the HO 06 48 so it should also be examined.

ISO Homeowner Mandatory and Optional Residency Definition Endorsements

ISO Homeowners Optional Coverage Endorsements

SECTION I - PROPERTY COVERAGES

A. Coverage A - Dwelling

This coverage section protects the following types of property:

· The residence that appears on the declarations page

· Any structures that are attached to the described residence

· Any materials or supplies that are located either next to or on the residence premises.

However, any material or supplies have to be for the purpose of adding to, altering, or repairing the residence or other structures described on the declarations.

Example: One of your insureds is building an addition onto a home that is covered by a Special Form policy. On the day that insulation is delivered, there is a fire at the construction site. The insulation that is destroyed in the fire is insured under Coverage A. Even though it was not yet a part of the dwelling, the end use for the insulation was intended to be part of the house; therefore, it qualifies for coverage.

Example: Phil Buildwell just became unhappy with his insurer. The company adjuster said that, while Phil’s Special Form policy would cover the partial fire damage to his home and total loss to his garage, no coverage applies to the $2,200 in building material that was in the garage. The fence sections and lumber were for making repairs and improvements to a local youth baseball league’s diamonds.

Note: Remember that the residence should be a one- to four-family dwelling in order to qualify for homeowner coverage. Also be aware that land, even land on which covered property sits, is NOT covered by the Special Form policy.

Example: During a tornado, a tree is uprooted in an insured’s lawn. The tree lands upon and seriously damages the insured's porch roof. While the roof is covered, the damage to the lawn (caused by the uprooting) is not.

Care should be taken when insuring a dwelling to determine the proper replacement cost of the dwelling itself (minus any land value). Sometimes the lot upon which the dwelling is built may be more valuable than the dwelling. In these circumstances, the home's market value is substantially influenced by its land value. The market value of such a home becomes a factor that should be discounted when determining the insurable value of the home.

Coverage B - Other Structures

1. Other structures on the "residence premises" are protected under this coverage part. What are “other structures?” An “other structure” is, literally, a structure that is other than the primary residence premises. Therefore, besides having some other use, an “other” structure must also exist separately from the primary residence. In other words, an “other” structure cannot be attached by any significant means to a primary residence. The policy states that, in order to qualify as an “other” structure, the structure has to clearly sit apart from the dwelling. If the structure is connected to the dwelling by anything more substantial than a utility line or a fence, it will be considered as part of the dwelling.

Besides gazebos, other examples of structures covered under Coverage B are:

Play sets
Storage or utility sheds
Detached garages
Pole barns
Unattached decks
Tree houses
Unattached car ports
Play homes
Above ground pools.

2. Situations that are NOT covered

As it is with Coverage A, the insurance under Coverage B does not apply to land, including the land upon which the other structure sits.

The wording regarding uncovered situations states that no coverage is available for other structures:

that are used to conduct a business
which an insured rents to any person who is not a tenant of the dwelling, or
that is used to store business property.

Example: To earn extra money, Shyla Goldgild decides to take advantage of her love for older, valuable objects and dabble in the antique business. On the weekends, Shyla goes to antique shows with her collection and sells antiques. Since Shyla lives in a neighborhood that has heavy pedestrian traffic, she puts a little sign on her lawn that says "ANTIQUES." The sign also includes an arrow that points to the garage. People commonly stop by to look at her collection and to make purchases. One day, lightning strikes the garage and it burns to the ground. NO COVERAGE for the garage—it is used for a “business.”

There are a couple of important exceptions to these exclusions. First, the policy will cover a rental to a person who is not an insured under the policy IF the structure is used only as a private garage.

Example: Shyla Goldgild has learned her lesson from having to rebuild her garage with her own money. However, she still needs to earn some extra income, so she rents out her detached garage as a private garage for her neighbor who needs the space for their teenager’s car. If a covered cause of loss destroys Shyla’s garage, it is covered because it is being used as a private garage.

Another exception is granted when the garage is used to store business property (EXCEPT FOR GAS OR FUEL) that is owned by an insured or by a tenant who lives on the residence premises. The prohibition for fuel does not apply to fuel that’s in a vehicle’s fuel tank.

3. The limit of insurance for Coverage B is restricted to no more than ten percent of the dwelling’s insurance Limit. The Coverage B limit is an additional amount of insurance protection. Payment under Coverage B DOES NOT affect the amount of Coverage available under Coverage A.

Coverage C - Personal Property

1. Covered Property

Personal property owned by or used by an “insured” is covered anywhere in the world.

Personal property owned by others can be covered but only if the insured asks that it be covered and either of the following applies:

The property is on the part of the “residence premises” occupied by an insured
The property belongs to an insured’s guests or to a "residence employee," and the property is at a residence being occupied by an “insured.”

Example: Clara Sweethart’s home suffers a kitchen fire during a weekend when her son has invited several of his college friends over. The friends’ luggage and clothing are ruined by soot and smoke. Clara’s claim for damages includes the loss of the luggage and clothing since she feels responsible to her guests.

2. Limit for Property At Other Locations

Note: The 05 11 Edition changed this from “At Other Residences.”

a. Other Residences

There is a special limitation for personal property that is usually located away from the insured’s primary residence. Under this circumstance, either the greater of 10% of the Coverage C insurance limit or $1,000 applies.

Example: Tara Southland has a home in Dixietown, but she also owns a cabin in Magnoleum State Park. The cabin is completely furnished so that Tara never has to pack anything except food when she uses it. Since Tara’s policy which insures her home has a Coverage C limit of $55,000 and since the cabin’s personal property is always kept at the cabin, a maximum of $5,500 (10% of the Coverage C limit) can be extended to that property. If Tara’s homeowners policy had a Coverage C limit of $7.000, instead of $700 (10% of the Coverage C limit) applying to the cabin’s furnishings, the minimum of $1,000 would be available.

Are there any exceptions to this special limitation for property that’s typically located away from the residence premises? Yes. The limitation DOES NOT apply in either of the following situations:

· During the first 30 days after an insured acquires a new principal residence and starts to move their belongings to the new residence,

· Personal belongings that have been moved from a residence that is not fit to store the property because the residence is being renovated repaired or rebuilt.

This limitation of 10% is not appropriate when belongings are being transported to a new residence. The limitation is meant to provide a modest amount of coverage to personal property that is never a part of the property that is kept at the insured dwelling. The coverage amount is kept at a minimum so that a single homeowner policy is not used to cover significant personal property exposures that exist at more than one location on an ongoing basis.

The limitation encourages property owners to buy additional, separate insurance to cover such situations. However, the policy language also wants to preserve full coverage in certain instances such as when the personal property is moved to either a temporary location or to a new, permanent location. Neither instance significantly increases the overall exposure for which insurers initially accept and assign premiums.

b. Self Storage Facilities

This is newly introduced under the 05 11 Edition. It is a substantial reduction of coverage. In previous editions there was no such limitation so the entire Coverage C limit would have been available.

There is a limitation under the Special Form policy for personal property that is kept in a self-storage facility. The property must either be owned or used by an “insured.” The limit is the greater of $1,000 or 10% of the amount written under Coverage C.

Example: Mike had to move from a three-bedroom ranch to a two-bedroom bungalow and he rented space to store some property. He was upset to find that his storage locker, containing all of his winter wardrobe and baseball equipment was destroyed during a fire at the facility. He lost $2,100 worth of property. Since the limit for Coverage C under his policy was $32,000 his coverage at the storage locker would be $3,200 so the entire loss was covered.

Property that is in storage because the insured dwelling is being repaired, renovated, or rebuilt and, because of this activity, the dwelling is not suitable for containing the property is not subject to this limitation and therefore has the full Coverage C limit available. In order to prevent a compounding of limitations, stored property that is usually located away from the insured’s primary residence is not subject to this limitation because it would be subject to the Other Residence limitation in item a. above.

3. Special Limits of Liability

The 05 11 edition of the Homeowners Program includes a number of classes of personal property that have specific monetary limitations. You should notice that the categories involve different classes or property that, due to their nature, are highly susceptible to loss or destruction. These limitations are sub-limits that do not increase the personal property insurance amount that appears on the policy declarations.

a. $200 SUB-LIMIT

This sub-limit remains the same in the 05 11 edition of the ISO Homeowners Program. It applies to the following:

money	bank notes	bullion
gold other than goldware	silver other than silverware	platinum other than platinumware
coins and medals	scrip	stored value and smart cards

b. $1,500 SUB-LIMIT

This sub-limit is unchanged from the 05 11 edition of the ISO Homeowners Program:

· securities

· accounts

· deeds

· evidences of debt

· letters of credit

· notes other than banknotes

· manuscripts

· personal records

· passports

· tickets and stamps.

Note: This limit applies to valuable papers no matter the medium in which they exist (i.e., paper or electronically). This modest limit includes the cost to research, replace or restore the information from the lost or damaged material.

c. $1,500 SUB-LIMIT

This sub-limit is unchanged in the 05 11 edition of the ISO Homeowners Program:

· watercraft of all types, including their trailers, furnishings, equipment, and outboard engines or motors

d. $1,500 SUB-LIMIT

This sub-limit is unchanged in the 05 11 edition of the ISO Homeowners Program:

· trailers or semi-trailers not used with watercraft of all types

e. $1,500 SUB-LIMIT

This sub-limit is unchanged in the 05 11 edition of the ISO Homeowners Program. The limited coverage applies to jewelry, watches, furs, precious stones, and semi-precious stones that are stolen. Loss of such property caused by other eligible perils would not be subject to this limitation.

f. $2,500 SUB-LIMIT

This sub-limit applies to the following:

· loss by theft of firearms and related equipment

This sub-limit would include property such as:

· ammunition

· weapon loaders

· scopes

· gun locks

· gun safes

· miscellaneous firearm accessories including parts

g. $2,500 SUB-LIMIT

This sub-limit is unchanged in the 05 11 edition of the ISO Homeowners Program.

Loss by theft of:

· silverware

· silver-plated ware

· goldware

· gold-plated ware

· pewterware

· platinumware

Note: This includes flatware, hollow-ware, tea sets, trays, and trophies made of or including silver, gold, pewter, or platinum.

h. $2,500 SUB-LIMIT

This sub-limit is unchanged in the 05 11 edition of the ISO Homeowners Program:

· property, on the "residence premises," used primarily for "business" purposes

Note: This limitation only involves property that is used PRIMARILY for any business purpose.

Example: The Bizzyton family has a well-equipped office that gets a lot of use. Since the family is in the room so often, they made it a priority to furnish it comfortably and expensively. The desks are made of fine hardwoods and the chairs are upholstered in leather. The room is used mostly for school, personal and volunteer activities (administrative work for their church and other groups). However, Mr. and Mrs. Bizzyton occasionally use the room to do paperwork and handle orders for their “on-line ancestors” family tree research service. One day a tornado sweeps through their neighborhood and breaches the exterior wall adjacent to the office. Wind and rain trashes the office’s furnishings. Under the HO 03 Special Form policy, the Bizzyton’s full Coverage C insurance limit would be available to handle the loss. Under pre-2000 editions of the Special Form policy, the fact that the room and furnishings were sometimes used in their research service could have limited their total recovery to $2,500, a fraction of their loss.

i. $1,500 SUB-LIMIT

This sub-limit is tripled from $500 in the 05 11 edition of the ISO Homeowners Program:

· property, away from the "residence premises," used primarily for "business" purposes

In order for this sublimit to apply, the “business” use has to be primary. In other words, the fact that a piece of property may, occasionally be used in business will not make it subject to this limitation. However, if the property involves electronic apparatus, this limitation is inapplicable IF such property is used with audio or video equipment that is located in or on a motor vehicle. These items are subject to limitations in items j. and k. below

j. $1,500 SUB-LIMIT

This sub-limit is unchanged but the description has changed significantly from the HO 2000 edition of the ISO Homeowners Program:

· loss to electronic equipment that is portable, while in or upon a “motor vehicle,” but only if the electronic apparatus can be powered from the vehicle’s electrical system. The equipment must transmit, receive, or reproduce audio, data, or visual signals. Accessories are no longer subject to this limitation. Instead they are subject to item k. below.

Note: Important changes in 05 11 edition are that the electronic item must be portable and can have multiple power sources as long as one possible source is the motor vehicle. The accessories that were part of this sub limit have been moved to item k. below.

k. $250 SUB-LIMIT

This new item in the 05 11 edition provides a specific limitation of coverage for these items rather than having them be a part of the $1,500 sublimit for electronic equipment described in item j. above

· loss to tapes, records, disks, media, wires, and antennas which are:

- in or on a motor vehicle, and

- used with equipment that must transmit, receive, or reproduce audio, data, or visual signals.

Note: The above sub-limits apply to the ENTIRE CLASS of property referenced.

Related Article: Personal Articles Floater

4. Personal Property Not Covered under Coverage C - Personal Property

Under Coverage C- Personal Property, there are eleven categories of property that are excluded from coverage. The excluded classes of property are:

a. Any property that is separately described and specifically insured in this or other insurance.

This exclusion is meant to prevent insureds from collecting twice for the same loss. This applies regardless of the amount of coverage provided by any other source of insurance. Besides discouraging “double-dipping,” this should encourage insureds to insure property under a policy that is the most appropriate.

b. Animals, birds, or fish

While homeowner programs offer liability for animals owned by insureds, they have not offered livestock or animal mortality coverage.

c. Motor vehicles

This item has been slightly revised under the 05 11 edition.

The reference to motor vehicles applies to related equipment, and parts. The following are exceptions to this exclusion:

(1) Portable electronic audio, visual and data devices but only if they can be powered by a source that is NOT a motor vehicle’s electrical system.

Note: The exclusion of property that is powered exclusively by the motor vehicle is intended to eliminate coverage for equipment that should be covered more appropriately elsewhere such as under an auto policy which generally provides more complete coverage for permanently installed electronic apparatus. Although the exception is positive be aware that the items covered are subject to the sublimits 3.j. and 3.k. described above.

(2) This exclusion has another important exception. There is coverage for certain motor vehicles. The homeowner policy covers motor vehicles which are not subject to motor vehicle registration and meet one of the following criteria:

· Have the single purpose of servicing an "insured's" residence.

Examples: Riding lawnmowers and motorized carts

· Designed to assist the handicapped.

Example: Motorized wheelchair

The 05 11 edition of the Special Form policy attempts to clarify the above exceptions to the motor vehicle exclusion by insisting that vehicles used to service a residence premises may ONLY be used for that purpose, and that vehicles for handicapped persons be designed to assist rather than be designed for assisting the handicapped. However, it’s uncertain whether this language tweaking will have any practical effect.

Example: For instance, will this language prevent coverage for a loss to:

· a riding mower which is occasionally used to take care of the elderly neighbor’s lawn?

· a riding mower with a snowblade attachment which is occasionally used to clear a friend’s driveway?

· a motorized wheelchair that is sometimes used in play by another member in the insured household?

· a motor vehicle that has been MODIFIED to assist the handicapped?

This wording may be an example of making the language too precise. Regardless, this provision also creates coverage for other instances where, otherwise, a gap would exist between auto and home policies.

d. Aircraft

The policy defines aircraft as any contrivance that is used or designed for flight. This property exclusion does not apply to hobby or model aircraft that is not designed or used to carry people or cargo.

Example: This is precisely the type of property that would be excluded if the policy did not make a distinction for items capable of transport.

e. Hovercraft and parts

This exclusion is for any self-propelled motorized ground effect vehicle, and includes flarecraft, air cushioned and similar vehicles.

f. Property of roomers, boarders, and other tenants

There is an exception for such property that belongs to an insured’s relatives. The purpose of this exclusion is to make sure that the homeowner policy is not used to cover persons who should buy their own tenant’s or homeowners insurance.

g. Property in an apartment regularly rented or held for rental to others by an "insured"

Property covered under the Landlord Furnishings in Additional Coverages is an exception.

