HO 04 78– MULTIPLE COMPANY INSURANCE

(July 2020)

An insurance underwriter may look at a home and its value and handle it quite comfortably but, as the value rises, either the desire or the capability of insuring the home may end. A homeowner that is unable to find a single company willing to handle coverage has another option, splitting coverage among more than one insurer. Splitting insurance among more than one company may be necessary due to one of more of the following:

· Capacity problems

· Underwriting limitations established by individual insurers

· Restrictive reinsurance treaties.

Such instances are less common than in the past since many large standard and specialty insurers routinely accept high-valued homes. However, should coverage have to be arranged by participation of several companies, it is critical that the coverage forms are compatible and that coverage is faithfully monitored to make sure that proper protection is maintained. It may be necessary for the participating insurers to agree to let one of their members take the lead in coordinating on-going coverage. In that case HO 04 78–Multiple Company Insurance must be attached.

Schedule

The form’s schedule has spaces requiring entry of the percentage of total HO protection provided by the applicable insurer for coverages A, B, C, D and additional coverages. The total limits for each coverage is entered on the schedule, so the applicable insurer’s liability is determined by applying the percentage that appears on the form. There is also an area that indicates the identity of the insurer who is providing Section II liability protection when it is not the carrier on the policy with the endorsement.

Note: The required information does not appear to include the Section II Insurance Limit.

Definition

The form states that the term multiple company insurance refers to several policies that indicate the same named insured and which all contain the same type of coverage and provisions. This status remains even, if at the time a loss happens, not all of the policies are in force.

Example: Todd and Karly’s dream home sits on three acres and was purchased for 6.1 million dollars. They live in an area served by small, state insurers, so coverage was written among three carriers. During coverage discussions following a fire, it was discovered that only one policy was in effect at the time of the fire because the other two had cancelled for nonpayment. Their home would STILL meet the definition of “multiple company insurance.”

Section I – Property Coverage

This endorsement obligates the insurer to provide coverage according to the percentage appearing on the form when a loss is caused by a hazard covered by the applicable, amended policy. Any references to special limits in the base form represent the total limit.

Note: Since such limits should be the same in all applicable policies, this restriction should be fair. It would likely be up to the applicable “other insurance” provision wording to guide how the multiple policies would respond to such losses.

Section I – Conditions

The form’s largest section is for an amended loss settlement division. The provision indicates that losses will be adjusted on a replacement cost basis if ALL of the companies providing coverage do so at an amount that reflects at least 80% coinsurance. Naturally payment is subject to the lesser of the policy’s limit, the cost to replace or repair the damage or the replacement value of the damaged area. If a structure is rebuilt at a different location, settlement is made as if it were being done at the insured premises.

If the coverage amount carried is less than 80% of the home’s full replacement cost, settlement is adjusted on an actual cash value basis. Excavations, footing and subsurface structures are not part of any calculation to determine replacement cost.

Except for minor losses (the lesser of 5% of the policy limit or $2,500), no payment will be made until repairs or rebuilding is complete.

Regardless the coinsurance status, a named insured may make an initial claim under an ACV basis and, later, make additional claims as long as such a request is made to the insurer no later than 180 days from the loss date.

Example: In the instance of Todd and Karly’s fire loss, the nonpayment cancellations would also trigger a coinsurance penalty due to insufficient funds.