HOMEOWNERS COVERAGE ARCHIVE

(July 2020)

This article is a repository of articles and analyses that relate to earlier editions of the above captioned program or coverage form.

Related Article: HO 00 03 –ISO Homeowners 3 - Special Form Coverage Analysis (05 11 Edition).

Archive Index
Analyses	ISO Special Homeowners Form Analysis - 10 00 Edition
Analyses	ISO Special Homeowners Form Analysis - 04 91 Edition
Comparisons	Comparison of ISO Pre-H0 2000 Forms
Endorsements	ISO Pre-HO 2000 Optional Coverage Endorsements
Special Analysis	Risk Of Direct Loss HO Policy
Special Analysis	ISO Pre HO 2000 HO Broad Form Coverage Analysis
Special Analysis	ISO Pre-HO 2000 Unit-Owners Form Coverage Analysis
Special Analysis	HO 05 90 Home Business Endorsement
Special Analysis	ISO Personal Property Replacement cost Endorsement HO 04 90 04 91

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

This is an analysis of the ISO (Insurance Services Office) Homeowners Program’s Special Policy form, 10/00 edition.

AGREEMENT

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

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

Examples:

Larry had faithfully paid his HO insurance premiums for 12 years when he turned in a claim. His house was completely destroyed by a fire. The insurance company denied his claim. Their investigation revealed that Larry burned down his own home in order to pay off gambling debts with the insurance proceeds. Paid premium? Yes. Complied with policy? No. - No coverage.

Mary sent in a HO insurance claim for some severe storm damage. She sent in a perfect proof of loss with supporting documents and a complete inventory of damaged personal property. Her insurer turned down the claim since she let the policy lapse for nonpayment several months earlier. Paid premium? No. Complied with policy? Yes - No 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" who appears on the policy’s declarations. “You” and “your” also extend to the named insured's spouse, but only if he/she lives in the same household.

Example: Joe and Tanya have a HO policy effective June 1, 2010 to June 1, 2011. The policy shows Joe on the policy as the named insured:

Scenario one: 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 insureds.

Scenario two: 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”

These terms were introduced with the ISO HO 2000 Program. “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. In other words, such liability would also encompass loss involving the following:

Unloading or loading a vehicle	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 – refers to 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"

In earlier editions of the homeowners policy, business meant any activity having the goal of generating personal income. The HO 2000 edition has redefined the term to apply to a variety of situations. The result is that business, rather than having a commonly understood meaning, now has a special meaning under the policy.

As before, “business” refers to a trade, occupation, or profession. However, under the HO 2000 program, “business” also refers to such activity EVEN when it 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. So, the details surrounding an activity greatly affect how the activity is classified.

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 10/1/2009. 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 10/1/2010, 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 10/1/2009. 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 10/1/2009, 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?

Does the reference to total income mean gross or net receipts?

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 income 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 over $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, it is just as likely that an insurer may be as confused as the insured over what qualifies as a business.

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):

· you

(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 HO 2000 program’s 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 are 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)

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, and

· 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 Special Form policy’s definition of insured includes 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 that is next to her home. That adjacent lot contains a large garage. The garage was added to Annie’s homeowner policy by a separate endorsement. This garage is 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’s 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.

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 - Let’s change something in the above situation. Again, Carson Prairie, the GardenView College alum, rents his old dormitory room every August. However, instead of for vacation and relaxation, he uses the room as a location to publish a sports newsletter about GardenView which he sells 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.

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 that causes "bodily injury" or "property damage" during the policy period. A repeated exposure to similar conditions (that creates either BI or PD) is also considered an “occurrence” IF it takes place within the policy period.

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.

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.

DEDUCTIBLE

This section merely says that the insurer will pay the portion of an eligible loss that exceeds the applicable deductible. The deductible may be shown on the policy's declarations page or elsewhere.

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 the 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 material (wire fencing and lumber) was 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. As the tree falls, it lands upon and seriously damages the insured's porch roof. While the roof is covered, the damage to the lawn (caused by the tree) 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

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.

Example: Greta Cargo’s cottage home is covered by a Special Form policy with the following limits:
Coverage Part	Insurance Limit
A	$180,000
B	$18,000
C	$90,000
D	$54,000
Greta loves her cottage home (including a small, built-in garage) as well as her deluxe, lattice gazebo (worth nearly $18,000) that sits 25 feet behind her home. Greta enjoys having breakfast in the gazebo but hates that she has to dress before walking between the gazebo and the house. Greta hires a local carpenter who builds two walls that are attached from her cottage’s back door to the front panel of the gazebo. Now Greta may travel back and forth between the structures in complete privacy. However, the gazebo is now part of the dwelling and not a separate structure. The financial consequence is that, instead of having the entire Coverage B limit available to cover the gazebo, the Coverage A limit has to cover the cottage and the gazebo together.

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 (though these are typically attached)

· playhouses

· above ground pools.

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

Situations that are NOT covered

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.

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. The insured has a further coverage option when a covered loss occurs and the loss involves personal property that belongs to other people. In such instances, the insured may have their insurance apply to personal property:

· which belongs to others when that property is on the part of the “residence premises” occupied by an insured, and

· which belongs to an insured’s guests or to a "residence employee," if the property is in any residence 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 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 the cabin. 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 $9.000, instead of $900 (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:

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

· to 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 applicable for the first thirty days from the time an insured begins to actually move personal property 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 for more than one location. 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.

3. Special Limits of Liability

The ISO HO 2000 Homeowners Program includes a number of classes of personal property that have specific monetary limitations. You should notice that the categories involve different classes of 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 is unchanged in the HO 2000 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 was increased from $1,000 in the HO 2000 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 increased from $1,000 in the HO 2000 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 increased from $1,000 in the HO 2000 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 increased from $1,000 in the HO 2000 edition of the ISO Homeowners Program. The slightly higher amount of 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

The HO 2000 edition also adds a reference to equipment related to firearms. Now the limitation includes 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 HO 2000 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 HO 2000 edition of the ISO Homeowners Program:

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

This is a change from the previous edition of the ISO Homeowner program that is a genuine benefit to the policyholder. It is also a fair and reasonable concession to modern home life. The earlier editions of the homeowner policy subjected property used at ANY TIME and in ANY MANNER for business to this limitation. The revised 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 and, 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. Although the room is used mostly for school, personal and volunteer activities (administrative work for their church and other groups), 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 2000 Special Form policy, the Bizzytons’ full Coverage C insurance limit would be available to handle the loss. Under the earlier 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. $500 SUB-LIMIT

This sub-limit is increased from $250 in the HO 2000 edition of the ISO Homeowners Program:

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

Other changes were made in the HO 2000 edition regarding this sub-limit. First, the “business” use has to be primary instead of the previous edition’s restriction that applied this limit to property that had ANY business use. Next, rather than the $500 sub-limit, if the property involves electronic apparatus, that property is subject to the limitations explained in items j. and k.

j. $1,500 SUB-LIMIT

This sub-limit is increased from $1,000 in the HO 2000 edition of the ISO Homeowners Program:

· loss to electronic apparatus and accessories, while in or upon a “motor vehicle,” but only if the electronic apparatus is equipped to be powered from the vehicle’s electrical system while retaining its capability of being operated by other sources of power. Accessories include antennas, or tapes, wires, records, discs, or other media that can be used with any electronic apparatus.

k. $1,500 SUB-LIMIT

This sub-limit is increased from $1,000 in the HO 2000 edition of the ISO Homeowners Program:

· loss to electronic apparatus and accessories which are:

- located away from the residence premises,

- used primarily for business purposes, and

- not in or upon a “motor vehicle.”

Further, the electronic apparatus has to be equipped to be powered by a vehicle’s electrical system while retaining its capability of being operated by other sources of power. Accessories include antennas; or tapes, wires, records, discs, or other media that can be used with any electronic apparatus.

Note: The above sub-limits apply to the ENTIRE CLASS of property referenced. While ISO did increase coverage by nearly $4,000 from their previous edition, the change is negligible when compared to the average increase in ownership of such personal property. The impact of the increase is further diluted by the following:

· there was NO change in the sub-limit on the theft of dinnerware made of precious metal

· the dinnerware theft limitation was expanded to include platinumware

· there was NO change in the sub-limit on money and similar property

· the money/similar property limitation was expanded to include scrip and cards with stored value.

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 include:

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. The HO 2000 Program clarified this exclusion by stating that it 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 including their equipment, accessories, parts and electronic apparatus and accessories that are designed to be powered solely by a motor vehicle’s electrical system. Accessories include:

· antennas, or

· tapes, wires, records, discs, or other media

that are used with any apparatus.

Note: The exclusion of property described in c above applies only while the property is in or upon a motor vehicle. Why is this? The property is considered to be better covered elsewhere, such as under an auto policy which generally provides more complete coverage for permanently installed electronic apparatus.

However, 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:

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

Examples: lawnmowers, snowblowers, lawn tractors, and

· attachments that are designed to assist the handicapped.

Example: Motorized wheelchair

The HO 2000 edition of the Special Form policy has tried 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. For instance, will this language prevent coverage for a loss to:

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

· a snowblower which is occasionally used to clear a friend’s driveway?

· a motorized wheelchair that is sometimes played with by a healthy insured?

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

This wording change may be an example of making the language too precise so that it starts to erode the policy’s coverage intent. Another instance to consider is whether coverage would apply to losses involving riding lawnmowers. In one jurisdiction, a court ruled that coverage was not due an insured because a riding lawnmower was subject to the HO policy's motor vehicle exclusion.

d. Aircraft and parts

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.

Note: Even model or hobby aircraft that is capable of carrying persons or property is excluded from coverage.

e. Hovercraft and parts.

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

This property exclusion was introduced in the HO 2000 edition of the homeowner policy.

f. Property of roomers, boarders, and other tenants, except property of roomers and boarders related to an "insured."

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," except as provided in Additional Coverages.

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 rented or held for rental to others off the "residence premises."

i. "Business" data, including such data stored in:

· books of account, drawings, or other paper records; or

· computers and related equipment.

The HO 2000 edition of the homeowners program refers to computers and related equipment instead of the obsolete reference to electronic data processing, tapes, wires, records, discs, and other software media.

Example: You have an insured who takes home the accounting records from his business and stores them on his personal computer. When all the information on his computer is wiped out during an electrical storm, there is no coverage available for the restoration of his business data.

Note: 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. The HO 2000 edition of the Special Form policy clarifies this exclusion to refer to electronic funds transfer cards since the previous term just covered ATM cards. The exclusion was also made broader to apply to any item that can be used to handle personal banking.

k. Water or steam.

This exclusion was introduced with the HO 2000 edition of the Special Form policy.

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.

Example: The Paynes experience a kitchen fire that burns so intensely that it cracks the water supply pipes. The water spills out for over a day before their service is turned off, and 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. However, it may also have an unintended application.

Example: The Flamersuns made extensive preparations in case a crisis occurred during the coming of the Year 2000. Although disappointed that nothing happened, the family became philosophical since most of their supplies, including one thousand gallons of premium bottled water, would eventually be used. However, the Flamersuns were ready to start their own revolution when, after a fire destroyed their bottled water, their insurer said that it was excluded from coverage.

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 HO 2000 edition clarifies that 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 your insured premises unusable, this coverage pays an insured’s expenses which are beyond their 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.

Example: During the rebuilding of the “residence premises,” “you” have the utilities turned off. “You” normally pay the utilities for “your” tenants. The insurance company is not going to reimburse “you” for the average cost of “your” utilities while they are turned off. In other words, “you” must incur an expense before being reimbursed.

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.