In other words, the policy wants to restrict coverage to protect property that is used by the insured instead of giving full coverage to property that is used by other persons such as renters. This exclusion dovetails with the protection found under Additional Coverages, Landlord’s Furnishings.

h. Property that is either rented or held for rental to others but only while off the "residence premises."

i. "Business" data

The data can be stored in any of the following:

· Books of account, drawings, or other paper records

· Computers and related equipment.

The policy refers to computers and related equipment instead of the obsolete reference to electronic data processing, tapes, wires, records, discs, and other software media.

Related Article: ISO Valuable Papers Coverage Form

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

j. Credit cards, electronic fund transfer cards or access devices used to withdraw, deposit or transfer funds. But the policy makes an exception for the coverage available under Additional Coverages.

k. Water or steam

Example: Lightning strikes the Riverat family’s above-ground pool, splitting it open and emptying it of water. The Special Form policy would pay for the damage to the pool, but not the cost of refilling it.

Related Court Case: Pool Collapse Damage Not Covered

Example: The Paynes experience a kitchen fire that burns so intensely that it cracks the water supply pipes. The family was on an out-of-town visit when the loss happened, some water spills out for more than a day before their service is turned off. It results in a $245 water bill. This added expense would not be covered by the Special Form policy.

The intent of this exclusion appears to prevent coverage of the expense of water utility service from the policy.

IMPORTANT: This coverage has been modified under the mandatory HO 06 53–Home-Sharing Host Activities Amendatory Endorsement. The form also adds several, unique terms that affect coverage. Optional form HO 06 63–Broadened Home-Sharing Host Activities Coverage Endorsement can replace the HO 06 53 so it should also be examined.

ISO Homeowners Optional Coverage Endorsements

ISO Homeowner Mandatory and Optional Home-Sharing Endorsements

Coverage D - Loss of Use

This portion of the Special Form policy provides coverage for Additional Living Expenses, Fair Rental Value and Civil Authority. The insurance limit that appears for Coverage D is the total amount that applies to all three coverages. Specifically, Coverage D provides:

1. Additional Living Expenses

If a covered loss makes the insured premises unusable, this coverage pays an insured’s expenses which are beyond his or her normal living expenses.

Note: The extra expenses must involve the cost of maintaining an insured’s normal way of life.

Example: Consider these situations:
Likely Covered	Likely Not Covered
The added cost of renting two hotel rooms (for a family of six)	The added cost of renting two hotel rooms (for a family of two)
The expense of eating out at a family-style restaurant	The expense of eating out at a luxury steak and seafood restaurant
The weekly use of a regular laundry service	The extensive use of dry cleaning or buying new clothes when old clothes become dirty

A time limit controls the payment of these expenses. Payment will last until the damaged home is repaired or replaced, or until the insured has found a new, permanent residence, whichever occurs first.

2. Fair Rental Value

This coverage pays an insured the fair rental value of the part of the "residence premises" which the insured rents out or holds for rental. Any payment is reduced by any expenses which cease while the residence can’t be used.

Of course, the home must first be made unavailable or unlivable by a covered cause of loss.

Payment under additional living expenses or fair rental value will be for the shortest of the time required to repair or replace the damage; or, if “you” permanently relocate, the least amount of time necessary for “your” household to settle elsewhere.

IMPORTANT: This coverage has been modified under mandatory HO 06 53–Home-Sharing Host Activities Amendatory Endorsement. The form also adds several, unique terms that affect coverage. Optional form HO 06 63–Broadened Home-Sharing Host Activities Coverage Endorsement can replace the HO 06 53 so it should also be examined.

ISO Homeowners Optional Coverage Endorsements

ISO Homeowner Mandatory and Optional Home-Sharing Endorsements

3. Civil Authority Prohibits Use

If a civil authority prohibits the "residence premises" from being used as a result of direct damage to neighboring premises by a covered cause of loss, the additional living expense and fair rental value loss as provided under additional living expenses and fair rental value is covered for a maximum of two weeks.

Example: “Your” neighbor’s home burns to the ground and an inspector decides that it would be best for “you” to live elsewhere while the neighboring property is made safe again. The most time that the policy will pay for is two weeks. If you were required to live elsewhere after two weeks, the additional costs of temporary living arrangements become an out of pocket expense.

The coverage periods extended under additional living expenses, fair rental value, and civil authority are not limited by the expiration date of the policy.

Note: This is another issue that may be affected by the recent pandemic. Many losses were created by the actions of local and state governments affecting the legal use of personal and commercial property. It is highly likely that this issue will be redefined.

4. Loss or Expense Not Covered

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

Example: Stan’s home is damaged by a fire that started in the kitchen. It is a two-story, two-family home and he rents out the upstairs. When his tenant finds out it will take nearly two months to repair, he breaks his lease. Stan can’t recoup the loss of five months’ rent under his HO policy.

E. Additional Coverages

Section I of the Special Form policy provides several coverages in addition to coverage parts A through D.

Note: Unless otherwise stated, the coverage amounts that appear in this section are unchanged from the HO 2000 edition of the Special Form Policy.

1. Debris Removal

Reasonable expenses will be paid for the removal of the following:

· Debris of covered property if an insured peril that applies to the damaged property causes the loss

· Ash, dust, or particles from a volcanic eruption but only if they caused direct loss to a building or to property that is within a building.

Example: Cliff Calmly goes out to get his morning paper and is shocked to see his yard is covered with debris from his neighbor’s house which was damaged by storm winds. However, since Cliff’s home is undamaged and the debris is from elsewhere, his policy’s Debris Removal coverage WOULD NOT respond to the cost to clear his property.

This coverage is a part of the limit of insurance that applies to the damaged property. If the sum of the amount paid for actual property damage and the debris removal exceeds the limit of liability for the damaged property, an additional 5% of that limit of liability is available for debris removal expense.

Example: The Burners’ home was severely damaged by the sudden eruption of a live volcano from the center of their town, Vesuviaville. The Burners’ Special Form policy has a Coverage A insurance limit of $120,000. Besides the fire and smoke damage to the home’s exterior, their home is also buried under volcanic ash. Their homeowner insurer, Vesuviaville Property and Calamity sends an adjuster who estimates that the loss to the home and the expense to remove the ash would cost $128,000. After reviving Mr. Burners, the adjuster explains that, since the total cost is more than their Coverage A insurance limit, their additional coverage makes $6,000 available (5% of $120,000) just for debris removal.

Debris Removal coverage also pays up to $1,000 for the removal of the following from the "residence premises":

· The named insured’s trees which are destroyed by windstorm or hail

· The named insured’s trees which are destroyed by weight of ice or snow

· Trees belonging to an insured’s neighbor which are blown over or around by an insured peril under Coverage C

However, the trees must cause one or more of the following:

- Damage to a covered structure

- Block a driveway enough to prevent registered motor vehicles from entering or leaving the premises

- Block a ramp or passage that eliminates a handicapped person’s access to the dwelling.

Note: The limit for any one loss is $500 for any one tree but only $1,000 for all fallen trees. While the increased coverage helps, it would still be quite inadequate at a site where debris consists of a large number of felled trees. Though the coverage amount is modest, it still offers some protection to events that are commonplace, so it should be a valued feature.

2. Reasonable Repairs

If covered property is damaged by a covered peril, this additional coverage will pay the reasonable cost an insured incurs for protecting the property from additional damage. Coverage includes reimbursement for repairing other damaged property. Remember, in order to qualify for this additional coverage, the expenses must involve covered property that is damaged by an eligible cause of loss. This coverage does NOT increase the limit of insurance that applies to the covered property AND the insured is still obligated to protect the property from further damage per other policy conditions.

Examples:

· Buying plywood and materials to cover windows and openings created by a storm

· Hiring persons to move personal belongs from an exposed area of a damaged home to storage in an enclosed area so that it is not damaged by weather or stolen

· Buying plastic covering to shield damaged property that is moved out into the open.

3. Trees, Shrubs and Other Plants

Specific perils are covered for trees, shrubs, plants, or lawns on the “residence premises.” These perils are:

· Fire or lightning

· Explosion

· Riot

· Civil commotion

· Aircraft

· Vehicles not owned or operated by residents the insured household

· Vandalism

· Malicious mischief

· Theft

For all trees, shrubs, plants, or lawns, coverage is available for up to 5% of the limit of liability that applies to the dwelling.

No more than $500 of this limit will be available for any one tree, shrub, or plant. However, this is an ADDITIONAL amount of insurance. Payment under this additional coverage does not affect the insurance limits that apply to other covered property. Additionally, it is important to remember that there is NO coverage for property grown for "business" purposes.

4. Fire Department Service Charge

This coverage pays up to a maximum of $500 for an insured who has a contract or agreement to pay a fire department a service charge when the fire department is called to save or protect covered property from a covered peril. However, the property MUST be located beyond the limits of the city, municipality or protection district furnishing the fire department response.

This is considered to be additional insurance and no deductible applies to this coverage.

5. Property Removed

If covered property is being removed from premises that are endangered by a covered peril, the property moved is covered for any direct damage for a maximum of 30 days. This additional coverage does not affect the insurance limit that applies to the covered property. However, it does provide temporary protection that is much broader than the normal policy coverage.

Note: Many sources of damage are excluded by the Special Form policy; however, during a maximum 30-day window during which endangered property has been removed, coverage applies to ANY source of DIRECT damage, such as transportation perils.

Example: One wall of Naomi Flud’s home collapsed in the middle of the night. Since it looks like the adjoining walls may also fall, she and her neighbors move most of her personal property to a friend’s basement Naomi’s belongings stay in her friend’s basement for a week before they discover that, during several days of torrential rain, the basement has flooded, ruining most of her property. This flood damage would be covered under the Property Removed coverage. In this case, rather than as a flood loss, the circumstances allow it to be treated as a result of the property being endangered by a covered peril at the insured premises.

6. Credit Card, Electronic Fund Transfer Card or Access Device, Forgery, and Counterfeit Money

a. In all of the following cases, an “insured” has coverage up to $500:

· If an “insured” has a legal obligation to pay, resulting from the theft or unauthorized use of credit cards issued to or registered in an “insured’s” name.

· If an “insured” has a loss which results from the theft or the unauthorized use of an electronic fund transfer card or access device which is issued to or registered in an "insured's" name and is used for deposit, withdrawal or transfer of funds.

Note: This is especially important when so much of our banking is done by ATMs and, increasingly, electronically. If an ATM card or access device to a banking device is stolen, someone might access the insured’s savings or checking account. If that happens, there is coverage under the policy for a maximum of $500.

· If an "insured" has a loss caused by forgery or alteration of any check or negotiable instrument.

Example: Tony is stunned when he gets the latest statement from his bank. He sees that the check for $45 that he gave to a home improvement store for some painting supplies was processed as a $450 payment. He discovers that the check was altered, so he immediately sent in documentation with a claim to his insurer.

· If an “insured” has a loss through the good faith acceptance of counterfeit U.S. or Canadian paper currency.

This is considered to be additional insurance and no deductible applies to this coverage.

b. The instances when credit cards and electronic fund transfer cards are covered include some exclusions. There is no coverage under the following circumstances:

· Any loss involving a resident of the insured household.

· If the illegal act is committed by a person who has been entrusted with either type of card.

· If an "insured" has not complied with all terms and conditions under which the cards are issued.

Note: All losses that are connected to multiple acts that either are or are alleged to be committed by a single person is treated as a single loss. This is an important distinction. If an “insured’s” checkbook is stolen and fraudulent checks start cropping up everywhere and the above limitation did not exist, the insurance company would be responsible up to the coverage limit for each and every check that is written. Assuming that the series of fraudulent checks are all written by one person, this would be considered a single loss, subject to the maximum coverage of $500. This limitation would also apply to a series of fraudulent ATM or electronic transactions.

There is no coverage under this item if either of the following applies:

· The loss is related to the “insured’s” business

· The loss is related to the “insured’s” own dishonesty.

c. Defense - under the Credit Card, Electronic Fund Transfer Card or Access Device, Forgery and Counterfeit Money - This coverage is unique among additional coverages since it has its own, separate defense cost provision. The insurer reserves its right to investigate and settle any claim or lawsuit as it judges to be appropriate. When the insurance company has paid out the limit of liability, its duty to defend ends.

With respect to coverage under the credit card, electronic fund transfer card or access device coverage, when a suit is brought against an "insured" for liability, the insurance company providing coverage will provide a defense at its expense and by a lawyer of its choice. When a suit is brought for the enforcement of payment under the forgery coverage, the insurer has an option to pay for the defense of an "insured" or an "insured's" bank against any suit.

7. Loss Assessment

The insurance company will pay up to $1000 for “your” share of a loss assessment charged during the policy period against you by a corporation or association of property owners. The assessment has to be due to a direct loss to property that is collectively owned by all members. Further, the loss that triggers the assessment has to be caused by a covered peril under Coverage A Dwelling.

Example: Dave and Laura Young own a home in an exclusive development. There is 24-hour security, privacy walls and gates surrounding the property, a well-appointed clubhouse, tennis courts, health club, etc. The Youngs belong to the homeowners association that oversees the management and the maintenance of the common property. On the Fourth of July, a fire destroys the health club and the clubhouse. Even though the association has a fire policy, it doesn’t pay the entire loss. Dave and Laura, along with the other homeowners in the development, are assessed $2,700 to pay for the remaining cost of rebuilding. The homeowner’s policy will pay $1,000 toward this assessment assuming there is no arson or fraud involved.

Ineligible Assessments - This additional coverage excludes protection against loss due to earthquake and also due to any land shock waves or tremors occurring occur before, during or after a volcanic eruption. Further, no coverage is available for assessments made against an insured or a corporation or association of property owners by any governmental body.

Example: Let’s use the Dave and Laura Young situation again. Again, they own a home in an exclusive development and they also belong to the homeowners association that manages and maintains the development’s common property. On the Fourth of July, a fire destroys the development’s maintenance building. Part of the damage involved two barrels of cleaning solvent bursting and seeping into the ground surrounding the building. The local government demands that the soil be removed and the ground and nearby water sources be tested and monitored for contamination. Dave and Laura, along with the other homeowners in the development, are assessed $1,800 to pay for this expense. The homeowner’s policy will NOT handle any part of this assessment.

This coverage applies only to loss assessments charged against “you” as owner or tenant of the "residence premises."

Note: Regardless of the number of assessments, $1,000 is the maximum amount that will be paid for a single occurrence. This insurance is subject to the policy deductible that appears on the declaration page. However, regardless of the number of eligible assessments in a single occurrence, the deductible only applies once.

Section I Condition P. Policy Period does not apply to this coverage which means that the loss that causes the assessment is not required to occur during the policy period.

8. Collapse

This provision has undergone editorial changes in the 05 11 Edition. This is likely due to the ongoing difficulty in providing a clear explanation of coverage intent.

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 - 8. Abrupt Collapse.

b. The Special Form 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: Months after being built, a house starts to settle and this causes cracks in the walls and foundation. Damage of this type would not be covered in the policy.

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

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

(4) Weight of contents, equipment, animals, or people

(5) Weight of rain that collects on a roof

(6) Use of defective material or methods in construction, remodeling, or renovation if the collapse occurs during the course of the construction, remodeling, or renovation.

e. 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 is not included under items (2) through (6) above unless the loss is a direct result of the collapse of a building.

