(July 2020)
For years, an issue existed with the definition of residence
used in Insurance Services Offices’ (ISO) Homeowner forms. In 2015, ISO began
use of the following forms:
Mandatory Endorsements
Applies to all HO Forms except the
HO 00 06
Applies to the HO 00 06
Applies to Mobilehome Program
Optional Endorsements
Applies to all HO Forms except the
HO 00 06
Applies to the HO 00 06
Applies to Mobilehome Program
In essence, ISO wished to clarify coverage with regard to the
residence definition found in its base (unendorsed) HO and MH forms. That
definition gave covered residence status to one- through four- family dwellings
as well as parts of any other building on the location that appeared on the
policy declarations. The definition includes the phrase “where you reside.” The
result was that insureds were required to be active residents at the time of a
given property loss at the described location to be eligible for homeowners
coverage.
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Example: Holly
works for a large engineering firm located in Pennsylvania. Holly is promoted
and is assigned a managerial position for that firm’s office in Colorado. She
buys a new home in Boulder, CO on 3/20/20 and she moves into the new home.
However, she is waiting for a sale to close on her old home in Philadelphia
until that home’s sale closes in a month. Even though she kept her old policy
on the Philly home in force, effective 3/20/20, no coverage technically would
apply at her previous home. This situation changes with the introduction of
the new, mandatory endorsements. |
The mandatory residence premises endorsements revise the
residence premises definition. They add wording to the effect that the policy’s
coverage for a property loss at a given location is preserved if, at the
policy’s inception, the insured did reside at the applicable premises.
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Example: Mason’s home was insured
under a HO 00 03 policy with a policy term of 2/1/20 to 2/1/21. An electrical
fire occurs at his home on 4/20/20. At the time of the loss he did not reside
at his home. He had suffered a stroke several weeks earlier and was sent to
rehabilitation center. |
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Scenario
1 – The HO policy was not modified by a HO 06 48 endorsement. His insurance
company, Great Awareness P&C declines the claim as Mason was not a
resident of the home when the fire occurred. |
Scenario 2 – The HO policy was modified by a HO 06 48
endorsement. His insurance company agrees to handle the fire because Mason,
at the policy’s inception, was a resident of the home. |
The mandatory endorsements create two positive results.
First, they preserve HO protection for an insured who experiences a residency
change during the course of an initial or a renewal policy period. Second, the
forms protect an insurance company from instances where a residency change
occurs on a long-term or permanent basis. The added wording either removes
coverage for property where an insured no longer resides at the renewal date or
it allows the situation to be discovered and addressed as part of the insurer’s
renewal underwriting process.
However, this solution does not work in all circumstances,
especially in new home purchases. In circumstances when the named insured will
not be residing on the property on the inception date the applicable optional
Broadened Residence Premises Definition Endorsement is needed.
The optional endorsements allow insureds and their insurers
to handle a residency change more deliberately, addressing “known”
circumstances. The optional forms revise the residence premises definition but
by addressing only known situations it eliminates the coverage for the unknown
situations described above.
First there is a schedule. This schedule is crucial and must
be completed carefully. The inception and termination dates represent a time
period during which the named insured MAY NOT be residing at the premises and
yet coverage continues to apply.
This is accomplished by item a. in the endorsement which
provides a definition of residence premises without the words “where you
reside.” However, this definition
applies only for the time period entered in the schedule.
Item b. reverts to the wording in the HO base coverage form
that requires the individual to be residing in the residence at the time of the
loss.
The unfortunate part is that the named insured is back to
the situation of having no coverage if a situation arises and he or she is not
residing at the residence outside the dates in the schedule.
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Example: Irene’s
Condo is insured by a HO 00 06. Her current policy period is from 3/15/20 to
3/15/21. The pains in her knees and hip have gotten severe and a specialist
suggests extensive surgery with a prolonged stay at a special rehabilitation
center. Irene contacts her agent and adds a HO 17 47 endorsement to her condo
policy with a three-month period beginning 5/2/20, the date of her surgeries.
One of her children will stay at her condo to care for her pets and
houseplants. Scenario 1: Irene’s surgery goes well and she actually
returns home early. Unfortunately, she has another fall and is placed back
into the facility 10/5/20. Her son is distracted and a fire occurs on 11/4/20
that is not covered because Irene is residing at a rehab center and not at
her condo. Scenario 2: All goes well for Irene and her policy is
renewed on 3/15/21. Unfortunately, the agent doesn’t realize that the HO 17
47 should be removed and continues coverage with it attached. Irene must
return to rehab. While in rehab a fire occurs. If the correct endorsement HO
17 48 had been attached coverage would have applied but because HO 17 47 is
attached there is no coverage. Guess who gets an E&O claim? |
Of course, the underwriting flexibility of the optional
endorsements is constrained by the passage of the termination date, but a
replacement endorsement for other, known periods of residency change could be
arranged for new situations. Further, the dates in the form could be the same
as the policy term, removing the active residency requirement for the full
policy period. Regardless the dates used in the schedule, it would require an
insurer’s active underwriting effort to maintain control over an increased exposure
caused by a given residency situation.