3. Civil Authority

If a civil authority prohibits “you” from using the "residence premises" as a result of direct damage to neighboring premises by a covered cause of loss, “we” cover the additional living expense and fair rental value loss as provided under additional living expenses and fair rental value 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. 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.

4. Loss Or Expense Not Covered

There is no coverage available due to the cancellation of a lease or an agreement. In other words, “your” renter decides to break the lease and find another place to live. The Special Form policy will not pay for any loss of rental income in this instance.

E. ADDITIONAL COVERAGES

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

1. Debris Removal

Reasonable expenses will be paid for the removal of:

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

· Ash, dust, or particles from a volcanic eruption have 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 be available 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 (increased from $500 in the HO 2000 edition of the Special Form Policy) for the removal of the following from the "residence premises":

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

· An 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 if the trees:

- damage a covered structure,

- block a driveway enough to prevent the insured from using his registered motor vehicle,

- block a ramp or passage that eliminates a handicapped person’s access to the residence premises.

Note: The HO 2000 edition of the Special Form policy has significantly enhanced this additional coverage. In earlier editions, if a tree from another person’s property fell onto an insured’s property and damaged covered property, there would be NO coverage available to remove the tree debris. The change that provides coverage when a neighbor’s tree blocks vehicular or handicapped access makes this a much more practical additional coverage.

Note: The limit for any one loss is $1,000 regardless of the number of 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.

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 a resident of the "residence premises"

· 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.

Note: 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.

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

5. Property Removed

If covered property is being removed from a premises that is endangered by a covered peril, the property moved is covered for any direct damage for a maximum of thirty 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 the basement of a friend’s house. 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 it being 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

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.

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:

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

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

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

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, land shock waves or tremors that 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 oversees the management and the maintenance of 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. There is also a significant change for this coverage under the HO 2000 edition of the Special Form policy. This insurance is now 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

The Special Form policy includes an explanation of what is meant by collapse. Under parts (1), (2) (3) and (4) of this paragraph, 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. However, neither a building or 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, sagging, bending, leaning, settling, shrinking, or expanding.

Example: 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.

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

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

(5) Weight of rain that collects on a roof: or

(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

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.

Note: There is no coverage for collapse due to hidden vermin or hidden decay IF the insured knows that these conditions exist prior to any collapse loss.

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

420_C019, “Insect Damage Not Collapse Unless Total”

9. Glass or Safety Glazing Material

This additional coverage pays for:

· The breakage of glass or safety glazing material which is part of a covered building, storm door or storm window; and

· Damage to covered property by glass or safety glazing material that is part of a building, storm door or storm window.

· 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

This coverage does not include loss on the "residence premises" if the dwelling has been vacant for more than 60 consecutive days (an increase - under earlier editions of the ISO Special Form policy the period was 30 days) immediately before the loss. A dwelling being constructed is not considered vacant. 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.

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

10. Landlord's Furnishings

This coverage has undergone an editorial change under the HO 2000 edition of the Special Form Policy. Instead of naming the perils that apply to a landlord’s furnishings, this provision now refers to the perils shown under Coverage C - Personal Property.

As was the case in earlier editions, a maximum of $2,500 is available to protect the insured’s property that is located in the part of the residence premises that is rented (or that is available for rent) to other persons. The additional coverage part states that the $2,500 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. This wording appears to address the situation of a premises suffering a loss to more than one area that is either rented or available for rent. It acts to control this loss exposure.

11. Ordinance or Law

a. This coverage feature allows an insured to use a maximum of 10% of his 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:

• covered property that is damaged by a covered cause of loss and which has to be constructed, demolished, remodeled, renovated, or repaired; or
• 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 which deals 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 joined 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 his increased cost to remove debris created while constructing, demolishing, renovating, remodeling, repairing, or replacing property described in 11a.

c. This coverage does not include:

• 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 A - Dwelling insurance limit.

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 insured for $190,000 and it 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 home and stops when it smashes into Beauregard Addamz’s mausoleum, broadsiding the home and causing $3,500 in damage to the former. The $3,500 needed to repair the mausoleum (Beauregard “slept” through the whole thing) reduces the amount of his Coverage A limit to $186,500 ($190,000 - $3,500) to respond to the damage to his home.

SECTION I—PERILS INSURED AGAINST

Coverage A - Dwelling Coverage and Coverage B - Other Structures

1. 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.

2. 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 damage, power failure, neglect, war, nuclear hazard, and intentional loss.

b. Loss involving collapse

The latest edition of the ISO Special Form Policy continues the practice of including collapse as an excluded 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.* under Section I-Property Coverages).

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.

Prior to the HO 2000 edition of the Special Form Policy, this exclusion was triggered by an extended vacancy of the covered premises. The vacancy stipulation is no longer specifically mentioned. Now, regardless of the structure’s occupancy status, the insured must take the time to:

· keep the building heated or

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

Further, the HO 2000 edition of the Special Form Policy states that, if the building has an automatic fire sprinkling system, the system has to 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.

It is no longer necessary to address how such losses may be affected by a home being unoccupied or vacant since these conditions are implicit in the revised policy wording. In other words, the precautions that have to be met by an insured should only occur when an insured is planning or experiencing an extended absence.

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:

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

(b) Footing, foundation, or any other structure or device that supports all or part of a building or other structure

(c) Retaining wall or bulkhead that does not support all or part of a building or other 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). Theft in or to a dwelling under construction, or of materials and supplies for use in the construction until the dwelling is finished and occupied.

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.

c.(4). Vandalism and malicious mischief.

This exclusion has been changed in the HO 2000 Special Form Policy. Previously the exclusion took effect if the insured premises was vacant for 30 days before the loss. The allowed period of vacancy has been doubled to 60 days. Further, the exclusion now bars coverage for:

“any ensuing loss caused by the intentional and wrongful act committed in the course of the vandalism or malicious mischief.”

Example: The Warmkline family has a Special Form policy which runs from 1/1/09 to 1/1/10. 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, neither the vandalism nor the fire losses are covered.

As with earlier editions, a dwelling that is under construction is not considered vacant.

c.(5) This exclusion has been added to the ISO Special Form Policy with the HO 2000 edition. There is no coverage for:

· mold,

· fungus, or

· 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.

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

(a) Wear and tear, marring, deterioration.

Example: An insured turns in a claim for his garage door which, a day earlier, suddenly slammed down on the ground, damaging itself beyond repair. Investigation of the loss found that the 15-year-old garage door spring had suddenly broke and the door fell since nothing was holding it up. The damage resulting from the aged steel spring breaking is not covered.

(b) Inherent vice, latent defect, mechanical breakdown; (this has been modified under the HO 2000 edition to include ANY quality found in property that causes it to damage or destroy itself).

Example: Eleanor Chug is horrified to wake up and find that her imported dining room set has turned into a black, 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; (the HO 2000 edition of this policy no longer includes a reference to mold or wet rot since it added a separate item for this source of loss).

(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 that 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.

This item is unchanged from previous editions of the ISO Special Form Policy. 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.

The HO 2000 edition of this policy adds 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) to this list of items that aren’t covered.

(g) Birds, vermin, rodents, or insects; or

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

The HO 2000 edition of the Special Form Policy does make a change to this section by reformatting the exceptions to this section.

Exception to c (6) (f).

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 hot 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.

Again, the HO 2000 edition of 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. However, the policy does provide another exception. Simply stated (if that’s possible), the water related coverage provided by policy section 3.e. and 3.f. are NOT affected by Exclusion 1.c., sub-paragraphs (1) and (3).

Finally, earlier editions of the Special Form policy stated that it would cover ensuing losses that weren’t excluded or excepted. The latest edition states that it will cover ensuing losses 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.

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 HO 2000 edition of the Special Form policy.

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, only while inside a fully enclosed building.

3. Explosion

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

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.

Example: Clyde Couchbound turns on the TV and sees a live newscast covering a local protest involving the Humane Treatment for Inhumane Persons Society. He is shocked to see that the protest is in front of a school just a few doors down from his home. Clyde opens his front door and looks outside at the crowd. Clyde then notices the bratty teenager from next door is standing on his front lawn, holding a microphone. The teen yells an INTENSELY INFLAMMATORY statement at the protesters. The teen shocks Clyde by pushing past him through Clyde’s home and then running out of Clyde’s backdoor and to his own home. Unfortunately, the crowd only saw the guy who insulted their “cause” duck into Clyde’s house. Clyde is unable to save his home from being gutted by the angry mob. This loss would be covered by the Special Form Policy.

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. This coverage has not been changed in the HO 2000 edition of the Special Form policy.

6. Vehicles

This coverage has not been changed in the HO 2000 edition of the Special Form policy.

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.

A change was made in the HO 2000 edition of the Special Form policy. 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

This coverage has not been changed in the HO 2000 edition of the Special Form policy.

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. There are several instances that are excluded from coverage, such when the theft or loss:

· is committed by an “insured”

· occurs to or in a dwelling that is under construction

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

· 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, VCRs, computers, 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 60 days immediately preceding the loss. (Note: this restriction has been liberalized under the HO 2000 edition of the Special Form policy. Under previous editions, the insured must have been at the location at least once in the 45 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 are not covered when stolen.

· Trailers and campers do not qualify for coverage against theft. In the HO 2000 edition of the Special Form policy, semi-trailers have been added to the type of property that isn’t covered for theft loss.

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 Technochile hired “Satellite Sadists” to install the SignalStarz Satellite, which will allow her to pick up TV signals from every station in the world. The day after the SignalStarz is installed at the top of her home’s chimney, Laura asks her neighbor to adjust the satellite since she is only getting three stations. Laura’s neighbor jiggles the satellite around and, just as he yells out “I think I’ve fixed it,” the Signalstarz falls through the roof’s skylight and lands on Laura’s new home entertainment system. While the damage to the Signalstarz is not covered, 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.

The reference to mold, fungus and wet rot is a clarification that appears in the HO 2000 edition of the Special Form policy. 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 damage exclusion found in Section I 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 earlier editions of the Special Form policy, this peril barred coverage when the home was unoccupied. Now the peril, rather than discussing whether the home is occupied, requires that an insured takes care to maintain heat in the building, 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 sprinkling 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.

Note: There is no coverage under this peril for loss to a tube, transistor, or similar electronic component. ISO realized that the above terminology has lost a lot of its relevancy due to current technology. Therefore, the HO 2000 Special Form policy also excludes loss to electronic components or circuitry that comprise:

· appliances,

· fixtures,

· computers,

· home entertainment units, or

· 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.

Note: The reference to the scope of any damage was a clarification included in the latest edition of the Special Form policy. 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 extends 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, unless direct loss by fire or explosion. 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 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 explosion or fire damage. Note that such events are often referred to as ensuing losses.

Note: This exclusion does not apply to loss by theft.

3. Water Damage

The Special Form policy does not cover a loss caused by flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind; water which backs up through sewers or drains or which overflows from a sump; or 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. This source of loss is excluded regardless of whether it is connected to human, animal or natural (force of nature) activity.

The excluded situations mentioned under water damage also extend to damage caused by waterborne material. So, a distinction may possibly be made among 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 added wording, rather than clarifying the exclusion, could create confusion.

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

Example: Heavy rains cause a neighborhood’s sewer drains 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: Insurance Services Office created an endorsement that must be attached to the special form homeowners policy. Form, HO 16 09, Water Exclusion Endorsement replaces the base policy form’s water damage exclusion. It operates in the same manner as explained above. However, there is one significant difference. 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

This change stems from ISO’s evaluation of claims litigation stemming from flooding during Hurricane Katrina in 2005.