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

Related Court Case: “Insect Damage Not Collapse Unless Total”

9. Glass or Safety Glazing Material

a. This additional coverage pays for any of the following:

· Glass or safety glazing material breakage but only if it is part of a covered building, storm door or storm window

· Glass or safety glazing material breakage but only if it is part of a building, storm door or storm window AND the direct cause of loss is earth movement

· Covered property that suffers direct damage from glass or glazing material that breaks out of storm doors/windows or other parts of the covered building

b. This coverage does not include loss on the "residence premises" if the dwelling has been vacant for more than 60 consecutive days immediately before the loss. A dwelling being constructed is not considered vacant. However, if the vacant building is damaged by earth movement coverage does apply.

Further, this provision does not cover loss that results from the openings that exist after glass or glazing material has broken. This wording merely prevents duplicate coverage with protection that may exist under other parts of the policy.

c. This coverage does not increase the limit of insurance that applies to the damaged property.

10. Landlord's Furnishings

The Special Form Policy protects against damage to a landlord’s furnishings that is caused by the perils shown under Coverage C - Personal Property unless the loss is due to theft.

A maximum of $2,500 per apartment is available to protect the insured’s property that is located in areas of the residence premises that are rented (or are available for rental) to other persons. This additional coverage part also states that the $2,500 per apartment limit is the maximum that can be recovered, regardless of the number of appliances, carpeting or household furnishings that are damaged or destroyed in a single loss.

Note: This wording appears to address the situation of premises suffering a loss to more than one area that is either rented or available for rent. It acts to control this loss exposure. However, this coverage part could be found to be ambiguous since the term, apartment, is not defined.

Example: Harris Milton’s very large home is insured under a Special Form policy. The home’s very spacious Great Room is occupied by renters. The room has been split into three areas by use of room dividers. Each area has its own set of appliances. When a fire occurs that destroys the home, including the Great Room, Harris and his insurance company have a dispute over whether the Great Room was one or three separate apartments.

11. Ordinance or Law

a. This coverage feature allows an insured to use a maximum of 10% of the Coverage A limit to pay for increased replacement or repair costs that are caused by a law or ordinance. The law or ordinance has to be the type that controls any of the following:

· Covered property that is damaged by a covered cause of loss and which has to be constructed, demolished, remodeled, renovated, or repaired

· Destroying and rebuilding an undamaged part of covered property when a law or ordinance requires its demolition because another part of the covered property was damaged by a covered peril

· Renovating and removing or remodeling an undamaged part of covered property when a law or ordinance requires such action because similar work must be performed on another part of the covered property which was damaged by a covered peril

In other words, if a covered residence is damaged or destroyed, the policy provides up to 10% of the Coverage A insurance limit to deal with the increased loss costs created by local laws to handle the manner in which damaged or destroyed real property is rebuilt or replaced.

Example: More than half of Laura Clubfounder’s house was destroyed by a lightning strike. Laura’s home is covered in wood siding and it has an exemption from Brickville’s local ordinance that requires all homes to be made of brick or to have a brick veneer on all four sides of the home. The severe loss eliminated the exemption, so Laura’s repairs are substantially increased by the cost of adding brick veneer. Since Laura’s Coverage A insurance limit is $95,000, she has up to $9,500 to help pay for the additional cost mandated by Brickville’s law.

b. Part or all of this coverage may be used by an insured to pay for the increased cost to remove debris created while constructing, demolishing, renovating, remodeling, repairing, or replacing property described in 11a.

c. This coverage does not include the following:

· Any decreased value of covered property that is created by the ordinance or law

· Any costs required of an insured for handling, testing, and/or monitoring pollutants (as is described in the policy) related to a loss to covered property or which occurs at the covered location.

This coverage is an additional amount of insurance, so payment under this provision does NOT affect the amount of coverage that appears under Coverage A - Dwelling.

12. Grave Markers

This coverage option permits an insured to use up to $5,000 to pay for a headstone or mausoleum that is damaged by any of the perils that qualify under Coverage C - Personal Property. The coverage applies to such property, whether it is on or away from the insured premises. However, any payment under this coverage part reduces the amount available under the Coverage Part that responds to a given loss.

Example: The Addamz Family founded Shroudytown and Gumper Addamz still lives in the family home which includes a family cemetery in their backyard. The Addamz’s home is located on the corner of Brimstone and Scorch Avenues. One day, a local teenager is speeding around town in the new SUV he just got for his 16th birthday. The teen loses control on the intersection of Brimstone and Scorch. His SUV plows into the Addamz detached garage and stops when it smashes into Beauregard Addamz’s mausoleum. The $3,500 needed to repair the mausoleum reduces the amount of his Coverage B limit that is available for handling the garage damage.

SECTION I—PERILS INSURED AGAINST

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

The insurer’s obligation under these coverage parts is to protect eligible property for any source of direct loss. This means that indirect loss does not qualify for coverage under Coverages A and B.

This portion of the policy goes on to list sources of loss that are excluded. Specifically, no coverage is provided for:

a. Causes of loss that are listed under Section I - Exclusions

Note: The excluded sources are ordinance or law, earth movement, water, power failure, neglect, war, nuclear hazard, intentional loss, and governmental action. There is also no coverage for various concurrent causation events.

b. Loss involving collapse

No protection exists for this source of loss, EXCEPT for the detailed description of coverage for collapse that is found in the policy’s Additional Coverage Section (please refer above to item E.8. under Section I-Property Coverages). The exclusion wording makes another, reference to what is meant by collapse and it restates precisely the situations that are ineligible for coverage.

c.(1) Loss caused by freezing of a plumbing, heating, air conditioning, or automatic fire protective sprinkler system or of a household appliance, or by discharge, leakage, or overflow from within the system or appliance caused by freezing.

However, there is coverage if the insured takes the time to do either of the following:

· Keep the building heated

· Shut off the systems’ or appliances’ water supply and drain the system/appliance.

Wording is added that seems more like a condition than an exclusion. The added language states that, if the building has an automatic fire sprinkling system, the system must remain active and the property must be heated so that it doesn’t interrupt the sprinkling system’s operation.

This exclusion also specifies that sumps, sump pumps or related equipment, roof drain, gutter, downspout or similar fixtures or equipment are not considered to be plumbing systems or household appliances. Therefore, freezing losses related to such equipment or drainage systems are NOT subject to this exclusion.

c.(2) Loss caused by cold weather conditions such as freezing, thawing, pressure or weight of water or ice, whether driven by wind or not, to any for the following:

(a) Fence, pavement, patio deck, swimming pool

(b) Footing, foundation, and other structures or devices that support a building or structure

(c) Retaining wall or bulkhead which does not support a building or structure

(d) Pier, wharf, or dock.

This exclusion clarifies that such property is constantly exposed and particularly vulnerable to loss from freezing, so they are not eligible for coverage. Providing protection to such property against freezing conditions and the pressures of wintry conditions would be akin to a maintenance contract rather than an insurance policy. Property such as patios, pools, wharves, and fences are virtually certain to be worn down and damaged by cold weather conditions. The homeowners policy is intended to cover accidental events, not virtual certainties.

c.(3). Any thefts that occur in a dwelling or to a dwelling during the time that dwelling is being constructed, including theft of materials or supplies intended for that dwelling’s construction.

Once the dwelling is finished AND is occupied (as a residence), this exclusion becomes inapplicable.

Note: Under part 2. of Coverage A, there is insurance for building materials; however, such coverage does not include THEFT protection.

Building materials and supplies are VERY attractive targets for theft. This exclusion forces other parties (insureds and building contractors) to:

· take precautions to safeguard such property,

· deliver and incorporate material as needed, or

· seek specific coverage for the exposure (such as endorsing additional coverage or buying a builder’s risk policy)

If either party decides to store such materials on the insured premises, they also have to handle the risk of it being stolen.

IMPORTANT: This coverage has been modified under the mandatory HO 06 53–Home-Sharing Host Activities Amendatory Endorsement. The form also adds several, unique terms that affect coverage. Optional form HO 06 63–Broadened Home-Sharing Host Activities Coverage Endorsement can be used in place of the HO 06 53 so it should also be examined.

ISO Homeowners Optional Coverage Endorsements

ISO Homeowner Mandatory and Optional Home-Sharing Endorsements

c.(4). Vandalism and malicious mischief

This exclusion takes effect if the insured premises are vacant for 60 days before the loss. Further, the exclusion bars coverage for losses that ensue when caused by intentional and wrongful acts committed during vandalism or malicious mischief.

Example: The Warmkline family has a Special Form policy which runs from 1/1/20 to 1/1/21. On March 1, the family moves to Russia for 6 months, taking their furnishings and personal property. On June 5th, several neighborhood bad boys break into the house through a basement window. They trash the interior and, just as they are leaving, one of the miscreants empties a can of charcoal lighter fluid into the living room and lights a match. Since the home was vacant for more than 60 days AND since the fire loss was caused by vandals, the entire loss is ineligible for coverage.

Note: A dwelling that is under construction is not considered vacant.

IMPORTANT: This coverage has been modified under HO 06 53 Home-Sharing Host Activities Amendatory Endorsement. The form also adds several, unique terms that affect coverage. Optional form HO 06 63 Broadened Home-Sharing Host Activities Coverage Endorsement should also be examined.

ISO Homeowners Optional Coverage Endorsements

ISO Homeowner Mandatory And Optional Home-Sharing Endorsements

c.(5) There is no coverage for any of the following:

· Mold,

· Fungus

· Wet rot

But the policy does make an important exception. The policy WILL provide coverage for mold, fungus, or wet rot if the damage is hidden in the home’s walls, ceilings, or floors. However, the hidden damage has to be due to the accidental discharge or overflow of water or steam from a plumbing or air conditioning system, a household appliance, or a fire sprinkler system. Coverage for hidden damage from accidental discharge and overflow also exists when caused by several sources located away from the residence premises, such as storm drains, water pipes, steam pipes, or sewer lines.

Note: While this may have the appearance of a significant expansion of coverage, it is difficult to imagine a scenario that involves hidden damage to an insured home that is caused by an accidental discharge from a source located away from the insured premises.

This exclusion also specifies that sumps, sump pumps or related equipment, roof drain, gutter, downspout or similar fixtures or equipment are not considered to be plumbing systems or household appliances. Therefore, hidden rot or decay losses related to such equipment or drainage systems do not qualify for coverage.

Related Article: A Look At The Mold Exposure

c.(6). All of the following are also barred from coverage under the Special Form policy:

(a) Wear and tear, marring, deterioration

(b) Inherent vice, latent defect, mechanical breakdown (this refers to ANY quality or characteristic found in property that causes it to damage or destroy itself)

Example: Eleanor Chug is horrified to wake up and find that her imported, avant-garde, black dining room set has turned into a powdery heap. Her insurer, Hearty Property and Casualty, denies her claim and points out that her set, made out of untreated rubber, was destined to dry out and deteriorate.

(c) Smog, rust or other corrosion, or dry rot

Note: Dry rot does not have the exception that applies to wet rot in item c.(5).

(d) Smoke from agricultural smudging or industrial operations

Example: Ned Frunderpump’s home is insured by a Special Form policy and is located near Sunslam Orchards. Ned turns in a claim when he discovers that his stucco home has been covered with a greasy, dirty substance. The knowledgeable claims person tells Ned he’s out of luck. The area had experienced a severe cold snap and, in order to protect its citrus trees, Sunslam Orchard set out smudge pots. These pots cover the fruit with a smoky, greasy substance that protects the fruit from frost and cold. Winds blew the smudge over to Ned’s home and, therefore, there is no coverage.

(e) Discharge, dispersal, seepage, migration, release, or escape of pollutants. However, the pollution damage IS COVERED if it is caused by one of the eligible perils insured against under Coverage C - Personal Property. Pollutants are described as any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.

The difficulty with this exclusion is that it can be applied very liberally. An insured will find it hard to make a claim for a loss involving common substances found in homes that are classified as pollutants, if the loss was not triggered by the sources of loss named under Coverage C, such as fire, wind or explosion.

(f) Settling, shrinking, bulging, or expansion, including resultant cracking, of pavements, patios, foundations, walls, floors, roofs, or ceilings; footings (the part of the foundation that sits directly upon earth) and bulkheads (a retaining structure of wood, steel or reinforced concrete that protects a shore or harbor).

(g) Birds, rodents, or insects

Note: Vermin was removed in the 05 11 edition.

(h) Animal activity related to nesting, infestation, secretions and waste discharge or release.

Note: Item (6) (h) was added in the 05 11 edition.

(i) Animals owned or kept by an "insured."

Exception to c (6).

This paragraph explains that both the dwelling and other structures are covered for damage caused by the accidental discharge or overflow of water or steam from the following:

· A storm drain, water pipe, steam pipe or sewer pipe that is located away from the residence premises

· A plumbing, heating, air conditioning or fire sprinkler system or household appliance on the residence premises.

Coverage includes the expense of tearing out and replacing any necessary part of the covered structure when the action is needed to repair the system or appliance.

It is IMPORTANT to note that coverage for demolishing and replacing property is available ONLY when water or steam has actually damaged the property.

Example: Craig Monkywrinch is startled out of his chair by a loud cracking sound followed by the sound of rushing water. He’s in the kitchen which shares a wall with his home’s attached garage. Craig goes into the garage and looks at the water heater. When he sees water seeping from under the drywall, he shuts off the water from the outside water main. Craig, a veteran homeowner, knows that the main water supply pipe that is inside the wall between the garage and the kitchen has burst. Craig is told that, because of the length of pipe that broke and the way the home’s builder ran the pipe through a series of extra wall studs, most of the wall will have to be torn down and replaced. Ironically, since Craig shut off the water so quickly, none of the studs or drywall was damaged by the burst pipe. Therefore, the entire cost of the repairs will have to come out of Craig’s pocket.

The Special Form Policy does not protect damage to the source of the escaped water or steam. Further, under this provision, a sump, sump pump, roof drain, gutter, down spout, or similar property is NOT considered to be a plumbing system or a household appliance.

Finally, earlier editions of the Special Form policy stated that it would cover ensuing losses that weren’t excluded or excepted. This section states that it will cover ensuing losses from items excluded in 2.b. and 2.c. to the residence and other structures that are not PRECLUDED by any other policy provision. While “preclude” has a common definition that makes it a synonym of “exclude” or “except,” it is not commonly used. Adding this term along with the many references to exclusions and exceptions may make it even more difficult for this statement to be easily understood by insureds. This is especially so considering that the term “preclude” is making its debut in the same paragraph that contains “ensuing,” another term that confuses insurance purchasers.

It is very important to note that items excluded in 2.a. are not subject to this exception. This follows with the anti-concurrent nature of those exclusions.

B. Coverage C—Personal Property

This coverage part lists the perils (causes or sources of loss) that are protected against direct loss to the property described in Coverage C. Further, there is no coverage for any source of loss that appears in Section I - Exclusions.

1. Fire or lightning

This section has not changed under the 05 11 edition of the Special Form policy.

Related Article: Dwelling Policy Program Perils

2. Windstorm or hail

What Windstorm or Hail Does Not Include

Windstorm or hail does not include loss to property contained in a building when the loss is caused by rain, snow, sleet, sand, or dust. This is the case unless the direct force of wind or hail damages the building, causing an opening in a roof or wall and the rain, snow, sleet, sand, or dust enters through this opening. Note that a closed window or door is considered part of a structure’s wall. While blowing a door open is not “creating an opening,” blowing a door off its hinges would qualify as “creating an opening.”

Coverage Restriction for Windstorm or Hail

This peril includes loss to watercraft of all types and their trailers, furnishings, equipment, and outboard engines or motors, but only while those items are inside a fully enclosed building.

Related Article: Dwelling Policy Program Perils

3. Explosion

This is unchanged from earlier editions of the ISO Special Form policy. Note that it still includes both internal and external explosions.

Related Article: Dwelling Policy Program Perils

4. Riot or civil commotion

In other words, this is basically vandalism coverage involving large crowds. Note that the reason for the riot or commotion is unimportant.

5. Aircraft, including self-propelled missiles and spacecraft

With the increasing incidences of small aircraft crashing in towns and city neighborhoods, this coverage is becoming more likely and timely.

6. Vehicles

Example: Venus wishes she lived elsewhere! Her home is protected by a small guardrail erected by the city. But it’s useless when some teens go joyriding in a stolen SUV, try to make a turn too fast and the vehicle crashes through the railing, plows across her small yard and then into her living room….at least it stopped before reaching her kitchen. This loss would be handled by her policy.

7. Smoke

The policy only covers for smoke losses that are both accidental and sudden, but bars coverage for loss that is due to smoke from industrial operations as well as agricultural smudging.

Eligible smoke damage includes a situation called “puffback.” Puffback is when a furnace, boiler or similar equipment releases soot, smoke, vapors, or fumes onto the covered property and causes damage.

One question comes to mind. If eligible smoke damage does include “puffbacks,” can such emissions be generated from sources away from the premises and, if yes, will this create ambiguity regarding this coverage?

8. Vandalism or malicious mischief

9. Theft

The theft peril includes attempted theft and loss of property from a known place when it is likely that the property has been stolen. The following theft losses are not covered:

· Any committed by an “insured”

· Theft that occurs to or in a dwelling that is under construction

· One that involves materials and supplies used for the construction of a dwelling before the structure is completed and occupied (as a residence)

· Any that occurs in a part of a “residence premises” which an “insured” rents out to someone other than another insured

Example: Ptarry Long has inherited her grandparents’ large home. Even after her family has settled into the home, there is still plenty of space. The home’s layout includes a large bedroom and bath that has a separate exit from their kitchen and its own outside door. Ptarry decides to rent the suite out to a young lady who is pursuing a master’s degree from a nearby college. One day Ptarry’s home is broken into. The crook focused on electronics and cleared their home of TVs, game systems, laptops, etc.

Ptarry’s renter tells her that her suite is missing a laptop computer. Ptarry submits a claim that includes the laptop. However, her insurance company’s claims adjuster says that it isn’t eligible for coverage since it belongs to her renter. The adjuster informs Ptarry that the renter should have bought her own contents policy.

The policy has additional restrictions for theft losses that occur away from the “residence premises.” The following situations are restricted as follows:

· There is no coverage for property located at any other residence owned by, rented to, or occupied by an "insured," except while an "insured" is temporarily living there.

· Property of a student who is an "insured" is not covered while at a residence away from home unless the student has been at that residence at any time during the 90 days immediately preceding the loss.

(Note: This restriction has been liberalized under the 05 11 edition of the Special Form policy. Under previous editions, the insured must have been at the location at least once in the 60 days before the loss. The latest edition also clarifies that the location must be used for the purpose of attending school.)

· Watercraft, including their furnishings, equipment and outboard engines or motors is not covered when stolen.

· Trailers (including semi-trailers) and campers do not qualify for coverage against theft.

10. Falling Objects

The peril of falling objects does not include loss to property contained in a building unless the roof or an outside wall of the building is first damaged by a falling object. Any damage to the falling object itself is not included.

Example: Laura was upset to see that part of her lawn had been ruined by a utility truck that was replacing ancient telephone poles in her neighborhood. Her mood didn’t improve when she entered her house to find that a transformer from the pole near her home had fallen through her roof, destroying her living room. The Special Form policy will cover the damage to Laura’s contents.

11. Weight of ice, snow or sleet that causes damage to property contained in a building.

Note that this coverage is for personal property, not for building damage. If a heavy accumulation of snow caused a section of a roof to fall in and, miraculously didn’t damage any personal property, no coverage (under this section) is granted for the loss.

12. Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire protective sprinkler system or from within a household appliance.

This long-winded peril does not include loss to the system or appliance from which the water or steam escaped. There is no coverage when the discharge or overflow is caused by or results from freezing except as provided by the Special Form policy’s freezing peril. No coverage is available for damage on the "residence premises" caused by accidental discharge or overflow which occurs off the "residence premises." Finally, this peril excludes damage from mold, wet rot, or fungus UNLESS such damage is hidden by walls, floors, or ceilings of a covered structure.

This peril is clarified further with the notation that none of the following is considered to be a plumbing system or a household appliance:

· Sumps,

· Sump pump or related equipment,

· Roof drains,

· Gutters,

· Downspouts or similar fixtures or equipment.

Finally, to prevent confusion over coverage, the policy also clarifies that the water exclusion found in Section I-Exclusions concerning surface and below surface water does not apply to this additional coverage.

13. Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire protective sprinkler system, or an appliance for heating water.

As with the accidental discharge or overflow of water or steam peril, there is no coverage for loss due to freezing. For instance, if a home’s steam heating system burst and no longer provided heat throughout the home, an additional, independent loss could be created by other parts of the covered property becoming subject to freezing temperatures. This peril merely excludes coverage from this event.

14. Freezing of a plumbing, heating, air conditioning, or automatic fire protective sprinkler system or of a household appliance.

In order for protection to apply to freezing loss, this peril requires that an insured either takes care to maintain heat in the building or must shut off the water supply and drain applicable appliances of water. However, the water supply and adequate heat MUST be available if the home has a protective sprinkler system. Ironically, the requirement to maintain water supply and heat for a sprinkler system would prevent an insurer from denying a loss to an appliance that freezes up and causes personal property damage.

15. Sudden and accidental damage from artificially generated electrical current.

This very broad peril is modified so that it doesn’t apply to certain items that are commonly damaged, but can be easily protected, from this peril. It also does not protect against routine replacement of items that can get “blown out” by a power surge. Tubes, transistors electronic components or circuitry that are a part of any of the following are specifically not covered for damage that would otherwise be covered under this peril:

· Appliances

· Fixtures

· Computers

· Home entertainment units

· Other types of apparatus

Example: The Viewclone family came home from a nice restaurant dinner to find the inside of their home filled with smoke. The cause was a computer monitor in their daughter’s room that overheated and sparking circuits melted the monitor’s plastic casing. The monitor overheated because its air vents were covered by stuffed dolls. While their Special Form policy paid for the cost of cleaning and repairing the smoke damage, the computer monitor was not covered.

16. Volcanic eruption other than loss caused by earthquake, land shock waves or tremors.

EXCLUSIONS—SECTION I

This section is of extreme importance in answering the question often posed by insureds: “Is this covered by my policy?” The first place an agent often looks is in the Exclusions section of the policy. There is no insurance protection for either direct or indirect loss that is due to any of the sources of loss that appear in this policy section. The loss is excluded:

· regardless of any other cause or event contributing concurrently or in any sequence to the loss, and

· regardless of whether the damage is localized or widespread.

Another feature meant to clarify the exclusions is the mention that several sources of loss are excluded regardless of whether it is connected to human, animal or natural (force of nature) activity. This addition appears to be the type that, rather than make a point clearer, may result in creating new angles of attack for parties seeking coverage loopholes. For instance, would a loss that occurred because of some mechanical or computer-related error be interpreted as a human cause or loss or something distinct?

A. Under this part, the exclusions apply to all parts of the Special Form policy. Specifically, there is no coverage for:

1. Ordinance or Law

This exclusion refers to any loss or expense created by the enforcement of any ordinance or law regulating the construction, repair, or demolition of a building or other structure, regardless whether a physical loss takes place.

However, this exclusion does not apply to the coverage granted under Additional Coverage 11. Ordinance or Law.

Besides construction-related costs, the exclusion also applies to any loss in property value or to any pollution-related loss (including expense associated with monitoring, testing, or remediation of polluting events).

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 human, animal or 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.

3. Water (The 05 11 edition changed this exclusion from Water Damage to just Water)

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

a. Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind (In the 05 11 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 in items a, b, and c. see above e 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. However, the latter item may beg the question of how such distinctions should be made. Is sewage synonymous with waterborne material? If not, the wording, rather than clarifying the exclusion, could create confusion.

This exclusion applies regardless of whether it is connected to human, animal or natural (force of nature) activity.

Direct loss by fire, explosion or theft resulting from water damage is covered.

Example: Heavy rains cause a neighborhood’s sewers to fill and water runs into an insured’s garage. The water erodes the drywall on a side wall, the missing and damp drywall causes support for a shelf to disappear and two full gas cans fall down, bursting open. The built-up fumes are ignited by the furnace’s pilot light and the explosion destroys the garage and parts of the home. The fire and explosion damage would be covered by the Special Form policy. Any damage attributed solely to water (such as a portion of collapsed, soaked drywall) would not be covered.

Note: The 05 11 edition of the Special Form Policy incorporates the wording of Mandatory Form, HO 16 09, Water Exclusion Endorsement. It results in one significant difference from the HO 2000 edition. Besides excluding damage from water and waterborne material, it 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

4. Power Failure

This exclusion involves losses caused by a failure of power or other utility service. However, the failure has to take place off the "residence premises." If a covered cause of loss (such as fire) occurs on the "residence premises," after the excluded power failure, the policy will pay only for that ensuing loss.

5. Neglect

This exclusion bars coverage for any failure on the "insured’s" part to use all reasonable means to save and preserve property at and after the time of a loss. This exclusion fits perfectly with the intent of insurance to cover losses that are accidents or, in other words, which are beyond the control of the policyholder. It is logical to exclude payment for losses that could have been prevented by an insured taking care to protect his or her property. Remember, though, that the exclusion is for failure to take ordinary, rather than heroic, measures.

6. War

This exclusion remains the same under the 05 11 edition of the Special Form policy. War is considered to include any of the following and any consequence of any of the following:

war	undeclared war	civil war	warlike act by military force or personnel
rebellion	revolution	insurrection	destruction, seizure or use for a military purpose

Even if a nuclear event is completely accidental, discharge of a nuclear weapon will be treated as a warlike act.

7. Nuclear Hazard

This exclusion consists of the event as defined and to the degree explained in the nuclear hazard clause of SECTION I—CONDITIONS.

8. Intentional Loss

This exclusion refers to any loss that is due to any intentional act of any insured covered by the Special Form policy. An intentional act includes any act that is meant to create a loss. Any conspiracy to commit such an act also qualifies as an intentional act. The exclusion applies even to innocent insureds (insureds who do not participate in an intentional act, including its planning). Adding the reference to innocent insureds is a response to decisions in various jurisdictions that obligated insurers to settle certain intentional losses.

Example: Certunstate's Supreme Court recently ruled that Inurt Property Insurors could deny coverage for a $200,000 fire loss experienced by Flamer and Blamer Jones. The Joneses were insured under an Inurt HO policy that covered their home with a $215,000 limit. During the 2008 policy period, there was a huge fire that destroyed their home and they filed a loss. Inurt's investigation determined that the loss was due to arson and that Flamer started the blaze (as it turns out, to collect money to pay for some gambling debts). Flamer was convicted and jailed for his crime. However, the Joneses sued Inurt for coverage. Blamer was able to prove that she had no knowledge of Flamer's plans or the actual act and her insurable interest in the home qualified for coverage. Certunstate's high court agreed, stating that, as an innocent insured, Blamer was entitled to the policy's protection, separately from Flamer.

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

The policy does not allow coverage for property that is described in Coverage parts A - Dwelling, B - Other Structures and C - Personal Property, which is destroyed or seized under the orders of any government unit or public authority. There is a very important exception connected to this exclusion. If the government action or order is related to a fire or the prevention of the spread of fire, any loss caused by the fire IS eligible for coverage.

B. The Special Form Policy bars protection to the property described under Coverages A and B for the sources of loss listed below.

While excluding several additional sources of loss, this section grants an important exception. The Special Form policy states that ensuing losses may be covered if they are not PRECLUDED by any other policy provision. According to Webster’s Encyclopedic Unabridged Dictionary, preclude is defined as something to prevent the presence, existence, or occurrence of; make impossible or to exclude or debar from something.

The Special Form policy does not provide coverage for:

1. Weather conditions

This exclusion only applies if weather conditions contribute in any way with a cause or event excluded under Section I—Exclusions, Paragraph A. The lead-in language that applies to Paragraph A. exclusions explains that direct and indirect loss is not covered. Loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.

2. Acts or decisions

The acts or decisions exclusion includes the failure to act or decide on the part of any person, group, organization, or governmental body.

3. Faulty, inadequate, or defective

This includes planning, zoning, development, surveying, siting, design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction materials used in repair, construction, renovation or remodeling, or maintenance of part or all of any property whether on or off the "residence premises.”

Such losses are barred from coverage whether they occur on or off the premises.

CONDITIONS—SECTION I

A. Insurable Interest and Limit of Liability

Regardless of the number of people who have an insurable interest in the property covered, the insurance company providing the special form HO coverage is limited in its response. It won’t pay an "insured" more than the amount of that "insured's" interest applying at the time of loss. It also will pay no more than the limit of liability for the covered property.

Specifically, the Special Form policy is only obligated to pay the policy limit that applies to a covered person who has suffered a loss to covered property.

B. Deductible

(This moved from its own section on page 2 of the prior policy edition to page 13 within the Conditions section of the 05 11 edition.)

This section merely says that the insurer will pay the portion of an eligible loss that exceeds the applicable deductible and that payment is subject to the given limit of insurance.

When, in a given situation, more than a single deductible applies to a loss; the insurer will only use the highest, applicable deductible. (This sentence was added to the 05 11 edition.)

This provision also states that this item may be pre-empted by specific deductible language that applies to other coverage parts.

C. Duties After Loss

This provision reinforces an insured’s prime obligation to strictly comply with its requirements. It mentions that if an insured fails to perform the duties, and if that failure adversely affects the insurer, the insurer is no longer obligated to provide coverage. An insured's cooperation is critical to an insurance company's ability to perform under the insurance contract.

In case of a loss to covered property, the named insured, the insured seeking coverage, or a representative of either party is responsible for:

1. Giving prompt notice to the insurance company or the insurance company’s agent.

Related Court Cases:

Notice to Broker Was Not Notice to Insurance Company

Notice to Independent Agent or Broker Held Not To Be Notice to Insurer

2. Notifying the proper authorities in case of loss by theft.

3. Notifying the credit card or electronic fund transfer card or access device company in case of loss under credit card, electronic fund transfer card or access device, forgery, and counterfeit money coverage.

Please see this analysis’s discussion of this coverage in item E.6. Additional Coverages.

4. Protecting the property from further damage.

If repairs to the property are necessary, the insured is required to do both of the following:

Make reasonable and necessary repairs to protect the property
Keep an accurate record of repair expenses because most are covered under the policy

If a homeowner kept materials or supplies on hand to help protect the covered property from loss, the policy should also protect such property if it were stolen or destroyed by a listed or eligible cause of loss.

5. Cooperate with the insurance company in the investigation of a claim.

This item acts as an important notification that the insured must be an active and willing participant in the claims process.

Example: The Stonewall Family submitted a claim for $22,000 in damaged property because of a smoke loss. The Stonewalls sent in a detailed list of very expensive electronic equipment and leather furniture. Most of the equipment and furniture was bought in the last year. However, the Stonewalls had no store receipts, or warranty information. Further, the Stonewalls said that the debris was cleared immediately and unavailable for display. Nay Eve Property and Casualty Insurance’s adjuster denied the claim because they were unable to view the damaged property or substantiate the loss.