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 is unchanged with the HO 2000 edition of the Special Form policy. This is a reference to 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 is also unchanged with the HO 2000 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 HO 2000 edition of the Special Form policy attempts to make this exclusion clearer by stating that 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 2003 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.

9. Governmental Action

This exclusion was introduced as a separate bar to recovery with the HO 2000 edition of the homeowner policy. 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 HO 2000 edition of 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:

a. Weather conditions

This exclusion only applies if weather conditions contribute in any way with a cause or event excluded under Section I—Exclusions, Paragraph 1: “Both direct and indirect loss by any of the following is not covered. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.”

b. 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.

c. 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.”

Note: Such losses are barred from coverage whether they occur on- or off-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 won’t have to respond in any one loss:

· To an "insured" for more than the amount of such "insured's" interest at the time of loss; or

· For more than the applicable limit of liability.

This condition was slightly tweaked under the HO 2000 edition of the Special Form policy to better define the nature of the person (insured) to which the policy is obligated to pay. 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. “Your” Duties After Loss

The HO 2000 edition of the Special Form Policy includes stronger wording in this provision. The result is that it reinforces an insured’s prime obligation to strictly comply with its requirements. It mentions that if an insured fails to do his duty, 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.

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 6. Additional Coverages.

4. Protecting the property from further damage.

If repairs to the property are necessary, the insured is required to:

(a) Make reasonable and necessary repairs to protect the property; and

(b) Keep an accurate record of repair expenses.

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 us in the investigation of a claim.

This item was added in the HO 2000 edition of the Special Form policy and acts as a reminder that the insured must be an active and willing participant in the claims process.

Example: The Stonewall Family submitted a claim for $22,000 of 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.

7. As often as is required by the insurance company, the insured must:

(a) Show the damaged property.

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

(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. Sending to us, within 60 days after “our” request, “your” signed, sworn proof of loss which describes, to the best of “your” knowledge and belief:

(a) The time and cause of loss;

(b) The interest of all "insureds" and all others in the property involved, including the existence of all property liens;

(c) Other insurance which may cover the loss;

(d) The details of any changes in title or occupancy of the property during the term of the policy;

(e) Any specifications of damaged buildings and detailed repair estimates;

(f) The inventory of damaged personal property described in an earlier part of this section;

(g) Receipts for additional living expenses incurred and records that support the fair rental value loss; and

(h) Any evidence or affidavit that supports 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.

This item of the HO 2000 edition of the Special Form policy is virtually the same as in earlier editions. The only changes are asking that the insurable interest of “all” insureds be identified (instead of just the named insured) and the expansion discussed earlier concerning “electronic” fund transfer cards and “access devices.” For all of the tweaking, conditional phrases and details used in this condition, what is actually required is this: shortly after the insurer makes its request: the insured must provide all pertinent details about the loss, the information must be supported by any available documentation and the information must be truthful. Inadequate or dishonest information can relieve the insurer from having to settle the claim.

C. Loss Settlement

In the HO 2000 edition of the Special Form policy, the loss settlement condition was revised to explain that 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 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, whether or not attached to buildings;

(c) Structures that are not buildings; and

(d) Grave markers and mausoleums.

Note: Grave markers and mausoleums are newly added items to this condition.

Actual cash value is generally considered to be the 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 originally cost $4,560 but offers to settle the loss at $372. When Vanisha complains that the settlement is so much less than the original price, 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 that part of the building damaged for like construction and use; or

(3) The necessary amount actually spent to repair or replace the damaged building.

The HO 2000 edition of the Special Form policy clarifies that 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. At the time of loss, if the insurance applicable to the damaged building 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 actual cash value of that part of the building damaged; or

(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, which the total amount of insurance in this policy on the damaged building bears to 80% of the replacement cost of the building.

c. To determine the amount of insurance required to equal 80% of the full replacement cost of the building immediately before the loss, do not include the value of:

(1) Excavations, foundations, piers, or any supports which are below the undersurface of the lowest basement floor;

Note: The HO 2000 edition of the Special Form policy adds footings and similar building supports to items that must be subtracted from any consideration of a covered property’s replacement cost.)

(2) Those supports in the above which are below the surface of the ground inside the foundation walls, if there is no basement; and

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

d. The insurance company will pay no more than the actual cash value of the damage until actual repair or replacement is complete. Once actual repair or replacement 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.

D. Loss to a Pair or Set

When property that is part of a pair or set suffers a covered loss, the insurer may choose to:

1. Repair or replace any part of the pair or set which will restore the pair or set to its value before the loss; or

2. Pay the difference between actual cash value of the property before and after the loss.

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.

E. 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, and

· 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.

F. 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. This part of the Other Insurance condition is new under the HO 2000 edition of the Special Form policy. 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 DVD players were covered by the Plastik Elektro-Palace’s Consumptive Protektiv Plan. The plan guaranteed to replace the TV and DVDs 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.

G. Suit Against Us

This condition is clarified under the HO 2000 edition of the Special Form policy. An insured can’t sue his 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. In earlier editions, the insured only had one year after the loss date to file legal action against his insurer.

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.

H. “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.

I. 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:

a. The insurance company reaches an agreement with the named insured;

b. An entry of final judgment is entered; and

c. 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.

J. 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.

K. 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 their right to a loss payment under the following circumstances:

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 when the named insured has failed to make the premium payment, AND

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 fire loss suffered by the Tramplongs’ home, on which Highflown is shown as a mortgage. The fire occurred eight months earlier ago 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.

L. 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:

· holding,

· storing, or

· moving property

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

M. Nuclear Hazard Clause

This clause is unchanged in the HO 2000 edition of the Special Form policy. "Nuclear hazard" refers to the following:

· nuclear reaction,

· radiation, or

· 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.

N. 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.

O. Volcanic Eruption Period

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

P. Policy Period

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

Q. Concealment or Fraud

Under the HO 2000 edition of the Special Form policy, this condition was changed from:

With respect to all “insureds” covered under this policy we provide no coverage for loss if, whether before or after a loss, one or more “insureds” have:

a. intentionally concealed or misrepresented any material facto or circumstance;

b. engaged in fraudulent conduct; or

c. made false statements:

relating to this insurance.

To the following:

We provide coverage to no “insureds” (emphasis added) under this policy if, whether before or after a loss, an “insured” has:

a. intentionally concealed or misrepresented any material fact or circumstance;

b. engaged in fraudulent conduct; or

c. made false statements;

relating to this insurance.

The revised wording, rather than making the coverage intent clear, appears to add confusion. It may have been more prudent to develop a better revision or to have left the previous wording in place. Considering the alternatives available for wording this condition, it is likely that the selected passage will eventually be challenged in various courts where the form is used.

R. Loss Payable Clause

In earlier editions of the ISO Homeowners Program, a clause concerning a loss payee had to be added to the policy by an endorsement. The HO 2000 edition of the Special Form policy adds this condition. Its purpose 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” in regard 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 part has been slightly modified with the HO 2000 edition of the Special Form policy. As it has for years, the policy obligates itself 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." As with other parts of the policy, the HO 2000 edition has slightly modified the wording to refer to ‘an’ rather than ‘the’ “insured.” Only the closest higher-level court knows what effect this small change will have on various, disputed claims.

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 their 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 HO 2000 edition of the Special Form policy refers to the defense obligation ceasing when a judgment or settlement exhausts the policy’s applicable insurance limit. This terminology is more precise than the wording in previous editions. In earlier versions, the policy wording stated that an insurance company's defense or settlement duty was terminated when the amount paid in damages equaled the policy's limit of insurance.

B. Coverage F - Medical Payments to Others

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

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

This coverage part refers to necessary medical expenses and, in defining medical expenses, refers to reasonable charges. Therefore, in order for a charge to be paid under Medical Payments To Others, the charge has to be the result of accidental “bodily injury” covered by the policy and the charge has to be for a reasonable amount. There is no coverage for either UNNECESSARY charges, even when they’re reasonable, or for NECESSARY treatment that is performed for exorbitant fees.

Example: Jim Frailnode is hosting a party in his home when one of his neighbors is severely scalded by Jim’s wife spilling grease from a fondue pot onto his legs. The neighbor sends in a laundry list of treatments, including several chest x-rays and an MRI. The x-rays and MRI charges are the cheapest in the state. Although these charges are the least expensive available, the expenses are not eligible for reimbursement because the treatments are not connected to the burn accident; so, though they’re reasonable, they’re unnecessary.

The policy’s Medical Payments To Others coverage does not apply to “you” or regular residents of “your” household except "residence employees." With regard to others, this coverage applies only:

1. To a person on the "insured location" with the permission of an "insured"; or

2. To a person off the "insured location," if the "bodily injury" arises out of:

a. a condition 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,” or

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

SECTION II - EXCLUSIONS

This section of the policy has undergone the biggest change in the HO 2000 edition of the Special Form Policy. In an attempt to more clearly identify the exposures which ARE NOT covered by the homeowner policy’s liability coverage part, ISO has reformatted and added new wording and terms to the Section II exclusions. The first four exclusions are self-contained and feature vehicles or crafts. Because of trends in the personal, recreational vehicle market, ISO has expanded the exclusion section.

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 government agency issuing a law or regulation that mandates a “motor vehicle” to be registered due to it being used on public roads or property.

b. This first excluded situation is not limited to vehicles that are licensed and registered for use on public roads or highways, but to any situation where a vehicle is required to be registered.

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) is:

(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 is:

a. on an “insured location” 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 ‘99 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:

(1) the loss occurs while it is being used by a handicapped person, or is

(2) 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 is being USED by a handicapped person.)

d. a recreational vehicle that is MADE as a recreational vehicle to be used off public roads AND

(1) is NOT owned by an insured, or

(2) 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 trailbike 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.

e. a motorized golf cart which is owned by an insured and which is built for carrying 4 or fewer persons and is not capable of travelling 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:

(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.

Obviously, the HO 2000 edition of the Special Form policy has built upon the philosophy of its predecessors 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 is:

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 is:

a. Stored;

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

(1) shorter than 26 feet, or

(2) longer than 26 feet as long as it is neither owned nor rented to an insured.

In other words, a loss involving a short 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) either an inboard or inboard-outdrive engine or motor. The power source includes a water jet pump of:

(a) no more than 50 horsepower which is NOT owned by an insured, or

(b) greater than 50 horsepower and NOT owned by or rented to an “insured”, or

(2) an outboard engine or motor that:

(a) has 25 or less horsepower,

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

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

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

but only if:

(i) the insured declared them at the policy’s inception date or

(ii) the insured insures them within 45 days of buying the boat.

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

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. that an “insured” expects or intends

Example: Scenario A: 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.

This exclusion has been modified under the HO 2000 edition of the Special Form policy. The latest edition adds more wording to be certain an insured understands that 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 B: 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 injury results from an insured acting to protect persons or property, the loss is covered IF it only involved use of reasonable force.

Example: Scenario C: 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.

2a. that is 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.

This exclusion appears to be clearer in the HO 2000 edition of the Special Form policy. Previously, the business exclusion implied what is now explicitly barred from coverage. However, there are a couple of exceptions to the business exclusion.

2.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 Varflower’s 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.

3. 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. There is also no coverage for liability stemming from a premises THAT IS NOT an insured location and which:

(1) is owned by an insured

(2) another party rents to an insured or

(3) an insured rents to other persons

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

(1) undeclared war, civil war, insurrection, rebellion, or revolution;

(2) a warlike act by a military force or military personnel; and,

(3) destruction, seizure or use for a military purpose.

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

6. arising out of the transmission of a communicable disease by an "insured";

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

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.