6. Prepare 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. This condition is unchanged from earlier editions of the Special Form policy.

Related Article: Actual Cash Value Guide

7. As often as is required by the insurance company, the insured must do all of the following:

a. Show the damaged property

b. Provide the insurance company with the records and documents that they request and allow them to make copies

c. Submit to and sign an examination while under oath and without being in the presence of any other "insured”

This condition may appear to be heavy-handed, but the insurer is in the vulnerable position of having to rely on the insured concerning the scope of the loss. The insurer is merely asserting its chances of getting accurate information for investigating a claim. Unfortunately, this condition often becomes a battleground between insurers and claimants. The interests of insureds may have been better served if this condition contained some wording that obligated an insurer to exercise courtesy and reasonableness when enforcing this provision.

8. The named insured must send to the insurance company, within 60 days after its request, a signed, sworn proof of loss which to the best of the named insured’s knowledge describes the following:

a. The time and cause of loss

b. The interest of all "insureds" and all others in the applicable property, including all available information on any property liens

c. Other insurance which may cover the loss

d. Information concerning any status changes affecting the property’s legal ownership (title) or occupancy that took place during the policy term.

e. Any details on the damaged buildings regarding repair estimates and specifications

f. The inventory of damaged personal property described in an earlier part of this section

g. Additional living expense receipts and other information that can document a loss involving fair rental value

h. Any evidence or affidavit necessary to document a claim under the credit card, electronic fund transfer card, or access device, forgery, and counterfeit money coverage, which verifies the amount and the cause of loss.

D. Loss Settlement

Any mention of replacement or repair cost does NOT include any expense created by any ordinance or law. The only exception is the coverage described under Additional Coverage E.11. Ordinance or Law. In light of this clarification, covered property losses are settled in the following manner:

1. The following types of property are paid at actual cash value at the time of loss but not more than the amount required to repair or replace:

a. Personal property

b. Awnings, carpeting, household appliances, outdoor antennas, and outdoor equipment. The exclusion is not affected if such property is attached to structures.

c. Structures that are not buildings (such as permanently installed playsets)

d. Grave markers and mausoleums.

Actual cash value is generally considered to be today’s replacement cost of the item minus depreciation.

Example: Vanisha Clayman has a ten-year-old sofa that is destroyed in a fire. The insurance company considers the fact that the sofa if purchased today would cost $4,500 but offers to settle the loss at $372. When Vanisha complains that the settlement is so much less than what she needs to replace, the company explains that she did not lose a new sofa, but a piece of furniture she had been able to use for its entire product life. The insurer explained that its offer reflected the loss of value due to age, wear and tear, etc.

2. Dwellings and other structures are covered at replacement cost without deduction for depreciation. However, any payment would be conditional upon the following:

a. At the time of loss, if the amount of insurance in this policy on the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, the insurance company will pay the cost to repair or replace, after application of deductible and without deduction for depreciation. In no case will the insurance company pay more than the least of the following:

(1) The limit of liability under this policy that applies to the building

(2) The replacement cost of the portion of the damaged building, based on the building’s function and use of similar materials

(3) The amount sufficient to either repair or replace the damaged building

Under this section, it does not matter if the covered property is rebuilt at a new location. Such a move would be considered inconsequential to the operation of the policy settlement. The payment under the policy would be limited to the maximum eligible cost that would exist if damaged property were rebuilt at its original location. The additional cost would belong to the policyholder.

b. The relationship of the amount of coverage carried on a damaged building to that building’s full replacement cost is critical. When a loss occurs, if the insurance limit is less than 80% of the building’s full replacement cost (before the loss), the insurance company isn’t obligated to pay more than the limit of insurance under the policy; further, the insurer is limited to paying the greater of:

(1) The damaged portion’s actual cash value

(2) That proportion of the cost to repair or replace, after application of deductible and without deduction for depreciation of the part of the building damaged, based on the ratio between the part of the limit carried on the policy and the amount equal to 80% of the replacement cost of the building.

c. The calculation of the 80% of the full replacement cost figure should not include the value of any of the following:

(1) Excavations, footings, foundations, piers, or any supports beneath the covered structure’s lowest basement floor

(2) If there is no basement then those supports described in c.(1) that are beneath the ground located within the foundation walls

(3) Underground flues, pipes, wiring, and drains

d. The insurance company pays no more than actual cash value until the actual repair or replacement is complete. Once it is complete, the insurance company will settle the loss according to the provisions discussed above. If, however, the cost to repair or replace the damage is less than 5% of the amount of insurance in this policy on the building and less than $2,500, the loss will be settled according to the provisions listed above, regardless of whether actual repair or replacement is complete.

e. An insured has the option not to worry about replacement cost loss settlement provisions and ask that his or her loss or damage to buildings be settled on an actual cash value basis. However, if the “insured” changes their mind, they have up to 180 days from the date of the loss to ask for any additional amount due according to a settlement based on the replacement cost. If the insured misses this 180-day window, the actual cash value settlement basis is their only reimbursement.

This condition emphasizes the point that it is very important to accurately document the replacement cost of the covered property. Property that doesn’t comply with the Special Form policy’s replacement costs provisions is subject to a tedious and complicated settlement process.

E. Loss to a Pair or Set

When property that is part of a pair or set suffers a covered loss, the insurer can choose to settle on one of the following basis:

1. Repair or replace any component that results in returning the pair or set to its pre-loss value

2. Pay the amount equal to the pair or set’s pre-loss and post-loss actual cash value

Note: This condition DOES NOT say whether the insurer has the option of paying the least or most expensive of the two options. However, it would be consistent with other settlement provisions of the policy that an insurer is likely to select the least expensive option.

F. Appraisal

If the “insured” and the insurer disagree on the amount of loss, either party can demand that the loss be appraised. In this process:

· each party chooses a competent, impartial appraiser no later than 20 days after getting the other party’s request for an appraisal.

· the two appraisers will choose an umpire

· each party has to share the cost of the judge and pay the entire expense for their own appraiser.

If the appraisers cannot agree upon an umpire within 15 days, either the insurer or the “insured” can ask that a judge be selected by a court of record in the state where the "residence premises" is located.

The appraisers have to submit separate opinions on the loss amount and an agreement (submitted to the insurer in writing) between any two persons (among the appraisers and the judge) becomes binding on both the insurer and the policyholder.

G. Other Insurance and Service Agreement

This represents a broader intent than the traditional other insurance provision since it addresses other sources of protection.

1. If a covered loss is also protected by other insurance, the insurer’s payment obligation is shared with the other coverage source. Specifically, the insurer becomes obligated to pay only its share of the loss. The share is determined by taking the total amount of available insurance and determining the insurer’s percentage of coverage.

2. If any valid service agreement applies to the covered property, this insurance is triggered once the amount available under the service agreement is paid. Service agreement refers to the following:

· Service plan

· Property restoration plan

· Home warranty

· Other warranties.

This condition applies even if, rather than being called a warranty or plan, the other source of coverage calls itself insurance.

Example: Dave Glaringloss makes a claim for his home entertainment system which was destroyed when a vehicle slammed into his home, broke through the wall next to the entertainment system, and toppled the property and shelving onto the Italian marble tile floor. Dave’s receipts show that the various components had a total value of $5,269. Lowfair Ltd. Insurance’s adjuster had no problem with the claim amount but, while looking through Dave’s receipts, he noticed that the TV and game system players were covered by the Plastik Elektro-Palace’s Consumptive Protektiv Plan. The plan guaranteed to replace the TV and game system if lost or destroyed within 18 months of their purchase date. Since Dave just bought the equipment 11 months earlier, Lowfair paid the $1,800 left after the Protektiv Plan paid $3,269. However, Lowfair depreciated the claim by $200.

Note: This condition only refers to other coverage but does not specify whether the other source has to be valid and collectible. Therefore, a dispute could arise depending upon how this condition is exercised.

Example: Fran Weekwill’s newly purchased home is covered by a special form policy. Fran is moving into her home with the help of the moving company she hired, Olde Paradigm Movers. Fran’s porch and porch roof are destroyed when the Olde Paradigm truck driver backs up too fast and slams into the front of her home. Olde Paradigm has a general liability policy with limits of $50,000. Fran’s policy has a limit of $50,000 on her dwelling. The damage to her property is estimated at $6,000. Fran’s insurance company pays Fran $3,000 for the loss and tells her to collect the rest from Olde Paradigm, even after the insurer discovers that Olde Paradigm’s insurer is bankrupt and is unable to honor their policy. While Fran argues that no other collectible coverage applies to her loss, her insurer says that another source of coverage did, technically, apply to the loss and it doesn’t matter if the coverage lapsed.

H. Suit Against Us

This condition states that an insured can’t sue the insurer without fully complying with the terms and conditions under Section I of the policy. Further, any suit has to be filed no later than two years after the loss date. The intent of this provision is to make certain that an insured takes every course of action that is available and to use a lawsuit only as a last resort. It should be to everyone’s advantage if conflicts can be resolved without having to go to court. However, suits happen and if this alternative is chosen, the insured must file the action within two years of the loss date.

I. “Our” Option

“Our” refers to the insurance company. This condition obligates the insurer to either repair or replace the damaged property within 30 days after receiving the “insured’s” signed, sworn proof of loss. The insurer also has the option to use material that is similar in type or quality to repair or replace the damaged property. In other words, the insurance company is not obligated to pay a loss with cash. The insurance company can actually replace the damaged property with new or like property.

J. Loss Payment

The insurance company will adjust all losses with the named insured. The insurance company will pay the named insured unless some other person is named in the policy or has a legal right to receive payment. All losses will be payable 60 days after the insurance company receives the named insured’s proof of loss and after one of the following occurs:

1. The insurance company reaches an agreement with the named insured

2. An entry of final judgment is entered

3. The insurance company receives filing of an appraisal award.

This condition explains to the insured that the insurance company is only obligated to deal with persons who have a valid interest in the loss and not with disinterested third parties such as lawyers or independent brokers or specialists.

K. Abandonment of Property

The insurance company is not required to accept any property which is abandoned by the named insured. In other words, an insurance company is not automatically responsible for taking care of or disposing damaged property.

Example: Raymun Veramyte’s vinyl ping pong table was reduced to a melted, useless lump during a fire. Raymun’s insurer sends him a check for $275 for the table, which he bought nearly two years earlier. The table cost $420 new, so the $275 reflected two years’ depreciation. Because it was a minor loss, the settlement was handled over the phone. Raymun asks his company to come and get rid of the ruined ping pong table which he has moved into his garage. His company claims specialist tells him that he’ll have to take care of disposing of the table...their claim file is closed.

L. Mortgage Clause

1. When the policy’s declarations page includes a mortgagee, that mortgagee will be paid along with the named insured for any eligible loss involving property covered under dwelling coverage (Coverage A) or other structures coverage (Coverage B). The payment will be made according to the mortgagee’s insurable interest and, if there is more than one mortgagee, will reflect any order of precedence.

2. If the insurance company denies the named insured’s claim, that mortgagee may preserve its right to a loss payment by taking corrective action as described below:

a. The mortgagee notifies the insurer of any change in ownership, occupancy, or substantial change in risk of which it is aware

b. The mortgagee pays any premium due if the named insured fails to make the premium payment

c. The mortgagee provides the insurer with a signed, sworn statement of loss within 60 days of being told that this has NOT been done by the named insured.

In other words, when a mortgagee exists, an insured’s failure to comply with the policy conditions does NOT endanger the mortgagee’s recovery for a covered loss IF the mortgagee agrees to fulfill the policy conditions in place of the named insured. Further, if there are disputes involving a claim, the mortgagee assumes the ability to exercise the rights to appraisal or legal action against the insurer. However, the mortgagee is also obligated to the same terms: specifically, to comply with ALL policy provisions and to be subject to the same two-year time frame for filing a lawsuit.

3. If the insurer cancels or does not renew the policy, the mortgagee will be notified at least 10 days before the date cancellation or nonrenewal takes effect.

IMPORTANT: While this is the time frame appearing in the policy, the time limit and notification requirements are determined by laws of the state in which the policy is issued.

4. If the insurance company pays the mortgagee for any loss and denies payment to the named insured, the insurance company receives the mortgagee’s subrogation rights.

The insurer reserves the option of paying the mortgagee the entire principal balance on the mortgage along with any accrued interest. If the principal and interest are paid, the insurer acquires a full assignment and transfer of the mortgage. The transfer includes all securities that are held as collateral for the mortgage.

Example: Millie Strainfunds, a chief loan officer for Highflown Finance Co., contacts a claims adjuster from Hapless & Harried Fire and Casualty Insurance. Millie insists on payment on a fire loss sustained by the Tramplongs’ home, on which Highflown is shown as a mortgage. The fire occurred eight months earlier and, after repeated requests, the Tramplongs haven’t sent a proof of loss statement, nor cooperated in any loss settlement. Hapless pays the outstanding loan amount to Highflown and the lender assigns subrogation rights against the Tramplongs to Hapless.

5. However, any subrogation won’t affect the mortgagee’s full claim.

M. No Benefit to Bailee

Through this policy provision, an insurer denies any policy benefit to entities (personal or commercial) that charge or receive a fee for providing any of the following services:

· holding property

· storing property

· moving property

no matter what appears in any other provision of the Special Form policy.

N. Nuclear Hazard Clause

"Nuclear hazard" refers to the following:

· nuclear reaction

· radiation

· radioactive contamination

regardless of the incident being controlled and no matter how the event is caused. Any consequence of a nuclear hazard is also considered a nuclear hazard.

Losses created or involving a nuclear hazard are not considered to be a fire, explosion, or smoke loss, even when these three perils are included within Section I of the Special Form policy.

This policy does not apply under Section I to loss caused directly or indirectly by nuclear hazard. The one exception is that direct loss by fire resulting from the nuclear hazard is covered.

O. Recovered Property

The named insured and the insurer are obligated to tell each other when, after a loss has been paid, property involved in the claim has been recovered. What happens next is up to the named insured. The named insured may allow the company to have or keep the property or the property may be kept by (or returned to) the named insured. If the property is returned to the named insured, any payment has to be adjusted to reflect the condition or value of the property. In other words, the named insured may have to return part or all of any loss payment.

P. Volcanic Eruption Period

Within a 72-hour period, all volcanic eruptions that occur will be treated as one eruption.

Q. Policy Period

This item merely states that the coverage supplied by this policy is only valid for loss that actually occurs during the applicable policy period.

R. Concealment or Fraud

This provision voids coverage to all persons otherwise eligible for protection if the insurer discovers any incidents of significant information being kept from it (either due to concealment or misrepresentation). Loss of coverage also results if any otherwise, covered persons are guilty of fraudulent behavior or lying (false statement) regarding any aspect of the applicable insurance coverage.

The provision attempts to be comprehensive, barring coverage to all parties, including innocent insureds. However, the provision wording may likely cause confusion over how it applies and appears to be vulnerable to court scrutiny in the event of claims.

S. Loss Payable Clause

The purpose of this provision is to change the way the policy operates when a loss payee appears on the policy declarations. When a loss payee appears, the loss payee is included in the definition of “insured” with regards to the covered property. Further, the loss payee is entitled to written notification if the policy is cancelled or not renewed.

SECTION II - LIABILITY COVERAGES

A. Coverage E - Personal Liability

This coverage obligates an insurance company to provide coverage for bodily injury or property damage caused by an occurrence. Of course, what is meant by property damage, bodily injury and occurrence is defined by the Special Form policy. If the loss does qualify for coverage, the policy (through the insurer writing the coverage) will:

1. Pay up to the policy’s insurance limits for the damages for which an "insured" is legally liable. Eligible damages include prejudgment interest levied against an "insured."

2. The Special Form policy also will, at the insurer’s expense, defend an insured. The defense is provided even when there are no grounds for the lawsuit or even when the suit was falsely or fraudulently filed. The insurer has the right to choose the legal representative.

Along with its obligation to defend and, if necessary, pay a lawsuit, the insurer has complete power in investigating and settling claims as it decides is appropriate.

Once the insurance policy’s liability limit has been used up by either a settlement or a judgment, the insurer has no further obligation to provide a legal defense to the insured. The defense obligation ceases when a payment of a judgment or settlement exhausts the policy’s applicable insurance limit.

B. Coverage F - Medical Payments to Others

The insurance company will pay the necessary medical expenses that are incurred or medically ascertained (determined) but only those incurred within three years from the date of an accident that causes “bodily injury.” Medical expenses include reasonable charges for:

medical	surgical	x-ray
dental	ambulance	hospital
professional nursing	prosthetic devices	funeral services

The policy’s Medical Payments to Others coverage applies to third parties, so the named insured, that insured’s resident family members and other regular household residents don’t qualify for medical payments. An exception exists for a named insured’s residence employees. Even those who are considered third parties, coverage exists only under the following circumstances:

1. To those that the named insured permits to be on an "insured location"

2. To those who are not on an "insured location," who suffer "bodily injury" resulting from any of the following:

a. A condition existing on the "insured location" or the ways immediately adjoining

b. Circumstances caused by the activities of an “insured”

c. Circumstances caused by a "residence employee" in the course of the "residence employee's" employment by an “insured”

d. Circumstances caused by an animal owned by or in the care of an "insured."

SECTION II - EXCLUSIONS

Here is where one finds exposures which ARE NOT covered by the homeowner policy’s liability coverage part. A policy’s exclusion section is typically the most difficult to comprehend. As more consumers are exposed to the simplified shortcut writing used on computers and mobile devices, expectations on understanding such common forms may force future language changes.

The first four exclusions are self-contained and feature vehicles or crafts.

A. “Motor Vehicle Liability”

1. The Special Form coverage parts Coverage E - Personal Liability and Coverage F - Medical Payments to Others do not protect an insured against an “occurrence” related to “motor vehicle liability” when the loss involves:

a. A motor vehicle which is actually registered to be used on public roads or property.

b. Vehicles that are not registered for public road use but that are required by the governmental authority to be registered. The registration requirement is determined by the location where the place where the occurrence happens.

Example: Adam Appo lives in Resortville which is located in a very hilly area that is a haven for recreational vehicles, especially snowmobiles. Because of problems with unsupervised snowmobile operators, Resortville passed an ordinance requiring snowmobile owners to register the vehicles and place a special, oversized license plate on their snowmobile to make them easier to identify. Although the snowmobile is used off public roads, this registration requirement would exclude the snowmobile from coverage for a loss occurring in any part of Resortville where snowmobile operation required registration.

c. Coverage is also excluded when the “motor vehicle” (as defined by the Special Form policy’s definition section) meets any of the following conditions:

(1) Used in an organized or prearranged race, speed contest or other competition, including or preparing for the race

Note: Since this exclusion refers to prearranged or organized events, it would appear that a spontaneous event, such as a drag race, might be covered. Of course, such a race would have to involve vehicles that aren’t excluded by other parts of the policy.

(2) Rented to other persons

(3) A vehicle whose owner charges a fee to carry persons or property

(4) A vehicle that is used in a “business,” with the exception of a motorized golf cart while it is being used on a golfing facility.

Example: Bev and Lou Indelabow don’t golf, but they love spending time at their retirement community’s golf course. Since they have so many friends who golf and who get thirsty or hungry on the course, they bought a golf cart that they load up with snacks and drinks and sell to the golfers. But before proposing this idea to the nearest senior citizen, read the additional vehicle exclusions.

2. If a vehicle fails to fall under exclusion A.1, a motor vehicle is still not covered EXCEPT when the vehicle meets one or more of the following conditions:

a. Is on an “insured location” and in dead storage

Example: Craig clicks off his TV when he hears a loud crash and a child’s scream coming from his garage. He is upset to find that his daughter’s best friend, Cissy, has seriously hurt herself while playing on his “fixer-uppermobile.” Specifically, it’s a ‘07 ACORD with no doors and its battery removed. Cissy tripped while getting out of the car and ended up cutting her arms and breaking a leg (compound fracture). As she cries, she promises she’ll never play “Car Trek” again. This loss would qualify for coverage under Craig’s homeowner policy since the car was not capable of operation.

b. ONLY used in connection with maintaining an “insured’s” residence

c. Made for use by handicapped persons and the loss occurs when either of the following is true:

(1) The vehicle is assisting a handicapped person

(2) The vehicle is parked on an “insured location”

(Note that even if a vehicle such as a motorized wheelchair is involved in a loss, the loss is not eligible for coverage UNLESS the wheelchair ASSISTING a handicapped person or is parked.)

d. A recreational vehicle that is MADE as a recreational vehicle to be used off public roads AND one or more of the following apply:

(1) The vehicle is NOT owned by an insured

Note: Item d.(2) was expanded under the 05 11 Edition of the HO Special Form Policy. Item (2) (b) is the added item.

(2)(a) The vehicle IS owned by an insured, but the loss occurs on an insured location. Note that the insured location must qualify as such under the policy’s definition.

Examples:

An insured hits a hiker with his all-terrain vehicle while riding through a city park - not covered, owned vehicle
An insured borrows his neighbor’s lawn tractor and smashes it into a car parked in another neighbor’s driveway - not covered, not a recreational vehicle
An insured hits a neighbor’s child who was crossing his yard at the same time the insured was driving a trail bike from his driveway to a trailer located in the street in front of his home - covered, owned RV and the accident is on an insured location.

(2)(b) The vehicle is owned by an insured, but the loss occurs away from an insured location. However, this off-location protection is quite narrow. It applies only when the loss involves a vehicle that is designed to be used by young children (6 years and younger) as a toy, is battery-powered and is incapable of moving faster than 5 mph on level ground. In other words, the policy responds to, essentially, losses resulting from motorized, pre-school toys.

Note: The 5-mph restriction applies whether the motorized toy’s speed capability was provided by the manufacturer or is due to later modification.

Of course, though the coverage is narrow; it is still valuable that the Special Form policy could respond to hazards caused by certain motorized property.

Example: The Kaos family gave their middle child a Motorized Safari Jeep for her 4^th birthday. The toy was designed with a top speed of 4 mph. While operating the jeep on the neighbor’s long, new asphalt driveway, the jeep strikes and knocks down the 72-year-old man who lives there.

Scenario 1: The accident happened while the 4-year-old was driving – Incident is covered.
Scenario 2: The accident happened while the 4-year-old was driving the jeep which was modified to move at 7 mph; the speed at the time of the accident – Incident is NOT covered.

e. A motorized golf cart which is owned by an insured and which is built for carrying four or fewer persons and is not capable of traveling faster than 25 mph on level ground. Further, the golf cart MUST be operated within the legal boundaries of the following:

(1) A golfing facility at which the golf cart is either kept or is being used by an insured to do any of the following:

(a) Play golf or some other activity sanctioned at the facility (interesting, what if the facility sanctioned golf cart races?)

(b) Ride between the areas where golf carts or motor vehicles are parked or stored

(c) Cross public streets in order to get to other areas of the golfing facility

(2) A private community which, with the consent of the community’s property-owner association, allows golf carts to travel upon its roads. However, the person operating the cart must have a residence located within that private community.

The Special Form policy is designed to tightly control the exposure to any imaginable liability related to motor vehicles.

Example: Sara Loftylife and Xena, her daughter, await the start of Joustville’s 41st Annual Cart Race. The ladies spent a lot of time over the last two months building the cart, practicing, and preparing for the event. Sara came in third place in the 21st Annual Cart Race and they both hope that Xena can do even better. They quickly have other concerns as, halfway through the downhill course, one of their cart’s front wheels falls off and Xena and the cart violently crash into several cart race spectators. The crash hurts a half dozen people ranging from broken bones to serious lacerations. Luckily, since the injuries are the result of a gravity-propelled vehicle, the liability for the injuries is covered by the homeowner policy.

Example: Let’s look at a different scenario. Sara Loftylife and her daughter Xena are waiting for the start of Joustville’s Third Annual Motorized Cart Challenge. Sara is thrilled as Xena is leading the race with only one more lap to go. Suddenly Xena loses control of the motorized cart and she slams into several spectators. Again, the crash hurts a half dozen people ranging from broken bones to serious lacerations. Unfortunately for the Loftylifes, since the injuries are the result of a motorized vehicle, all liability for the injuries is excluded by the homeowner policy.

However, even with the latest wording, it is not always clear that a vehicle's involvement with a loss will result in it being ineligible for HO coverage.

B. “Watercraft Liability”

1. The Special Form coverage parts Coverage E - Personal Liability and Coverage F - Medical Payments to Others do not protect an insured against an “occurrence” related to “watercraft liability” when the loss involves watercraft that meets any of the following criteria:

a. Used in an organized or prearranged race, speed contest or other competition, including practicing or preparing for the race

Note: Since this exclusion refers to prearranged or organized events, it would appear that a spontaneous race might be covered. Regardless, there is a racing exception. The exclusion does not apply to races involving sailing vessels or predicted log cruises where specified locations or spots are predetermined and the single or multiple participants compete to see how quickly they can arrive at each destination.

b. Rented to other persons

c. Available to carry persons or property if a fee is paid to its owner

Example: Flint Ragswood is having a mega-party at his summer place on Barfie’s Vineplace. He rented a ferry to transport his guests, but, as it delivered the first hoard of partygoers, it ran aground. Hearing of his plight, Joe Beachdock says that, for $400, he’ll make about a dozen trips to get the rest of the folks invited to the party to Flint’s home. Flint tells Joe to “make it so.” On the last trip, Joe rams his boat into some choppy water and several of Flint’s guests smash into each other before falling overboard. Any expenses or lawsuits that take place because of Joe’s deal with Flint are ineligible for coverage.

d. Used in a “business.”

2. If a situation involving watercraft fails to fall under exclusion B.1., a watercraft liability loss is still not covered EXCEPT when the watercraft meets any of the following criteria:

a. Stored

b. A sailing vessel. The exception is not affected by the vessel having auxiliary power, but the sailboat must be one of the following:

(1) Shorter than 26 feet

(2) Longer than 26 feet but neither owned by nor rented to an insured.

In other words, a loss involving a short sailing boat could be covered. Also, a loss involving a long sailing boat which an insured borrows (or may just be temporarily operating at the time of loss) may be covered under the Special Form policy.

c. Not a sailing vessel. However, if powered, the power must be from:

(1) An inboard or inboard-outdrive engine or motor. That engine or motor must be:

(a) No more than 50 horsepower and the engine must NOT be owned by an insured, or

(b) Greater than 50 horsepower and the engine must NOT be owned by or rented to an “insured”

(2) An outboard engine or motor that:

(a) has 25 or less horsepower. There is no ownership requirement.

(b) has greater than 25 horsepower and an insured must NOT own the engine/motor,

(c) has greater than 25 horsepower and an insured gets the engine/motor during the policy period,

(d) has greater than 25 horsepower and an insured gets the engine/motor before the policy period,

but only if:

(i) the insured declared the engine or motor the policy’s inception date

(ii) the insured insures them within 45 days of purchasing the motor or engine.

Items (c) or (d) apply for the entire policy period.

Note: When horsepower is referenced in the policy, the term means the maximum power rating which the manufacturer has assigned to the engine or motor.

C. “Aircraft Liability”

This exclusion could not be simpler since, unlike the motor vehicle and watercraft exclusions, there are no exceptions. The size, wingspan, aircraft type, does not matter. Losses related to aircraft are not covered by the Special Form Policy.

Example: Ski-lug Pharmingway’s home is insured under a Special Form policy that has a liability insurance limit of $500,000. Ski-lug has had a pilot’s license for two years. He is being sued for $175,000 by two guests on his plane. While they enjoyed the flight, they were seriously hurt when they fell while trying to leave the plane. Ski-lug is glad that he decided to buy high insurance limits. Ski-lug is grounded when he hears that the loss is not covered by his homeowners policy.

D. “Hovercraft Liability”

This exclusion is a twin of the exclusion for aircraft liability. The Special Form policy, without exception, does not provide an insured protection from their liability related to hovercraft. Hovercraft liability is a term that is found in the Special Form policy’s definition section. While the decision to specifically exclude hovercraft clarifies the coverage philosophy of the policy (as opposed to assuming that such property may be excluded as a type of either air or watercraft), there is now the possibility that coverage may exist for unusual craft or vehicles that are not included in any current category. Of course, keeping things in perspective, the exposure to such craft or vehicle is likely to be rare.

E. Personal liability (Coverage E) and Medical Payments (Coverage F) do not apply to “bodily injury” or “property damage”:

1. Expected or Intended Injury

There is no coverage for any injury an “insured” expects or intends

Example: Scenario 1: Your client’s 18-year-old son (who meets the definition of an “insured”) and the next-door neighbor’s son have been fighting for some time now. One night, while the neighbors are away, your client’s son sneaks over to the neighbor’s house and breaks all of the windows. Upon finding out, you are in a hurry to make amends to the neighbor and give him/her the number of your insurance company. Unfortunately, since your son intended the damage, there is no coverage under your homeowner’s policy.

Related Court Case: “Porch Brawl Triggers Coverage Dispute”

Intentional acts are excluded EVEN if the property damage or bodily injury is different in the kind or degree than what an insured hoped or expected would occur, or it is suffered by a different party or property than what an insured either expected or hoped.

Example: Scenario 2: Your client’s 18-year-old son (an “insured”) and the next-door neighbor’s son have been fighting. Again, during the night, your client’s son sneaks over to the neighbor’s house and breaks all of the windows. The son is shocked when he later finds out that one of the rocks, he used to break a window also broke a person’s skull. Your client files a claim since your son NEVER intended to hurt ANYONE. Unfortunately, although the son testifies that he did not mean to harm any person, there is no coverage since the loss originated from an intentional action.

There is an important exception to this exclusion. When bodily injury or property damage results from an insured acting to protect persons or property, the loss is covered IF it only involved use of reasonable force.

Example: Scenario 3: Your client’s 18-year-old son (an “insured”) comes home in time to see some stranger climb out of the next-door neighbor’s window with a large bag. The son tackles the person who, in the fall, suffers a broken arm and a severely bruised forehead. It turns out that the "stranger" was the owner of the home. He was coming out the window because he lost his key to his home's double-door deadbolt security locks. The enraged neighbor sues your client for his injuries. Although the client’s son FULLY INTENDED to stop a person, he thought was a thief, the claim was a result of an attempt to protect property; so, the insurance policy would respond to the loss.

Note: The 05 11 added property damage coverage to the exception. Prior editions covered only bodily injury. So, in the example above any property damage caused when the 18-year-old son tackled his neighbor is also covered.

2. Business

a. There is no coverage for injury related to “business" activity that takes place at an insured location or in which an “insured” is engaged. This exclusion applies even if the business is neither owned by nor employs an insured. Further, the bar to coverage even extends to an insured’s omissions. An omission is WITHOUT consideration of whether it is related to the nature or duties of the insured’s business or service.

There are a couple of exceptions to the business exclusion.

b. The exclusion is not applied to:

(1) An insured location that is either rented or available for rental:

(a) only on occasion IF it the rental is for use as a residence,

(b) a partial rental of an insured location. In other words, even steady rental is covered if it only involves a portion of the insured location. HOWEVER, this exception is lost if it involves a single family unit that is occupied by an insured who rents part of it out to more than two roomer/boarders,

(c) a partial rental of an insured location if the purpose of the rental is for a school, studio, office or private garage.