7. losses due to sexual molestation, corporal punishment or physical or mental abuse;

Example: Hallie Slapshot was quite upset to hear from her insurer that her claim wasn’t eligible for coverage under her Special Form policy. Hallie, a teacher, was at her wit’s end during one Friday class. Her fifth-grade class was wild the entire day with kids continually talking and bickering. Hallie decided to tell her children to sit and be quiet for the last half hour of the school day. When Paul Prestglass knocked several books onto the floor, Hallie whipped over to his desk, picked Paul up and whacked him solidly on his bottom. Hallie was ashamed of herself immediately, but Paul’s parents weren’t interested in her “feeling bad.” The Prestglasses filed suit, asking for $30,000. Although Hallie’s policy has liability limits of $300,000, corporal punishment is excluded from coverage.

8. 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 physician.

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:

· “Motor Vehicle” Liability,

· Watercraft Liability,

· Aircraft Liability,

· Hovercraft Liability, and

· 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. 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 affect written agreements or contracts:

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

(2) where 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 HO 2000 edition of the Special Form policy strengthens this exclusion. It 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 to "property damage" 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 from granting 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 does not apply to "bodily injury":

1. To a "residence employee" if the "bodily injury";

a. occurs away from the “insured location” and

b. has no relation 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 eligible to receive benefits which are voluntarily provided or which are required to be provided under any

a. workers compensation law,

b. non-occupational disability law or

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:

· nuclear reaction,

· nuclear radiation, or

· radioactive contamination,

regardless of how it is 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, other than a "residence employee" of an "insured," regularly residing on any part of the "insured location."

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.

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. Note that, under the HO 2000 edition of the Special Form policy, the daily limit was substantially increased from $50 to $250.

4. Finally, when an entry of judgment takes place, the insurer is obligated to handle any interest on the entire amount that accrues before the insurance company makes payment. This amount is limited to the part of the judgment that does not exceed the limit of liability that applies for the policy.

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

The policy will pay expenses for first aid to others incurred by an "insured" for "bodily injury" covered under this policy. “We” will not pay for first aid to an "insured.”

C. Damage To Property Of Others,

The Special Form policy will pay to cover property that belongs to other persons which is damaged (accidentally) by an insured. The coverage is on a replacement cost basis. The limit for this coverage was increased from $500 to $1,000 under the HO 2000 edition of the Special Form policy. The $1,000 amount is a per "occurrence" limit. 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 "property damage":

· to the extent of any amount 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;

· to property that is owned by an "insured";

· to property that is owned by or rented to a tenant of an "insured" or a resident in “your” household;

· that arises out of a “business” pursuit of an "insured"; an act or omission in connection with a premises owned, rented, or controlled by an "insured,” other than the "insured location";

· or that arise from the ownership, maintenance, or use of aircraft, watercraft or motor vehicles, or all other motorized land conveyances.

Note: This exclusion does not apply to a motor vehicle designed for recreational use off public roads, not subject to motor vehicle registration and 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:

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

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

Note: 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 that is shown in the declarations. The stated limit IS NOT affected by the number of:

· "insureds,"

· claims made, or

· persons injured.

Example - Scenario one: 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 shall be considered to be the result of one "occurrence."

The total liability under Coverage F for all medical expense payable for "bodily injury" to one person as the result of one accident will not be more than the limit of liability for Coverage F as shown in 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 two: 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 (embarrassed) 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.

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 shall be considered to be the result of one "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 will not be more than the limit of liability for Coverage F as shown in the declarations.

C. Duties After Loss

In case of an "occurrence," an "insured" is obligated to perform several duties. The HO 2000 edition of the Special Form policy removes any reference to having to do the duties after an “accident or occurrence.” This makes sense because an accident can occur which does not qualify as an occurrence under the policy, so the duties are not required. Another change in the latest edition of the policy is 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 as soon as is practical. This information should include:

a. The identity of the policy and "insured.” (The HO 2000 edition changes this to providing the identity of the policy and the “named insured” shown in the declarations.)

b. Reasonably available information on the time, place, and circumstances of the "occurrence."(The HO 2000 edition removes the reference to accident.)

c. Names and addresses of any claimants and witnesses.

2. Cooperate with the insurer in its investigation, settlement, or defense of a claim/suit.

This specific requirement is new under the HO 2000 edition of the Special Form policy. Again, the latest edition has the goal of putting greater emphasis on an insured’s role in assisting the insurer with the claims process.

3. Promptly forward to the insurance company every notice, demand, summons, or other process relating to the accident or "occurrence."

4. At the request of the insurance company, the “insured” must help:

a. To make settlement;

b. To enforce any right of contribution or indemnity against any person or organization who may be liable to an “insured”;

c. With the conduct of suits and attend hearings and trials; and,

d. To secure and give evidence and obtain the attendance of witnesses.

5. Under the coverage—Damage to Property of Others—submit to the insurance company, within 60 days after the loss, a sworn statement of loss and show the damaged property, if in an “insured's" control.

6. No "insured" will, except at the "insured's" own expense, voluntarily make payment, assume obligation, or incur expense other than 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. The injured person or someone acting for the injured person will:

• Give the insurance company written proof of claim, under oath if required, as soon as is practical; and
• Authorize the insurance company to obtain copies of medical reports and records.

2. The injured person will submit to a physical exam by a doctor of the insurance company’s choice when and as often as “we” reasonably require. 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

1. No action can be brought against the insurance company unless there has been full compliance with all of the terms under this section of the Special Form policy. This condition now refers to an insured’s need to FULLY comply with ALL POLICY TERMS before he or she can file a suit. Though the HO 2000 edition changes make the wording stronger, they do not substantially change the insured’s obligation from earlier editions.

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. No action with respect to personal injury liability can be brought against the insurance company until the obligation of the "insured" has been determined by final judgment or agreement signed by us.

G. Bankruptcy of an Insured

Bankruptcy or insolvency of an "insured" will not relieve the insurance company of any obligations.

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—Coverage E—Personal Liability

This insurance is excess over other valid and collectible insurance, except insurance written specifically to cover as excess over the limits of liability that apply in this policy.

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

In the HO 2000 edition of the Special Form policy, this condition has been moved to the Section II conditions from the Sections I and II conditions. As previously stated, whether before or after a loss, the policy will not protect an insured who, related to the insurance provided by the policy:

· Intentionally conceals or misrepresents any material fact or circumstance;

· Engages in fraudulent conduct; or

· Makes false statements.

SECTIONS I AND II—CONDITIONS

A. Liberalization Clause

If the insurance company makes a change which broadens coverage under this edition of “our” policy without additional premium charge, that change will automatically apply to “your” insurance as of the date “we” implement the change in “your” state, providing that the implementation date falls within 60 days prior to or during the policy period stated in the declarations. This liberalization clause does not apply to changes implemented through introduction of a general program revision. Such a revision must include items that both broaden and restrict coverage. A general program revision can be implemented through either a subsequent policy edition OR 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.

Note on The Cancellation and Nonrenewal Conditions: For purpose 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.

C. Cancellation

1. “You” may cancel this policy at any time by returning it to the company or by letting “us” know, in writing, the date that cancellation is to take effect.

2. The insurance company may cancel this policy only for the reasons stated below by letting “you” know, in writing, of the date cancellation takes effect. This cancellation notice may be delivered to “you” or mailed to “you” at “your” mailing address shown in the declarations.

Note: Proof of mailing will be sufficient proof of notice.

a. Non-payment of premium - When “you” have not paid the premium, the insurance company may cancel at any time by letting “you” know at least 10 days before the date cancellation takes effect.

b. Under 60 days of coverage - When this policy has been in effect for less than 60 days and is not a renewal with “us,” the insurance company may cancel for any reason by letting “you” know at least 10 days before the date cancellation takes effect.

c. When this policy has been in effect for 60 days or more, or at any time if it is a renewal, the insurance company may cancel if:

· there has been a material misrepresentation of fact which, if known to “us,” would have caused “us” not to issue the policy.

· the risk has changed substantially since the policy was issued. This can be done by letting “you” know at least 30 days before the date cancellation takes effect.

d. Any reason after one year - When this policy is written for a period of more than one year, the insurance company may cancel for any reason at anniversary by letting “you” know at least 30 days before the date cancellation takes effect.

3. When this policy is canceled, the premium for the period from the date of cancellation to the expiration date will be refunded pro rata.

4. If the return premium is not refunded with the notice of cancellation or when this policy is returned to the insurance company, the company will refund it within a reasonable time after the date of cancellation takes effect.

D. Nonrenewal

The insurance company may elect not to renew this policy. They may do so by delivering to “you” written notice at least 30 days before the expiration date of this policy or mailing to “you” at “your” mailing address shown in the declarations. Proof of mailing will be sufficient proof of notice.

E. Assignment

The assignment condition has not changed in the HO 2000 edition of the Special Form homeowner policy. This policy provision merely states that a policy assignment cannot take effect unless and until the insurer gives its approval in writing.

Example: The Greebles have been the contract purchasers of a home owned by Josh Hardline for 15 years. The homeowners policy was written in Josh’s name. The Greebles finally made their last loan payment. As soon as Josh received the check, he sent a short letter to Fairkumpany Mutual. The letter had Josh’s signature and requested that the insurance coverage be assigned to the Greebles. Fairkumpany sends the Greebles a statement showing their acceptance of the assignment. With Fairkumpany’s written approval in hand, Josh Hardline’s assignment of the policy to the Greebles becomes effective and the Greebles now own all of the policy rights.

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 provision has not changed in the HO 2000 edition of the Special Form homeowner policy. 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 any person named in the declarations or the spouse, if a resident of the same household, dies the insurance company will insure the legal representative of the deceased with respect to the premises and property of the deceased covered under the policy at the time of death.

Note: "Insured" includes any member of “your” household who is an "insured" at the time of “your” death, but only while a resident of the "residence premises"; with respect to your property, “insured” includes the person having proper temporary custody of the property until the appointment and qualification of a legal representative.

ISO SPECIAL HOMEOWNERS FORM ANALYSIS - 04 91 EDITION

The following is an analysis of the ISO (Insurance Services Office) Homeowner Coverage Form. The focus of this analysis is on the HO 91 edition, Special Form Policy.

DWELLING COVERAGE - COVERAGE A

A. (1) and (2)

In this section, coverages are outlined for the dwelling itself. The term dwelling does not apply only to the dwelling on the “residence premises” which is shown on the declarations. Dwelling also refers to any structures that are attached to the dwelling and materials and supplies that are located on or next to the “residence premises.” However, eligible materials have to be intended for building, renovating, or repairing the dwelling or other structures on the “residence premises.”

OTHER STRUCTURES COVERAGE - COVERAGE B

B. (1) and (2)

Other structures on the "residence premises" are also covered under this form. However, certain criteria must be met in order for the policy to extend coverage. The structure must be located away from the dwelling and separated by clear space. Included in this definition of clear space are structures that are connected only by fences, utility lines or similar types of connecting devices. As it is with Coverage A, Coverage B does not apply to land, including the land upon which the other structure sits.

Other structures that are used in business activities are ineligible for coverage. The activities have to meet the policy's definition of business. The policy makes exceptions for other structures an insured rents out to a non-premises resident who uses the structure as a private garage.

The limit of liability for this coverage is restricted to no more than ten percent of what the dwelling itself is insured for. (No more than 10% of the Coverage A limit.)

PERSONAL PROPERTY COVERAGE - COVERAGE C

C. (1) and (2)

Personal property owned by or used by an “insured” is covered anywhere in the world. Other coverages can be extended at the client’s request. (These are automatically included in the policy; the “insured” must make the claim for the following types of items rather than the owner of the items.) Personal property is covered for:

· others when the property is on the part of the “residence premises” which is occupied by the insured; and,

· guests or a "residence employee," if the property is in any residence occupied by an “insured.”