(2) A second exception is made for insureds who are age 20 or younger and are involved in a part-time or occasional business which he or she owns. However, their business cannot have any employees.

Note: The exception makes no mention of partners.

Example: Granlessa and Winderpul Varflower’s home is insured by a Special Form policy. Their 14 year old son runs a summer lawn care service where he mows lawns, trims bushes, weeds gardens and cleans debris from clients in his neighborhood. Their son has a partner in his business, his 12 year old neighbor. If the Varflowers’ son injures a neighbor while mowing their lawn, he would be covered. What is not clear is whether the Varflower policy would cover the neighbor’s son who injured a person under the same circumstance. FYI, if both kids had parents whose homes were covered by a Special Form policy, then each could cover the children under their respective policies. HOWEVER, there is also the possibility that both kids would be eligible for coverage under BOTH policies as they are partners rather than employees.

IMPORTANT: This coverage has been modified under the mandatory HO 06 53–Home-Sharing Host Activities Amendatory Endorsement. The form also adds several, unique terms that affect coverage. Optional form HO 06 65 Broadened Home-Sharing Host Activities Coverage Endorsement can be used in place of the HO 06 53so should also be examined.

ISO Homeowners Optional Coverage Endorsements

ISO Homeowner Mandatory and Optional Home-Sharing Endorsements

3. Professional Services

There’s no coverage for property damage or bodily injury related to an insured performing or failing to perform a professional service (medicine, law, accounting, financial consulting, etc.)

4. Insured’s Premises not An Insured Location

There is also no coverage for liability stemming from a premises THAT IS NOT an insured location to which any of the following apply:

a. Is owned by an insured

b Another party rents to an insured

c. An insured rents to other persons

Related Court Cases:

“Baby-sitting on a Regular Basis for Compensation Held Not Covered”

Business Pursuits Exclusion Held Applicable to Wedding Reception Services”

5. War

No coverage exists for a loss that is due either directly of indirectly by war or any consequences of the following:

a. War that has not been formally declared, civil conflicts, insurrection, rebellion, or revolution

b. Activity similar to war that involves military forces or personnel

c. Related to destruction, confiscation or use for any military purpose.

Please note that even the accidental discharge of a nuclear bomb is defined as a warlike act.

6. Communicable Disease

No coverage is available for any liability due to someone being injured after catching an infectious disease from an insured. Communicable disease includes those which are transmitted via sexual relations but is not limited to it.

Example: Laura Pleabitten was serving a homemade meal to her best friend, Wilma Teer. While earlier in the day Laura thought she was coming down with the flu, she went ahead with her plan to have Wilma over for dinner. Wilma, a former neighbor, now lives halfway across the country. Wilma called Laura because she was in town for the biggest business meeting of her life. During dinner, Laura suddenly felt worse and she quickly cancelled the rest of the get together. Later, Laura’s husband took her to an emergency clinic where she was diagnosed with a severe case of strep throat. Laura recovered quickly but she was upset when, a week later, she received a legal notice from Wilma. Wilma woke up in her hotel room the morning after her visit with Laura. Wilma was so sick that she missed her business meeting with persons interested in investing in her publications business. She was suing Laura for the loss of venture capital. Such a loss would NOT be covered by the Special Form policy.

Certainly, this portion of the policy may be challenged as result of incidents arising from the Covid19 pandemic and future viral emergencies, such as legislation that state governments may create to deal with such losses.

7. Sexual Molestation, Corporal Punishment or Physical or Mental Abuse

There is no coverage and there are no exceptions.

Related Court Case: Policy’s Sexual Molestation Exclusion Upheld

8. Controlled Substance

Protection is unavailable for any loss developing from the use, sale, manufacture, delivery, transfer, or possession by any person of a Controlled Substance(s) as defined by the Federal Food and Drug Law at 21 U.S.C.A. Sections 811 and 812.

Controlled Substances include, but are not limited to:

· Cocaine

· LSD

· Marijuana

· All narcotic drugs

Note: This exclusion is quite broad. It is along the same lines as the exclusions for motor vehicle liability. In other words, coverage would be excluded for any loss having any connection with controlled substances.

Examples:

· A liability loss where one insured’s guest injures another under the influence of hallucinogens.

· An insured’s guest who becomes sick because she is given several tablets of penicillin instead of aspirin.

This exclusion makes an exception for any loss involving the legitimate use of prescription drugs by a person following the orders of a licensed health care professional.

Note: This will be an evolving area due to various states legalizing both medical and recreational marijuana use Even so, coverage may be complicated due to misalignment between federal and state laws. To date, it is still a specifically listed controlled substance and continues to be illegal under the Federal Food and Drug Law.

It is important to be aware that the following exclusions DO NOT apply to a bodily injury loss to a residence employee when the loss either occurs during or develops out of the employee performing his or her job:

· A. “Motor Vehicle” Liability

· B. Watercraft Liability

· C. Aircraft Liability

· D. Hovercraft Liability

· E. 4. Liability stemming from an insured’s premises which are not defined as an insured location.

Example: Constance Maytane’s home is insured by a Special Form policy. She has a full-time gardener/handyperson named Krimanee Kutter to take care of her home, which sits on four acres of lavish lawns and gardens. Just as Krimanee was riding a lawn tractor up a slope, she made a sharp turn and the tractor tumbled over on top of her. Fortunately, Constance’s policy will handle her medical bills for her broken ribs, ankles and lacerated feet and legs.

F. There is no protection provided under Coverage E - Personal Liability for:

1. Any Liability:

a. Caused by any assessment charged against an insured by any association, corporation, or community of property owners. However, this exclusion can be ignored for any coverage which applies under Additional Coverage 4. Loss Assessment.

Example: Xavier Junepalm just got a request from his homeowner association to pay $795 to the HighPryce Haven Capital Playthings Fund. The association is collecting the money to renovate the association’s community house. Specifically, they want to remodel the house’s Party Den, which is over 20 years old and looking a little shabby. Xavier pays the assessment and then sends in a claim to his insurer, Yagattabee Kiddun Fire & Calamity. An adjuster phones Xavier and, after getting her laughter under control, tells him that the assessment doesn’t qualify for coverage.

b. Created by any contract or agreement made by or involving an insured. This exclusion does not apply if the agreements or contracts are in writing and either of the following applies:

(1) They are directly related to the ownership, maintenance or use of an "insured location"

(2) An insured takes over some other person’s liability before an "occurrence" unless the loss is excluded somewhere else in the Special Form policy.

Note: This exception doesn’t do anything beyond restoring coverage for liability losses which could have been lost by being mentioned under a written contract. In other words, the liability coverage under the Special Form policy is meant to cover losses connected to the covered property. The fact that such a liability is part of some contract arranged with an insured won’t affect that eligible coverage.

Example: Ollie Encindentul hired a neighbor’s son to paint his home. His neighbor, who happened to be a lawyer, wrote an employment contract that included an agreement which stated that Ollie would take care of any loss involving someone hurt by tripping over painting supplies or equipment. Ollie signed the contract, not bothering to explain to his neighbor that the contract was unnecessary. However, if it weren’t for the exceptions to the contract exclusion, this agreement would have eliminated an eligible loss from coverage.

Example: Joey’s parents have signed him up for another season of baseball with the Wayver County Youth Sports Conclave (WCYSC). His parents filled out the registration form that had a revised waiver section. This year, instead of merely agreeing to hold all persons connected with WCYSC harmless for any injuries connected with baseball (including those due to gross negligence), the section also required Joey’s parents to assume any liabilities for suits or claims on behalf of WCYSC. Unknown to Joey’s folks and the other nice parents involved with WCYSC, they have just agreed to pay for lawsuits against WCYSC that make it beyond the brief hold harmless agreement. Unfortunately, the Special Form policy will not protect Joey’s folks from this potential disaster.

2. Property Damage to property owned by an insured.

The Special Form policy prohibits recovery for an insured’s costs/expenses related to the need to repair, replace, enhance, restore, or maintain such property to prevent injury to a person or damage to other persons’ property, anywhere. In other words, there’s no set of circumstances for property damage liability coverage to be extended to an insured’s own property. However, damage suffered by a property belonging to an insured is often covered by the Special Form policy’s Coverage Part C - Personal Property.

3. Property damage to property which is rented to, occupied, or used by or in the care of an insured. This exclusion does not apply when property damage is caused by fire, smoke, or explosion.

Example: The Gobbleyoungs come back home from a weekend trip and find that their home was burglarized. The thieves stole most of the Gobbleyoungs' DVD collection, including a dozen titles that were borrowed from their local library. The library sends them a bill for $350 for the lost DVDs. The Gobbleyoungs will have to pay the cost themselves. As borrowed property, their liability to the library caused by the theft loss is not covered by their policy.

4. Bodily injury to any person eligible to receive any benefits that are provided on a volunteer basis or required to be provided by any “insured” under any worker’s compensation law, non-occupational disability law, or occupational disease law. Again, this is a precaution against obligating the Special Form policy to grant coverage that should be, rightfully, provided by another.

5. Bodily injury or property damage for which an insured under this policy also is insured under a nuclear energy liability policy or would be an insured under a policy except that the limits have already been exhausted.

A nuclear energy liability policy is one issued by any one of the following companies:

· Nuclear Energy Liability Insurance Association (formerly American Nuclear Insurers)

· Mutual Atomic Energy Liability Underwriters

· Nuclear Insurance Association of Canada

or any one of the successors to these companies.

Note: Both exclusions 4 and 5 are to prevent the Special Form policy from offering coverage that should be provided by other, specialized insurance policies.

6. Bodily injury to you or an insured within the meaning of the Special Form policy’s definition of insured.

The Special Form policy’s liability section is designed to cover an insured against his or her legal liability to others (or third parties), not for providing first party (an insured) protection.

G. Coverage F - Medical payments to Others

These exclusions apply only to Coverage F. This coverage does not apply to bodily injury:

1. To a "residence employee" but only if both of the following apply:

a. The bodily injury must occur away from the “insured location”

b. The bodily injury is not related to the fact that the “residence employee” is working for the “insured.”

In other words, coverage is only provided in situations that represent the liability most closely related to the covered residence. If the loss has either a remote or no relation to the covered property, the loss is excluded from protection under the Special Form policy.

Example: Let’s look at another situation involving Constance Maytane’s handyperson, Krimanee Kutter. Constance told Krimanee to take a vacation after she recovered from her accident with the lawn tractor. Krimanne decides to go camping. While hiking on one of the most rugged trails in Woethere State Park, Krimanee trips over an exposed tree root and breaks some different bones. Although Krimanee is still Constance’s employee, the accident was off an insured location and had nothing to do with her job, so the medical bills won’t be covered by Constance’s policy.

2. To any person who is a beneficiary of protection that is either voluntarily provided or that is provided under mandate of any of the following:

a. Workers compensation law

b. Non-occupational disability law

c. Occupational disease law.

Example: Krimanee Kutter was hurt, as before, by a lawn tractor while cutting Constance’s spacious lawn. However, as part of hiring Krimanee, state law required Constance to buy Domestic Creature Comfort Insurance. Therefore, while the loss technically qualifies for coverage under the Special Form policy, the state-mandated coverage would take the place of the homeowner policy in handling the job-related loss. Note that the loss would be still be excluded if the state law existed and Constance failed to buy coverage OR if there were no state requirement, but Constance decided to buy separate coverage.

3. If bodily injury occurs from any of the following:

· Nuclear reaction

· Nuclear radiation

· Radioactive contamination

This exclusion applies regardless of how any of the above was caused or whether it is controlled or uncontrolled. No coverage is provided from any loss that is a consequence of nuclear reaction, nuclear radiation, or radioactive contamination.

4. To any person who regularly resides on any part of the "insured location."

The only exception is a residence employee.

Example: Juniper Earthpal is an old college friend of Jasmine Testy. Jasmine, who has always admired Juniper’s “spirit,” allows her to stay in her “guest barn,” an old pole barn that Jasmine converted to living quarters/art studio shortly after buying her home and grounds. After being at the guest barn for nearly two months, Jasmine figures out that Juniper isn’t serious about finding a local job and place to live, but she’s okay with that. One day Juniper is on Jasmine’s front lawn, playing with her aluminum juggling pegs. Juniper decides to perform for a young mother who’s passing in front of Jasmine’s house with a baby in her arms. As Juniper approaches the pair, she trips, a peg smacks the young mom on the head and both mom and her baby fall to the cement sidewalk. Unfortunately, Juniper’s length of stay at Jasmine’s disqualifies her from being covered by Jasmine’s homeowner policy.

IMPORTANT: This coverage has been modified under mandatory HO 06 53-Home-Sharing Host Activities Amendatory Endorsement. The form also adds several, unique terms that affect coverage. Optional form HO 06 63-Broadened Home-Sharing Host Activities Coverage Endorsement can be used in place of HO 06 53 so should also be examined.

ISO Homeowners Optional Coverage Endorsements

ISO Homeowner Mandatory and Optional Home-Sharing Endorsements

SECTION II—ADDITIONAL COVERAGES

Under its liability portion of coverage, the Special Form policy provides four coverages which are in addition to the insurance limits that appear on the declarations page. Specifically, the Special Form policy also provides coverage for:

· Claims Expenses

· First Aid Expenses

· Damage to Property of Others

· Loss Assessment

A. Claims Expenses

The policy pays:

1. For costs and expenses tallied up during an insurance company’s efforts to defend an insured during a lawsuit.

2. Expenses eligible for coverage include amounts assigned to an insured for a claim that the insurer is defending on the behalf of an insured. If any premiums or bonds are required while defending against a lawsuit, these premiums will be paid by the insurer. However, the company’s obligation to pay for this expense ends once the amount paid exhausts the Coverage E insurance limit. Also, the insurer HAS NO OBLIGATION to either apply for or to furnish any bond.

3. This additional coverage also pays for an insured’s reasonable expenses that are created by cooperating with the insurer. This includes the actual loss of earnings up to $250 per day for assisting the insurance company in the investigation or defense of a claim or a suit.

4. Finally, when an entry of judgment takes place, the insurer is obligated to handle interest that accrues between the time of judgment and when the insurance company pays its portion of the judgment. It is important to note that the interest the insurance company must pay is not limited to only its portion of the judgment. However, its responsibility for the interest ends when it has paid its portion of the judgment. The insured and/or other parties would be responsible for accruing interest on the remaining amount of the judgment if they do not pay before or at the same time the insurance company pays.

Example: Judge Pentwup Frustrayshun is tired of Playful Casualty’s attitude while defending its insured, Clyde Pulmonary. As soon as the jury found in favor of the person who sued Clyde for being attacked by his nine crazed Dalmatians, Judge Frustrayshun entered the $175,000 judgment into the court records and said that interest will accrue at 12% quarterly interest until the judgment is paid. Since Clyde’s insurance limit is $250,000, Playful Casualty is obligated to pay both the judgment and the interest when it pays the judgment two months later.

B. First Aid Expenses

If the insured incurs expenses in providing first aid to others because of “bodily injury" covered under this policy, the insurance company will reimburse the insured. However, the insurance company will not pay for first aid to an insured.