Our limit of liability for personal property usually located at an "insured's" residence, other than the "residence premises," is the greatest of 10% of the limit of liability for the personal property, or $1,000.

If an insured acquires a new principal residence, this limitation of 10% is not applicable for the first thirty days from the time you begin to actually move the personal property to the new residence.

PERSONAL PROPERTY SPECIAL LIMITS

Certain items (listed below) have specific limitations. These limits do not increase the personal property (Coverage C) limit of liability.

$200 SUB-LIMIT

· money

· bank notes

· bullion

· gold other than gold ware

· silver other than silverware

· platinum

· coins and medals

$250 SUB-LIMIT

· property, away from the "residence premises," used at any time or in any manner for any "business" purpose

$1,000 SUB-LIMIT

Types of property that have coverage restricted to $1,000 include:

securities	accounts	deeds
evidences of debt	letters of credit	notes other than banknotes
manuscripts	personal records	passports
tickets	stamps

Note: This limit applies to valuable papers, regardless of how they are stored. This limit includes the cost to research, replace or restore the information from the lost or damaged material.

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

· trailers not used with watercraft

For an example of this limitation and its implications, refer to PF&M section 469_C016, “Camp Trailer Held Subject to Special Limits for Trailers,” in Court Cases.

· loss by theft of jewelry, watches, furs, and precious and semi-precious stones.

· loss to electronic apparatus, while in or upon a motor vehicle or other motorized land conveyance, if the electronic apparatus is equipped to be operated by power from the electrical system of the vehicle or conveyance while retaining its capability of being operated by other sources of power.

Electronic apparatus includes:

1. Accessories or antennas; or

2. Tapes, wires, records, discs, or other media; for use with any electronic apparatus.

$2,000 SUB-LIMIT

· loss by theft of firearms.

$2,500 SUB-LIMIT

· loss by theft of silverware

· silver-plated ware

· gold ware

· gold-plated ware

· pewter ware

Note: This includes flatware, hollowware, tea sets, trays, and trophies made of or including silver, gold, or pewter.

· property, on the "residence premises," used at any time or in any manner for any "business" purpose

For more information regarding insuring items of specific value or those that are unique, refer to PF&M section 430.1, Personal Articles Floater.

PERSONAL PROPERTY NOT COVERED.

Under Coverage C—Personal Property—there are items that are excluded. These include:

· Articles separately described and specifically insured in this or other insurance.

Obviously, the insurance company is not going to let an insured collect twice for the same loss. Additionally, this should encourage insureds to insure property on a policy that is most appropriate.

· Animals, birds, or fish

· Motor vehicles or all other motorized land conveyances, including their equipment and accessories.

· Electronic apparatus that is designed to be operated solely by use of the power from the electrical system of motor vehicles or all other motorized land conveyances. Electronic apparatus includes:

1. Accessories or antennas; or

2. Tapes, wires, records, discs, or other media; for use with any electronic apparatus.

Note: The exclusion of property described in 1 and 2 above applies only while the property is in or upon the vehicle or conveyance. Why is this? The property is considered to be better covered elsewhere—such as in an auto policy, which generally affords coverage for permanently installed electronic apparatus.

· Aircraft and parts. Aircraft is defined as any contrivance used or designed for flight, except model or hobby aircraft not used or designed to carry people or cargo.

The only kind of coverage found in “your” homeowner’s policy relating to aircraft and aircraft parts is strictly related to hobby aircraft which CANNOT carry any passengers or cargo, in other words, models and such property as radio-controlled planes, helicopters, balloons, etc. The definition cannot be stretched to include ultra-lights and similar aircraft that some people consider to be hobby aircraft.

· Property of roomers, boarders, and other tenants, except property of roomers and boarders related to an "insured."

· Property in an apartment regularly rented or held for rental to others by an "insured," except as provided in Additional Coverages.

· Property rented or held for rental to others off the "residence premises."

· "Business" data, including such data stored in:

1. Books of account,

2. Drawings or other paper records, or

3. Electronic data processing tapes, wires, records, discs, or other software media.

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

· Credit cards or fund transfer cards except as provided in Additional Coverages.

Vehicles That Are Covered

Certain types of vehicles or conveyances not subject to motor vehicle registration are covered. These are:

1. Vehicles used to service an "insured's "residence.

2. Designed for assisting the handicapped.

Loss Of Use Coverage - Coverage D

The limit of liability for Coverage D is the total limit for all the coverages that follow:

If a loss covered under loss of use coverage makes that part of the "residence premises" where “you” reside unfit for living, “we” cover “your” choice of either of the following:

· Additional Living Expenses: These are expenses over and above “your” normal living expenses that allow “you” to maintain “your” current (or normal) standard of living. In other words, the insurance company will not allow you to incur additional living expenses to vacation in Bermuda in a villa with a private beach while “your” two-bedroom bungalow is being rebuilt after a fire. The insurance company will consider expenses related to living away from home such as meals (staying in a hotel and eating out every day) and laundry (paying to have “your” laundry done since “your” washer and dryer is not available), etc.

· Fair Rental Value: This is the fair rental value of that part of the "residence premises" where “you” reside less any expenses that do not continue while the premise is unfit for living.

Note: This coverage is available only if the “residence premises” is “your” principal place of residence. If not, this option will not be available.

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.

If a loss covered under loss of use coverage makes the part of the "residence premises" that is rented to others or held for rental by “you” uninhabitable, “we” cover the following:

· Fair Rental Value: This is the fair rental value of that part of the "residence premises" that is rented to others or held for rental by “you,” minus the expenses that do not continue while the premises is uninhabitable. For example, during the rebuilding of the “residence premises” “you” have the utilities turned off. “You” normally pay the utilities for “your” clients. The insurance company is not going to reimburse “you” for the average cost of “your” utilities while they are turned off. In other words, “you” must incur an expense before being reimbursed.

Payment under fair rental value will be for the shortest time required to repair or replace that part of the premises rented or held for rental.

If a civil authority prohibits “you” from use of the "residence premises" as a result of direct damage to neighboring premises by a covered cause of loss, “we” cover the additional living expense and fair rental value loss as provided under additional living expenses and fair rental value for no more than two weeks.

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

There is no coverage available due to the cancellation of a lease or an agreement. In other words, “your” renter decides to break the lease and permanently reside elsewhere due to a loss. Once the property is restored, coverage for fair rental value ends. If the property sits empty for three months after being repaired, “you” will not be reimbursed for the loss due to the cancellation of “your” lease. “You” may have a cause of action against “your” tenant, but do not look to the Homeowners Special Form to provide coverage.

ADDITIONAL COVERAGES

Debris Removal

Reasonable expenses will be paid for the removal of:

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

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

This expense is included in the limit of liability that applies to the damaged property. If the amount to be paid for the actual damage to the property plus the debris removal expense is more than the limit of liability for the damaged property, an additional 5% of that limit of liability is available for debris removal expense.

Reasonable expenses will also be paid, up to $500, for the removal from the "residence premises" of:

· An insured’s tree(s) which is (are) destroyed by windstorm or hail

· A neighbor's tree(s) that is (are) blown over or around by an insured peril under Coverage C if: the tree(s) damages a covered structure.

This is an important point. If the tree doesn’t fall on a covered structure, such as a house or garage, then the insured and the insured’s neighbor will be left to determine who pays without the help of the insurance company.

Note: The limit for any one loss is $500 regardless of the number of trees. This may be an issue if a large storm damages many trees in one storm.

Reasonable Repairs

If covered property is damaged by an applicable insured peril, “we” will pay the reasonable cost incurred by “you” for necessary measures taken with the sole purpose of protecting the property from additional damage. If “you” have to repair other damaged property in the process, “we” will pay for those expenses only if the property repaired is covered under the policy and the damage is covered by an applicable insured peril.

This coverage does NOT increase the limit of liability that applies to the covered property or relieve “you” of “your” duties to protect the property from further damage.

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 a resident of the "residence premises"

· 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.

Note: No more than $500 of this limit will be available for any one tree, shrub, or plant.

Additionally, it is important to remember that there is NO coverage for property grown for "business" purposes.

Fire Department Service Charge

If “you” assume liability by contract or agreement for fire department charges incurred when the fire department is called to save or protect covered property from a covered peril, there is coverage of up to $500. There is no coverage if the property is located within the limits of the city, municipality or protection district furnishing the fire department response.

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

Property Removed

If covered property is being removed from premises, which is endangered by a covered peril, the property moved will have coverage for no more than thirty days. This in no way changes coverage—it just makes coverage apply while the property is being protected.

Credit Card, Fund Transfer Card, Forgery, and Counterfeit Money

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 a fund transfer card 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. If an ATM card is stolen, someone might access the insured’s savings or checking account. If that happens, there is coverage in the policy for $500.

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

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

The instances when credit cards and fund transfer cards are covered are not without exception. There is no coverage under the following circumstances:

· 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 loss resulting from a series of acts committed by any one person or in which any one person is concerned or implicated is considered to be one loss. This is an important distinction. If an “insured’s” checkbook is stolen and fraudulent checks start cropping up everywhere, if the above limitation did not exist, the insurance company would be responsible for each and every check that is written. Assuming that one person writes all the series of fraudulent checks, there is only coverage for $500. This would also apply to a series of fraudulent ATM transactions:

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

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

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

Defense

The insurance company providing coverage has the right to investigate and settle any claim or lawsuit that they deem 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 or fund transfer card coverage, when a suit is brought against an "insured" for liability, the insurance company providing coverage will provide a defense at its expense by a counselor or its choice.

When a suit is brought for the enforcement of payment under the forgery coverage, the insurance company providing coverage has an option to defend at its expense an "insured" or an "insured's" bank against any suit.

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, when the assessment is made as a result of direct loss to the property, owned by all members collectively, caused by a covered peril under dwelling coverage—coverage A.

No coverage is available due to earthquake, land shock waves or tremors before, during or after a volcanic eruption.

No coverage is available for loss assessments charged against you or a corporation or association of property owners by any governmental body.

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 policy limit. Condition 1. Policy Period, under SECTIONS I AND II—CONDITIONS does not apply to this coverage.

Collapse

There is coverage for 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:

· Perils insured against in personal property (Coverage C). These perils apply to covered buildings and personal property for loss insured by this additional coverage;

· Hidden decay;

· Hidden insect or vermin damage;

· Weight of contents, equipment, animals, or people;

· Weight of rain which collects on a roof: or,

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

Loss to an awning, fence, patio, pavement, swimming pool, underground pipe, flue, drain, cesspool, septic tank, foundation, retaining wall, bulkhead, pier, wharf, or dock is not included under items b through f above unless the loss is a direct result of the collapse of a building.

What Collapse Does Not Include

· settling

· cracking

· shrinking

· bulging

· expansion

Note: This coverage does not increase the limit of liability, which applies to the damaged covered property.

The courts have interpreted this exclusion. For an illustration, refer to PF&M section 469_C019, “Collapse Held Covered Only According to its Popular Meaning” in Court Cases.

Glass or Safety Glazing Material

Up to $100 is available for:

· The breakage of glass or safety glazing material which is part of a covered building, storm door or storm window; and

· Damage to covered property by glass or safety glazing material, which is part of a building, storm door or storm window.

This coverage does not include loss on the "residence premises" if the dwelling has been vacant for more than 30 consecutive days immediately before the loss. A dwelling being constructed is not considered vacant.

Loss for damage to glass will be settled on the basis of replacement with safety glazing materials when required by ordinance or law.

Note: This coverage does not increase the limit of liability that applies to the damaged property.

Landlord's Furnishings

We will pay up to $2,500 for “your” appliances, carpeting and other household furnishings, in an apartment on the "residence premises" regularly rented or held for rental to others by an "insured," for loss caused only by the following named perils:

· Fire or lightning

· Windstorm or hail

What Windstorm or Hail Does Not Include

Windstorm or hail does not include loss to the property contained in a building caused by rain, snow, sleet, sand, or dust 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.

Coverage Restriction for Windstorm or Hail

This peril includes loss to watercraft and their trailers, furnishings, equipment, and outboard engines or motors, only while inside a fully enclosed building.

· Explosion

· Riot or civil commotion

· Aircraft, including self-propelled missiles and spacecraft

· Vehicles

· Sudden and accidental damage from smoke

Note: This does not include loss caused by smoke from agricultural smudging or industrial operations.

· Vandalism or malicious mischief

· Falling objects

Note: This does not include loss to property contained in a building unless a falling object first damages the roof or an outside wall of the building. Damage to the falling object itself is not included.

· Weight of ice, snow or sleet which causes damage to property contained in a building

· 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.

Note: This does not include loss to the system or appliance from which the water or steam escaped; caused by or resulting from freezing except as detailed in the peril of freezing below; or on the "residence premises" caused by accidental discharge or overflow which occurs off the "residence premises." Also keep in mind that in relation to this peril, a sump, sump pump or related equipment is not included in a plumbing system.

· 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.

Note: There is no coverage for loss caused by or resulting from freezing under this peril.

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

Note: There is no coverage included for loss on the "residence premises" while the dwelling is unoccupied, unless you have used reasonable care to maintain the heat in the building or shut off the water supply and drained the system and the appliances of any water.

· Sudden and accidental damage from artificially generated electrical current.

Note: No coverage is available for loss to a tube, transistor, or similar electronic equipment.

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

The $2,500 limit is the MOST that will be paid in any one loss regardless of the number of appliances, carpeting or other household furnishings involved in the loss.

SECTION I—PERILS INSURED AGAINST

Dwelling Coverage (Coverage A) and Other Structures (Coverage B)

This section of the policy will respond to the physical causes of loss that are specifically described in Coverage Parts A and B. Consequential (indirect) loss is not eligible for coverage. However, it is not easy to determine what situations are covered. The special form contract, in essence, states that every source of physical loss is covered EXCEPT for a wide variety of circumstances.

There Is No Coverage In The Following Instances:

· If the loss involves collapse (the exception is collapse as it is treated above in the Additional Coverage Section.)

· If freezing of a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system or of a household appliance, or causes the loss by discharge, leakage, or overflow from within the system or appliance caused by freezing. This exclusion applies only while the dwelling is vacant, unoccupied or being constructed, unless reasonable care has been taken to maintain heat in the building or the water supply has been shut off and the appliances and the system have been drained of water.

· If the loss is caused by freezing, thawing, pressure or weight of water or ice, whether driven by wind or not, to any fence, pavement, patio, or swimming pool; foundation, retaining wall, or bulkhead; or pier, wharf, or dock.

· Theft in or to a dwelling under construction, or of materials and supplies for use in the construction until the dwelling is finished and occupied.

· Vandalism and malicious mischief if the dwelling has been vacant for more than 30 consecutive days immediately before the loss. A dwelling that is under construction is not considered vacant.

· Any of the following:

1) Wear and tear, marring, deterioration;

2) Inherent vice, latent defect, mechanical breakdown;

3) Smog, rust or other corrosion, mold, wet or dry rot;

4) Smoke from agricultural smudging or industrial operation;

5) Discharge, dispersal, seepage, migration, release, or escape of pollutants unless the discharge, dispersal, seepage, migration, release, or escape is itself caused by a peril insured against under personal property coverage (Coverage C) of this policy. 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;

6) Settling, shrinking, bulging, or expansion, including resultant cracking, of pavements, patios, foundations, walls, floors, roofs, or ceilings;

7) Birds, vermin, rodents, or insects; or

8) Animals owned or kept by an "insured."

Note: If any of the above causes water damage from a plumbing, heating, air conditioning, or automatic fire protective sprinkler system or household appliance, “we” cover loss caused by the water including the cost of tearing out and replacing any part of a building necessary to repair the system or appliance. “We” do not cover loss to the system or appliance from which this water escaped. Further, no coverage is provided if this specific situation is excluded in any other part of the policy.

Excluded under Section I—Exclusions

Under the items above, any ensuing loss to property described in dwelling coverage (Coverages A) and other structures coverage (Coverage B) not excluded or excepted in this policy is covered

COVERAGE C—PERSONAL PROPERTY

The perils listed below are perils insured for direct physical loss to the property described in Coverage C unless the loss is listed in the EXCLUSION section of this policy.

· Fire or lightning

· Windstorm or hail

What Windstorm or Hail Does Not Include

Windstorm or hail does not include loss to the property contained in a building caused by rain, snow, sleet, sand, or dust 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.

Coverage Restriction for Windstorm or Hail

This peril includes loss to watercraft and their trailers, furnishings, equipment, and outboard engines or motors, only while inside a fully enclosed building.

· Explosion

· Riot or civil commotion

· Aircraft, including self-propelled missiles and spacecraft

· Vehicles

· Sudden and accidental damage from smoke

Note: This does not include loss caused by smoke from agricultural smudging or industrial operations.

· Vandalism or malicious mischief

· Theft—includes attempted theft and loss of property form a known place when it is probable that the property has been stolen

Note: In the following situations, theft is not covered:

· When the theft is committed by an "insured";

· When the theft is in or to a dwelling under construction;

· When the theft is to materials and supplies used for the construction of a dwelling until it is finished and occupied;

· When the theft is from the part of a "residence premises" rented by an "insured" to someone other than an "insured."

· Additional restrictions are listed for theft that occurs off of the “residence premises.” The situations that follow are restricted as explained or not covered:

1. Property while at any other residence owned by, rented to, or occupied by an "insured," except while an "insured" is temporarily living there.

2. Property of a student who is an "insured" is covered while at a residence away from home as long as the student has been there at any time during the 45 days immediately preceding the loss.

3. Watercraft, including their furnishings, equipment and outboard engines or motors.

4. Trailers and campers.

· Falling Objects

Note: Falling objects do not include loss to property contained in a building unless a falling object first damages the roof or an outside wall of the building. Any damage to the falling object itself is not included.

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

· 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.

Note: This does not include loss to the system or appliance from which the water or steam escaped; caused by or resulting from freezing except as detailed in the peril of freezing below; or on the "residence premises" caused by accidental discharge or overflow which occurs off the "residence premises." Also keep in mind that in relation to this peril, a sump, sump pump or related equipment is not included in a plumbing system.

· 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.

Note: There is no coverage for loss caused by or resulting from freezing under this peril.

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

Note: This peril does not include loss on the "residence premises" while the dwelling is unoccupied, unless reasonable care has been taken to maintain heat in the building and the water supply has been shut off and the appliances have been drained of water.

· Sudden and accidental damage from artificially generated electrical current.

Note: There is no coverage under this peril for loss to a tube, transistor, or similar electronic component.

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

EXCLUSIONS—SECTION I

This section is of extreme importance. The question often posed by insureds is, “Is this covered by my policy?” In order to answer this question, the first place to look is in the Exclusions section of the policy.

Both direct and indirect loss by any of the following is not covered. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. Ordinance or Law: defined as the enforcement of any ordinance or law regulating the construction, repair, or demolition of a building or other structure, unless specifically provided under this policy.

· Earth Movement: 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, unless direct loss by fire or explosion; or if breakage of glass or safety glazing material which is part of a building, storm door or storm window ensues, and then we will pay only for the ensuing loss.

Note: This exclusion does not apply to loss by theft.

· Water Damage: defined as flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind; water which backs up through sewers or drains or which overflows from a sump; or 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.

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

· Power Failure: defined as the failure of power or other utility service if the failure takes place off the "residence premises." But, if a peril insured against ensues on the "residence premises," we will pay only for that ensuing loss.

· Neglect: defined as any neglect of the "insured" to use all reasonable means to save and preserve property at and after the time of a loss.

· War: defined as any of the following and any consequence of any of the following: undeclared war, civil war, insurrection, rebellion, or revolution; warlike act by a military force or military personnel; or destruction, seizure or use for a military purpose. Even if accidental, discharge of a nuclear weapon will be deemed a warlike act.

· Nuclear Hazard: the full definition and extent is explained in the nuclear hazard clause of SECTION I—CONDITIONS.

· Intentional Loss: defined as any loss arising out of any act committed by or at the direction of an "insured”; and with the intent to cause a loss.

For two court cases, which determine whether losses were intentional, refer to PF&M section 469_C035, “Intentional Act Exclusion Held Not Applicable When Severe Injury Was Not Intended,” and refer to PF&M section 469_C036, “Intentional Damage Exclusion Held Applicable Although Damage Was More Severe Than Expected.”

We do not insure for loss to property described in Coverages A—Dwelling and Coverages B—Other Structures that is caused by any of the following. However, any ensuing loss to property described in Coverages A—Dwelling and Coverages B—Other Structures, which is not excluded or excepted in the policy, is covered.

· Weather conditions: This exclusion only applies if weather conditions contribute in any way with a cause or event excluded under Section I—Exclusions, Paragraph 1: “Both direct and indirect loss by any of the following is not covered. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.”

· Acts or decisions, including the failure to act or decide, of any person, group, organization, or governmental body.

· Faulty, inadequate or defective 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.

CONDITIONS—SECTION I

1. Insurable Interest and Limit of Liability—Regardless of the number of people who have an insurable interest in the property covered, “we” will not be liable in any one loss:

· To the "insured" for more than the amount of the "insured's" interest at the time of loss; or

· For more than the applicable limit of liability.

2. “Your” Duties After Loss—In case of a loss to covered property, the “insured” is responsible for:

· Giving prompt notice to the insurance company or the insurance company’s agent;

· Notifying the proper authorities in case of loss by theft;

· Notifying the credit card or fund transfer card company in case of loss under credit card or fund transfer card coverage;

· Protecting the property from further damage. If repairs to the property are required, the insured is required to:

1. Make reasonable and necessary repairs to protect the property; and

2. Keep an accurate record of repair expenses.

· Preparing 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.

· As often as is required by the insurance company, the insured must:

- Show the damaged property;

- Provide the insurance company with records and documents that they request and allow them to make copies; and,

- Submit to and sign examination under oath, while not in the presence of any other "insured.”

Sending to us, within 60 days after “our” request, “your” signed, sworn proof of loss which describes, to the best of “your” knowledge and belief:

· The time of loss;

· The cause of loss;

· The interest of the "insured" and all others in the property involved;

· The parties, which have liens on the property;

· Information regarding any other insurance, which may cover the loss;

· The details of any changes in title or occupancy of the property during the term of the policy;

· Any specifications of damaged buildings and detailed repair estimates;

· The inventory of damaged personal property as described in the inventory described in “Your Duties After Loss” section;

· Valid receipts for additional living expenses incurred and records that support the fair rental value loss; and

· Any evidence or affidavit that supports a claim under the credit card, fund transfer card, forgery, and counterfeit money coverage, which verifies the amount and the cause of loss.

3. Loss Settlement: Covered property losses are settled as follows:

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:

· Personal property;

· Awnings, carpeting, household appliances, outdoor antennas, and outdoor equipment, whether or not attached to buildings; and

· Structures that are not buildings.