C. Damage to Property of Others

The Special Form policy pays to cover property belonging to other persons which is damaged (accidentally) by an insured. The coverage is on a replacement cost basis. The maximum per occurrence limit is $1,000. This coverage is an example of risk management since the amount is available to quickly handle minor losses before they can escalate into expensive lawsuits. However, the insurer will NOT pay for any of the following types of property damage:

· That can be fully recovered under Section I of the policy

· From an act that is intentionally caused by an "insured" who is 13 years of age or older

· If the property is owned by an "insured"

· If the property is owned by or rented to either an insured’s tenant or a resident in the named insured’s household

· That arises out of a “business” pursuit of an "insured"

· That arises from any act or omission in connection with a premises owned, rented, or controlled by an "insured,” that is not the "insured location"

· That arises from the ownership, maintenance, or use of aircraft, watercraft or motor vehicles, or all other motorized land conveyances. This exclusion does not apply if the motor vehicle is designed for recreational use off public roads, is not subject to motor vehicle registration and is not owned by an "insured.”

D. Loss Assessment

1. The policy will pay up to $1000 in assessments charged to an insured during the policy period. The assessment has to be made by a corporation or association of property owners and the assessment has to involve "bodily injury" or "property damage" that is eligible for coverage under Section II (liability) of the policy. Further, the coverage applies only to loss assessments charged against the named insured as owner or tenant of the "residence premises."

This additional coverage will also pay for the liability for an act of a director, officer or trustee who causes a loss while performing their respective duties for the property owner, corporation, or association. Such persons must have been elected by the member property owners and their work must be compensation-free.

2. The policy’s Policy Period condition does not apply to Loss Assessment coverage.

Example: Randolf Fasade’s home is damaged during a storm that sweeps through his homeowner community. The storm also destroys the screened-in porch of the community’s “Meetin’ & Greetin’” Center. The storm damage occurs on June 5^th. The insured’s Special Form policy, written by Pleasures Mutual Insurance Company, expires on June 8^th and is replaced by a new, identical Special Form policy written by the Pleasures Now Myne, Inc. On June 23^rd, Randolf gets a notice assessing him several hundred dollars for his share of the cost to repair the “Meetin’ & Greetin’” Center. Even though the loss assessment was made on a date when the Pleasures Now Myne, Inc. policy is in effect, the assessment is related to the June 5^th loss, so the coverage is still handled by the Pleasures Mutual policy.

3. Regardless of the number of assessments, the limit of $1000 is the most the insurer is obligated to pay for a loss stemming from either of the following:

· One accident, including continuous or repeated exposure to substantially the same general harmful condition

· A covered act of a director, officer, or trustee.

If more than one director, officer or trustee is involved in a covered act, it is considered to be a single act.

4. The policy will not cover loss assessments charged against an insured or a corporation or association of property owners by any governmental body.

SECTION II—CONDITIONS

A. Limit of Liability

The Special Form policy makes a maximum dollar amount available for any single, eligible loss. The total amount paid under Coverage E for all damages related to a single loss will not be more than the Coverage E insurance limit entered on the declarations. The stated limit IS NOT affected by the number of:

· Insureds

· Claims made

· Persons injured.

Example - Scenario 1: The Johnvilles decided to host their neighborhood’s First Annual Summer Neighborfest! Everything went really well with nearly every family in a four-block area attending. Unfortunately, things ended badly. Salma and Nellie Johnville’s potato salad wasn’t stored properly and half of the Neighborfest attendees ended up with severe food poisoning. As soon as the neighbors were well enough to contact their lawyers, the Johnvilles received:

· 35 pieces of hate mail

· 17 notices filing lawsuits against them

· 40 sets of emergency medical bills

· 50 sets of receipts for various “off the shelf” stomach and pain remedies.

Although the Johnvilles can paper the walls of their home with all the paperwork they received, their insurance company explains that, since all of the “stuff” was created by the “Potato Salad Slaughter” event, it’s all handled as a single loss and their $500,000 liability limit is the total amount available to respond to all of the activity.

All "bodily injury" and "property damage" that is created by any one accident or from continuous or repeated exposure to substantially the same general harmful conditions are considered to be the result of a single "occurrence." (However, consider the preceding example.)

The total liability under Coverage F. for all medical expense payable for "bodily injury" to one person as the result of one accident is no more than the limit of liability for Coverage F. listed on the declarations.

B. Severability of Insurance

This insurance applies separately to each "insured." This condition will not increase the limit of liability for any single "occurrence."

If different insureds are involved with distinct losses that are covered by the policy, then the entire insurance limit is applied to each insured. In other words, the named insured may be sued for two different events during a single policy period and the total Coverage E insurance limit will be applied, in full, to each occurrence. Theoretically, all of the insureds identified under a single policy could suffer losses for different reasons on the same day and the policy’s full insurance limit would apply separately to each person and for each occurrence. However, the Special Form policy does try to limit its exposure to loss by defining all claims or expenses connected to a covered occurrence as a single loss and by construing all losses that result from a continuous and substantially same set of harmful conditions as a single loss. But circumstances can challenge this limitation. Let’s look at the Johnvilles’ Potato Salad Slaughter again.

Example - Scenario 2: The Johnvilles again host their neighborhood’s First Annual Summer Neighborfest! And, again, everything ends poorly when half of the guests are poisoned by the Johnvilles’ potato salad. However, in this instance, instead of everyone getting sick from one batch of potato salad, we find that Salma and Nellie each make a batch of potato salad at different times; the separate batches of salad go bad because both ladies leave the salads unrefrigerated; and they put out their salad in two different serving areas. While their insurer argues that it is a single occurrence because it all stems from bad potato salad, the Johnvilles argue back that the losses stem from two separate events and that the insurance limit should apply separately to each event. In this instance, the Johnvilles’ position is correct.

C. Duties After Loss

In case of an "occurrence," an "insured" is obligated to perform several duties. The policy includes a specific statement that, if failure to comply with the policy conditions harms the insurer’s ability to handle the loss, the insurer may not be obligated to pay for the loss or defend an insured. The policy uses the phrase “prejudicial to the insurer,” which does leave room for debate over how an insured may lose their insurance protection. But the added wording is helpful to both the insurer and the insured. It gives greater emphasis to the importance of complying with the policy’s conditions and it gives the insurer a way to protect itself from an uncooperative insured.

Under this condition, the insured is obligated to:

1. Give written notice to the insurance company or the agent. It must be provided as soon as is practical. This information should include:

a. The policy number or other method to identify it plus the named insured on the declarations

b. The time, place, and circumstances of the "occurrence." Only that which is reasonably available is required.

c. The claimants and witnesses names and addresses.

2. Cooperate with the insurer as it investigates, settles, or defends a claim/suit.

This specific requirement has the goal of properly emphasizing `an insured’s role in assisting the insurer with the claims process.

3. Send every notice, demand, summons, or other process relating to the accident or "occurrence to the insurance company. This must be done in a prompt manner which is different from “as soon as practical.”

4. Only when requested by the insurance company, the “insured” must help in any of the following ways:

a. To make settlement

b. To enforce rights of contribution or indemnity which may exist against persons or organizations who may be liable to an “insured;”

c. Attend hearings, trials and other activities related to conducting a lawsuit

d. In securing and giving evidence and also in obtaining witnesses to attend.

5. If the claim is presented under Damage to Property of Others then a claim must be submitted to the insurance company, within 60 days after the loss and a sworn statement of loss must be made along with the damaged property. The damaged property must only be provided if it is in an “insured's" control.

6. Voluntarily payments, assumptions of obligations and other expenses can be made or incurred by insureds but only at their own expense. The only expenses the insurance company will reimburse are those for first aid to others at the time of the "bodily injury."

This last duty appears to be inconsistent with the policy’s earlier warning against an insured doing things that may prejudice the insurer’s rights or ability to handle a claim. One way to interpret this duty is to assume that as long as an insured is willing to make a payment out of his or her own pockets, then doing so is approved by the insurer. Since payments (outside of first aid treatment) can be viewed as an admission of liability, it does not seem appropriate to allow customers to make out of pocket payments….at least not without a separate warning that, by doing so, they may sacrifice their insurance coverage.

D. Duties of an Injured Person—Coverage F—Medical Payments to Others

1. Any injured person or someone acting for the injured person who is claiming medical payments must do both of the following:

· Provide a written proof of claim to the insurance company. It must be provided as soon as practical and an oath may be required.

· Provide authorization to the insurance company so that they can obtain copies of medical reports and records.

2. It is not enough that the injured party provide information from a doctor. They must be willing to submit to a physical exam by a doctor the insurance company’s chooses and the person must do so as often as the insurance company requires. However, the number of exams must be considered reasonable. Note that there is no definition of “reasonable.” Items like this are often a point of contention between injured persons and insurers. While four separate exams may be reasonable to a company claims adjuster, an injured person might question why he would need to be examined more than one or two times.

E. Payment of Claim—Coverage F—Medical Payments to Others

The policy explicitly states that receiving a payment under this coverage DOES NOT mean an insured considers himself guilty for causing a loss, nor is it an indication that the insurer thinks that they are obligated to pay an injured party.

F. Suit Against Us

Under this condition:

1. Action can be brought against the insurance company but not until there has been full compliance with all of the terms under this section of the Special Form policy. Note that this condition refers to an insured’s need to FULLY comply with ALL POLICY TERMS before he or she can file a suit.

2. The second part of this condition mentions that another party can’t play “piggyback” by assuming a right to join the insurance company as a party to any action against an "insured."

3. Action with respect to personal liability can not be brought against the insurance company until the actual obligation of the "insured" has been determined by either a final judgment or under an agreement signed by the insurance company.

G. Bankruptcy of an Insured

The insurance company is not relieved of any obligation when an insured declares bankruptcy or is considered insolvent.

Of course, it would be interesting to challenge this condition. For instance, if an insured misses a premium payment and the policy terminates for nonpayment, but the nonpayment was due to an insured being bankrupt and a loss occurs….well it would be interesting to test this condition.

H. Other Insurance

It is usually a serious complication when a loss occurs and more than one source of coverage exists. It is the business version of “who takes their wallet out, first” to pay for a shared meal. Under this provision, the applicable insurer places itself behind any other available coverage, acting as an excess source. There is an important exception. If the other source of coverage is written specifically as excess liability protection, then this policy responds first (primary coverage).

I. Policy Period

Coverage under the policy’s liability section is only valid for BI or PD that takes place during the policy period.

J. Concealment or Fraud

Example: The Burndersons filed a claim under a homeowners policy they just received two weeks earlier. The claim was for a fire that started from their woodburning fireplace insert. However, during the claims investigation, their insurer discovers that their previous policy was not renewed. The previous company had completed a stove inspection and, after the Burndersons failed to replace the old and poorly maintained stove, the company terminated coverage. None of this information was shared on the application with the new carrier. The new insurer didn’t have to reject the claim; it rescinded the policy.

SECTIONS I AND II—CONDITIONS

A. Liberalization Clause

If the insurance company makes a change which broadens coverage under this edition of the policy and there is no additional premium charge for that change it automatically applies to this policy as of the date the change is implemented in the state in which the policy is issued. However, this applies only if the implementation date falls within 60 days prior to the policy inception date or during the policy period stated in the declarations.

It is very important to note that this clause does not apply to changes introduced in a general program revision which includes both broadening and restricting features. A general program revision can be implemented through either a subsequent policy edition OR though an amendatory endorsement.

B. Waiver or Change of Policy Provisions

An insurer has to give an insured written permission or approval in order to make any valid waivers or changes in the policy. However, an insurer’s request for either an appraisal or examination will not waive any of an insurer’s rights.

C. Cancellation

1. The named insured has the right to cancel the policy at any time and for any reason. The only requirement is that the policy be returned or that a written notice be given to the insurance company. The named insured must specify that date upon which the cancellation is to be effective.

2. The insurance company is more restricted in how it may cancel the policy. A written notice must either be given to the named insured or mailed to the mailing address on the declarations. The reason for the cancellation must be stated and those reasons and when they can be used are explained below.

Proof of mailing will be sufficient proof of notice.

a. Non-payment of premium - When premium has not been paid, the insurance company may cancel at any time by providing no less than 10 days notice before the date cancellation takes effect.

b. Under 60 days of coverage - When this is the first policy issued by this insurance company for this named insured and it been in effect for less than 60 days the insurance company may cancel for any reason by providing no less than 10 days notice before the date cancellation takes effect.

c. When this policy has been in effect for 60 days or more or if the policy is a renewal of a policy previously issued by this insurance company there are significant restrictions in cancellation. The insurance company may cancel only if one of the following occurs:

· There has been a material misrepresentation of fact. This fact must be such that had it been known the policy would not have been issued.

· A substantial change in the risk occurred after the policy was issued.

If either of these occurs, the insurance company must provide no less than 30 days notice before the date cancellation takes effect.

d. Multi-year policies - When this policy is written for a period of more than one year, the insurance company has the right to cancel it for any reason on its anniversary date. The insurance company must provide no less than 30 days notice before the date cancellation takes effect.

3. The premium for the unused days of insurance must be refunded when the policy is cancelled. The refund must be calculated on a pro rata basis.

4. The return premium can be provided with the notice of cancellation or at a later date provided the time frame is reasonable.

D. Nonrenewal

The insurance company has the right to not renew this policy. If they do, they must either deliver a non-renewal notice to the named insured or mail such a notice to the mailing address on the declarations. The notice must provide no less than 30 days before the expiration date of this policy. Only proof of mailing is required as a proof of notice.

Note on The Cancellation and Nonrenewal Conditions: For purposes of providing a complete analysis, we have included comments on both of these conditions. HOWEVER, state laws control most aspects of how, when and if a policy can be cancelled or nonrenewed. Individual companies should be thoroughly familiar with the law of each state in which it uses the Special Form policy, since these laws may stipulate what is required for:

· Nonrenewal or cancellation reasons

· Parties who must receive advanced notice of either cancellation or nonrenewal

· An insured’s recourse concerning a cancellation or nonrenewal

· How such notices must be mailed

· Whether a notice must indicate the reason for either a cancellation or nonrenewal

· How much advanced notice is required for cancellations or nonrenewals

· The timing of such notices, etc.

E. Assignment

This policy provision merely states that a policy assignment cannot take effect unless and until the insurer gives its approval in writing.

While a company may validate a policy assignment, such arrangements are rare. Typically, once the insurable interest in a home has changed, it is preferable to terminate the old policy and rewrite coverage in the name of the current insurable interest.

F. Subrogation

This part of the policy still gives an "insured" the choice to waive all of his or her rights to recover against any person who is legally responsible for a loss that is paid under this policy. The waiver must be in writing and must have been performed before any applicable loss. If these rights are not waived, the insurer may require the insured to assign the rights so the insurer can attempt to recover payment from another party that is responsible for the loss. The rights are only good for the maximum amount that the insurer paid to handle the loss.

When an insured assigns its rights to the insurer, the "insured" must sign and deliver all related papers and cooperate with the insurance company. Why? Well, having the insured’s right to recover payment against another party does an insurer no good if the insured does not help it to make its case. For instance, if a relative or friend of the insured was responsible for the loss, having the insured’s right to subrogate against the friend or relation is useless if the insured doesn’t want to make their friend or relative pay the insurer.

Subrogation does not apply under Section II to medical payments to others or damage to property of others.

G. Death

If the named insured dies the insurance company will insure the legal representative of the deceased. This insurance is limited to only the premises and property of the deceased covered under the policy at the time of death. This also applies to the death of the spouse of the named insured provided that spouse is a resident of the same household as the named insured.

If the named insured and/or spouse dies, the insured household’s circumstances could alter radically, so in this section the term insured is changed. Whoever was a member of the named insured’s household at the time of the death is an insured but only while a resident of the residence premises. Also, whoever has temporary custody of the named insured’s property is an insured but only until the appointment and qualification of a legal representative.