Note: The actual cash value is the replacement cost of the item minus depreciation. If “your” client has a ten-year-old sofa that is destroyed in a fire, the insurance company won’t just write out a check for the value of a new sofa. If they did that, “your” client would actually come out ahead. The purpose of insurance is to make “you” whole again or to bring “you” back to where “you” were before...not make things better.

Buildings that are listed under dwelling coverage (Coverage A) or other structures coverage (Coverage B) are covered at replacement cost without deduction for depreciation, subject to the following conditions:

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 limit of liability under this policy that applies to the building;

· The replacement cost of that part of the building damaged for like construction and use on the same premises; or

· The necessary amount actually spent to repair or replace the damaged building.

At the time of loss, if the amount of insurance in this policy on the damaged building is less than 80% of the full replacement cost of the building immediately before the loss, the insurer will never pay more than the limit of liability under this policy. However, the company is obligated to pay the greater of the following amounts:

· The actual cash value of that part of the building damaged; or

· 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, which the total amount of insurance in this policy on the damaged building bears to 80% of the replacement cost of the building.

To determine the amount of insurance required to equal 80% of the full replacement cost of the building immediately before the loss, do not include the value of:

· Excavations, foundations, piers, or any supports which are below the undersurface of the lowest basement floor;

· Those supports in the above which are below the surface of the ground inside the foundation walls, if there is no basement; and

· Underground flues, pipes, wiring, and drains.

The insurance company will pay no more than the actual cash value of the damage until actual repair or replacement is complete. Once actual repair or replacement 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 that 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.

An insured may disregard the replacement cost loss settlement provisions and make claim under this policy for loss or damage to buildings on an actual cash value basis. The “insured” may then make claim within 180 days for any additional liability that is incurred.

Note: Reading over the above paragraphs emphasizes the point that it is very important to do a professional assessment of the replacement cost of the property. Many agents rely on their clients to tell them how much insurance is on the house currently. What if it is underinsured? Each home “you” insure should have an evaluation done to determine the proper amount for which it should be insured.

4. Loss to a Pair or Set—In case of loss to a pair or set, the insurance company may choose to:

· Repair or replace any part of the pair or set which will restore the pair or set to its value before the loss; or

· Pay the difference between actual cash value of the property before and after the loss.

5. Glass Replacement—Loss for damage to glass caused by a peril insured against will be settled on the basis of replacement with safety glazing materials when required by ordinance or law.

6. Appraisal—If the “insured” and the insurance company fail to agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, the insurance company or the “insured” may request that the choice be made by a judge of a court of record in the state where the "residence premises" is located. The appraisers will separately set the amount of loss. If the appraisers submit a written report of an agreement to the insurance company, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two would set the amount of loss. Each party will pay its own appraiser and bear the other expenses of the appraisal and the umpire equally.

Note: There has been an interesting trend developing regarding appraisals. This clause has traditionally been thought of as an effective measure to help control the frequency of insureds turning to litigation to resolve disputes. However, various states are now passing laws requiring that, in case of binding appraisal decisions that both the insurer and the insured have to agree to an appraisal.

7. Other Insurance: If a loss covered by this policy is also covered by other insurance, the insurance company will pay only the proportion of the loss that the limit of liability that applies under this policy bears to the total amount of insurance covering the loss.

8. Suit Against Us: No action can be brought unless the policy provisions have been complied with and the action is started within one year after the date of loss.

Note: This provision does not prevent a policy- holder from suing his insurance carrier. 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 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 one year of the applicable date of loss.

9. “Our” Option: If the “insured” is given written notice within 30 days after the insurance company receives the “insured’s” signed, sworn proof of loss, the insurance company may repair or replace any part of the damaged property with similar property.

Note: It is important to let a client know that 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.

10. Loss Payment: The insurance company will adjust all losses with the “insured.” The insurance company will pay the “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 “insured’s” proof of loss and after:

The insurance company reaches an agreement with the “insured.” "Insured" means “you” and residents of “your” household who are your relatives or other persons under the age of 21 and in the care of any person who meets the definition of “insured.”

· An entry of final judgment is entered; and,

· The insurance company receives filing of an appraisal award.

11. Abandonment of Property: The insurance company is not required to accept any property, which is abandoned by the “insured.”

12. Mortgage Clause: A trustee is included in the definition of the word "mortgagee."

If a mortgagee is named in the policy, any loss payable under dwelling coverage (Coverage A) or other structures coverage (Coverage B) will be paid to the mortgagee and the insured, as interests appear. If there are multiple mortgagees, the order of payment will be the same as the order of precedence of the mortgages.

If the insurance company denies the “insured’s” claim, that denial will not apply to a valid claim of the mortgagee, if the mortgagee:

· Notifies the insurance company of any change in ownership, occupancy, or substantial change in risk of which the mortgagee is aware;

· Pays any premium due under this policy on demand if the “insured” has neglected to pay the premium; and

· Submits a signed, sworn statement of loss within 60 days after receiving notice from the insurance company of the “insured’s failure to do so.

Policy conditions relating to appraisal, suits against us, and loss payment apply to the mortgagee.

If the insurance company decides to cancel or not to renew the policy, the mortgagee will be notified at least 10 days before the date cancellation or nonrenewal takes effect.

If the insurance company pays the mortgagee for any loss and denies payment to the “insured”, the insurance company subrogates all rights of the mortgagee granted under the mortgage on the property; or it is the insurance company’s prerogative to pay the mortgagee the entire principal balance on the mortgage along with any accrued interest. If the latter happens, the insurance company will require a full assignment and transfer of the mortgage and all securities that are currently held as collateral to the mortgage debt.

Subrogation will not impair the right of the mortgagee to recover the full amount of the mortgagee's claim.

13. No Benefit to Bailee: The insurance company will not recognize any assignment or grant any coverage that benefits a person or organization holding, storing, or moving property for a fee regardless of any other provision of this policy.

14. Nuclear Hazard Clause:

"Nuclear hazard" is defined as any nuclear reaction, radiation, or radioactive contamination, all whether controlled or uncontrolled or however caused, or any consequence of any of these.

Any loss caused by nuclear hazard as it is defined will not be considered loss caused by fire, explosion, or smoke, whether or not these perils are specifically named in or otherwise included within Section I—which names the perils insured against in this 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.

15. Recovered Property: If the “insured” or the insurance company recovers any property for which the insurance company has made payment under this policy, the “insured” or the insurance company will notify the other of the recovery. At the option of the “insured”, the property will be returned to or retained by the “insured” or it will become the property of the insurance company. If the “insured” keeps the recovered property, the loss payment will be adjusted based on the amount received by the “insured” for the recovered property.

16. Volcanic Eruption Period: Within a 72-hour period, all volcanic eruptions that occur will be treated as one eruption.

LIABILITY COVERAGES—SECTION II

Personal Liability (Coverage E)

If a claim is made or a suit is brought against an "insured" for damages because of "bodily injury" or "property damage" caused by an “occurrence” to which this coverage applies, the insurance company will:

· Pay up to its limit of liability for the damages for which the "insured" is legally liable. Damages include prejudgment interest awarded against the "insured."

· Provide a defense at the insurance company’s expense by counsel of its choice. This is true even if the suit is groundless, false, or fraudulent. The insurance company has full authority to investigate and settle any claim or suit that it decides is appropriate. The insurance company’s duty to settle or defend ends when the amount that is paid for damages resulting from the "occurrence" is equal to the limit of liability in the policy.

Medical Payments to Others (Coverage F)

Within three years from the date of an accident that causes “bodily injury,” the insurance company will pay the necessary medical expenses that are incurred or medically ascertained. Medical expenses include reasonable charges for:

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

This coverage does not apply to any persons who qualify under the policy's definition of insureds and this includes household residents. However, residential (domestic) employees do qualify for coverage. Further, policy coverage applies only:

· To a person on an insured location, but that person must have an insured's permission to be on that covered location (trespassers would not qualify for coverage)

· To a person who is not on an insured location when harm is related to:

1. circumstances existing either on or immediately next to a covered location

2. a covered person's actions/activities

3. actions by a person working for an insured, while performing work as an insured's domestic employee, or

4. Actions an animal that either belongs to a covered person or for which covered person may be held responsible.

EXCLUSIONS—SECTION II

1. In the following situations, personal liability (Coverage E) and medical payments (Coverage F) do not apply to physical harm or direct damage:

· That a covered person causes or expects to cause deliberately. Neither is there coverage for such losses that are related to a covered person's business activity.

It is important to be aware of the exclusion for insureds who may operate a business in their home. As an illustration, refer to PF&M section 469_C010, “Baby-sitting on a Regular Basis for Compensation Held Not Covered,” or refer to PF&M section 469_C014, Business Pursuits Exclusion Held Applicable to Wedding Reception Services”, for two pertinent court cases.

The deliberate (intentional) act exclusion applies to:

· Both acts and failure to act, when a business-related service or duty is involved with the loss.

· A situation connected to renting out any premises or portions of any premises. However, there is an exception when the rental is limited to an occasional basis and it is for residential purpose (lodging). The exception also applies to rental of covered location space as an office, school, studio, or private garage.

Note: The exception does not allow coverage for situations where a home designed for a single-family is used to house more than two renters or boarders.

· Circumstances that are, in any way, related to providing professional services

Example: An insured operates a legal office in her home. She is sued by a client who relied on the insured's legal advice on how to handle a zoning commission penalty and following the advice led to higher penalties.

· any situation involving a location that is owned or rented by an insured when that location would not fall under the meaning of "insured premises." This exclusion extends to a loss involving an ineligible premises that an insured rents out to other parties.

In other words, the liability section of the special form policy is only responsible for responding to loss exposures connected to non-business, personal activities.

· any loss connected to a motor vehicle, even trailers. The exclusion applies to vehicles an insured owns, rents, borrows, etc. It extends to all incidences of use.

· Losses due to an insured trusting any other party/entity with a motorized vehicle. This exposure is meant to be handled by either a personal or a commercial form of auto insurance, not a homeowner policy. Yet, this area is constantly challenged in the courts as a means of coverage, typically via a claim of entrustment (vicarious liability) or ambiguity (confusion over what is meant by a vehicle).

· Any loss involving an insured held vicariously liable for a minor. The exclusion applies even when the vicarious liability is due to a statute when that indirect liability involves motor vehicles. There are two exceptions. One is when the loss involves a stationary trailer (meaning one that is not being towed). The second is when the loss involves an off-road, recreational vehicle that is not subject to vehicle registration. However, such a vehicle is exempt only when it is not owned by an insured AND it is not on a covered location.

· This exclusion is inapplicable to a motorized golf cart when it is being used to play golf on a golf course or a vehicle or conveyance which is not subject to motor vehicle registration and is used to service an “insured’s” residence; designed for aiding the handicapped; or which is being held in dead storage on an “insured location.” Any loss involving ineligible watercraft is not covered. The exclusion extends to incidents alleging negligent entrustment as well as any manner of vicarious liability to minors.

The definition for excluded watercraft includes:

· watercraft that is designed to be propelled by engine power or electric motor; and,

· sailing vessels whether owned by or rented to an "insured.”

When the Excluded Watercraft Definition Does Not Apply

This definition for excluded watercraft does not include watercraft that is not sailing vessels and which are powered by inboard or inboard-outboard engine or motor power of 50 horsepower or less which are not owned by an "insured". It also does not apply to inboard or inboard-outboard engine or motor power of more than 50 horsepower, which is not owned by or rented, to an "insured". It does not apply to one or more outboard engines or motors with 25 total horsepower or less or one or more outboard engines or motors with more than 25 total horsepower if the outboard engine or motor is not owned by an "insured". It does not apply to outboard engines or motors that exceed 25 total horsepower owned by an "insured" if:

· the “insured” acquires them prior to the policy period, and the “insured” declares them at the inception of the policy or the “insured’s” intention to insure them is reported in writing within 45 days after the acquisition of the outboard engines or motors; or,

· the “insured” acquires them during the policy period.

This coverage applies for the policy period.

Note: The definition for excluded watercraft also does not apply to sailing vessels, with or without auxiliary power that are less than 26 feet long or that are 26 feet or longer but that are not owned by or rented to an “insured”. The definition also does not include watercraft that is stored.

Personal liability (Coverage E) and medical payments to others coverage (Coverage F) do not apply to “bodily injury” or “property damage”:

· arising out of the ownership, maintenance, use, loading or unloading of an aircraft; **

· the entrustment by an "insured" of an aircraft to any person**; or

· whether or not statutorily imposed, vicarious liability for the actions of a child/minor using an aircraft. **

Note: An aircraft means any contrivance used or designed for flight, except model or hobby aircraft not used or designed to carry people or cargo.

For an analysis of aircraft insurance, refer to PF&M section 330.4-2. For an example of a court case determining aircraft liability, refer to PF&M section 469_C001, “Aircraft Definition Held Not to Include a Parachute.”

· caused directly or indirectly by war, including the following and any consequence of any of the following:

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

Please Note: The discharge of a nuclear weapon will be deemed a warlike act even if accidental.

· arising out of the transmission of a communicable disease by an "insured";

· arising out of sexual molestation, corporal punishment or physical or mental abuse; or,

· arising out of 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 does not apply to the legitimate use of prescription drugs by a person following the orders of a licensed physician.

The exclusions designated by ** do not apply to "bodily injury" to a "residence employee" arising out of and in the course of the "residence employee's" employment by an "insured.”

2. Personal liability (Coverage E) does not apply to:

· Liability for any loss assessment charged against you as a member of an association, corporation, or community of property owners.

· Any contract or agreement.

Note: This exclusion does not apply to written contracts that directly relate to the ownership, maintenance or use of an "insured location" or where the liability of others is assumed by the "insured" prior to an "occurrence" unless excluded above or elsewhere in this policy.

· "Property damage" to property owned by the "insured."

· "Property damage" to property rented to, occupied, or used by, or in the care of the "insured.”

Note: This exclusion does not apply to "property damage" caused by fire, smoke or explosion or “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.

· "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 but for which the limits have already been exhausted.

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

· American Nuclear Insurers

· Mutual Atomic Energy Liability Underwriters

· Nuclear Insurance Association of Canada

· Also included is any one of the successors to these companies.

· "Bodily injury" to “you” or an "insured" within the meaning of the defined definition of insured.

3. Medical payments to others (Coverage F) does not apply to "bodily injury":

· To a "residence employee" if the "bodily injury" occurs away from the “insured location” and has no relation to the fact that the “residence employee” is working for the “insured.”

· To any person eligible to receive benefits, which are voluntarily provided, or which are required to be provided under any worker’s compensation law, non-occupational disability law or occupational disease law.

· If “bodily injury” occurs from any nuclear reaction, nuclear radiation, or radioactive contamination, regardless of how it is caused or whether it is controlled or uncontrolled. No coverage as a consequence of nuclear reaction, nuclear radiation, or radioactive contamination.

· To any person, other than a "residence employee" of an "insured," regularly residing on any part of the "insured location."

SECTION II—ADDITIONAL COVERAGES

The following items are covered in addition to the limits of liability which appear in the policy:

In relation to claims, the policy will pay expenses that the insurance company incurs and any costs that are assessed against an “insured” in any suit that the insurance company defends:

· Any premiums on bonds which are required in any suit that the insurance company defends; however, coverage is not available in excess of the limit of liability found under Coverage E. Additionally, it is not the responsibility of the insurance company to apply for or to furnish any bond.

· Reasonable expenses that are incurred by an "insured" at the request of the insurance company. These include actual loss of earnings up to $50 per day for assisting the insurance company in the investigation or defense of a claim or a suit.

· If there is an entry of judgment, the insurance company will pay any interest on the entire amount that accrues before the insurance company makes payment. This amount is limited to the part of the judgment that does not exceed the limit of liability that applies for the policy.

In relation to first aid expenses, the policy will pay expenses for first aid to others incurred by an "insured" for "bodily injury" covered under this policy. “We” will not pay for first aid to “you” or any other "insured.”

In relation to damage to property of others, the policy will pay at replacement cost, up to $500 per "occurrence" for "property damage" to property of others caused by an "insured."

“We” will not pay for "property damage" under the following conditions or circumstances:

· to the extent that an amount is recoverable under Section I of this policy;

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

· to property that is owned by an "insured";

· to property that is owned by or rented to a tenant of an "insured" or a resident in “your” household; or

· that arises out of a “business” pursuit of an "insured"; an act or omission in connection with a premises owned, rented or controlled by an "insured”, other than the "insured location"; or the ownership, maintenance, or use of aircraft, watercraft or motor vehicles, or all other motorized land conveyances.

Note: This exclusion does not apply to a motorized land conveyance designed for recreational use off public roads, not subject to motor vehicle registration and not owned by an "insured”.

In relation to loss assessment, the policy will pay up to $1000 for “your” share of loss assessment charged during the policy period against “you” by a corporation or association of property owners, when the assessment is made as a result of "bodily injury" or "property damage" not excluded under Section II (liability) of this policy. It will also pay for the liability for an act of a director, officer or trustee in the capacity as a director, officer or trustee, provided that the director, officer or trustee is elected by the members of a corporation or association of property owners; and the director, officer or trustee serves without deriving any income from the exercise of duties which are solely on behalf of a corporation or association of property owners.

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

The policy will not cover loss assessments charged against “you” or a corporation or association of property owners by any governmental body.

Regardless of the number of assessments, the limit of $1000 is the most “we” will pay for loss arising out of:

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

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

Note: An act involving more than one director, officer or trustee is considered to be a single act.

The following do not apply to this coverage:

Section II—Coverage E—Personal Liability Exclusion 2.a. (1) and Condition 1. Policy Period, under SECTIONS I AND II—CONDITIONS Policy Period. This policy applies only to loss in Section I or “property damage” in Section II, which occurs during the policy period.

SECTION II—CONDITIONS

Limit of Liability

The total liability under Coverage E for all damages resulting from any single "occurrence" will not be more than the limit of liability for Coverage E as shown in the declarations.

This limit is the same, regardless of the number of "insureds," claims made or persons injured. All "bodily injury" and "property damage" resulting from any one accident or from continuous or repeated exposure to substantially the same general harmful conditions shall be considered to be the result of one "occurrence."

The total liability under Coverage F for all medical expense payable for "bodily injury" to one person as the result of one accident will not be more than the limit of liability for Coverage F as shown in the declarations.

Severability of Insurance

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

Duties After Loss

In case of an accident or "occurrence," the "insured" will be required to:

· Give written notice to the insurance company or the agent as soon as is practical. This information should include:

(1) The identity of the policy and "insured.”

(2) Reasonably available information on the time, place and circumstances of the accident or "occurrence".

(3) Names and addresses of any claimants and witnesses.

· Promptly forward to the insurance company every notice, demand, summons, or other process relating to the accident or "occurrence."

· At the request of the insurance company, the “insured” must help:

(1) To make settlement;

(2) To enforce any right of contribution or indemnity against any person or organization who may be liable to an “insured;”

(3) With the conduct of suits and attend hearings and trials; and,

(4) To secure and give evidence and obtain the attendance of witnesses.

· Under the coverage—Damage to Property of Others—submit to the insurance company, within 60 days after the loss, a sworn statement of loss and show the damaged property, if in the "insured's" control.

· The "insured" will not, except at the "insured's" own cost, voluntarily make payment, assume obligation, or incur expense other than for first aid to others at the time of the "bodily injury."

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

The injured person or someone acting for the injured person will:

· Give the insurance company written proof of claim, under oath if required, as soon as is practical; and

· Authorize the insurance company to obtain copies of medical reports and records.

The injured person will submit to a physical exam by a doctor of the insurance company’s choice when and as often as “we” reasonably require.

Payment of Claim—Coverage F—Medical Payments to Others

Payment under this coverage is not an admission of liability by an "insured" or by the insurance company.

Suit Against Us

No action can be brought against the insurance company unless there has been compliance with the policy provisions.

No one will have the right to join the insurance company as a party to any action against an "insured." Also, no action with respect to personal injury liability can be brought against the insurance company until the obligation of the "insured" has been determined by final judgment or agreement signed by us.

Bankruptcy of an Insured

Bankruptcy or insolvency of an "insured" will not relieve the insurance company of any obligations.

Other Insurance—Coverage E—Personal Liability

This insurance is excess over other valid and collectible insurance except insurance written specifically to cover as excess over the limits of liability that apply in this policy.

SECTIONS I AND II—CONDITIONS

Policy Period

This policy applies only to loss in Section I or "bodily injury" or "property damage" in Section II that occurs during the policy period.

Concealment or Fraud

Whether before or after a loss, the entire policy will be void if an "insured"

· Intentionally conceals or misrepresents any material fact or circumstance;

· Engages in fraudulent conduct; or

· Makes false statements relating to this insurance.

Liberalization Clause

If the insurance company makes a change, which broadens coverage under this edition of “our” policy without additional premium charge, that change will automatically apply to “your” insurance as of the date “we” implement the change in “your” state, providing that the implementation date falls within 60 days prior to or during the policy period stated in the declarations. This liberalization clause does not apply to changes implemented through introduction of a subsequent edition of “our” policy.

Waiver or Change of Policy Provisions

In order to make any waivers or changes in this policy, the waiver or change must be in writing by the insurance company to be valid. “Our” request for an appraisal or examination will not waive any of “our” rights.

Cancellation

a. “You” may cancel this policy at any time by returning it to the company or by letting “us” know, in writing, the date that cancellation is to take effect.

b. The insurance company may cancel this policy only for the reasons stated below by letting “you” know, in writing; of the date cancellation takes effect. This cancellation notice may be delivered to “you” or mailed to “you” at “your” mailing address shown in the declarations.

Note: Proof of mailing will be sufficient proof of notice.

Other conditions under which cancellation may occur:

Non-payment of premium

When “you” have not paid the premium, the insurance company may cancel at any time by letting “you” know at least 10 days before the date cancellation takes effect.

Under 60 days of coverage

When this policy has been in effect for less than 60 days and is not a renewal with “us”, the insurance company may cancel for any reason by letting “you” know at least 10 days before the date cancellation takes effect.

Material misrepresentation

When this policy has been in effect for 60 days or more, or at any time if it is a renewal, the insurance company may cancel if there has been a material misrepresentation of fact which if known to “us” that would have caused “us” not to issue the policy; or

Substantial change in risk

If the risk has changed substantially since the policy was issued. Letting “you” know at least 30 days before the date cancellation takes effect can do this.

Any reason after one year

When this policy is written for a period of more than one year, the insurance company may cancel for any reason at anniversary by letting “you” know at least 30 days before the date cancellation takes effect.

Money refunded

When this policy is canceled, the premium for the period from the date of cancellation to the expiration date will be refunded pro rata. If the return premium is not refunded with the notice of cancellation or when this policy is returned to the insurance company, the company will refund it within a reasonable time after the date of cancellation takes effect.

Nonrenewal

The insurance company may elect not to renew this policy. They may do so by delivering to “you” written notice at least 30 days before the expiration date of this policy or mailing to “you” at “your” mailing address shown in the declarations. Proof of mailing will be sufficient proof of notice.

Assignment

Assignment of this policy will not be valid unless “we” give “our” written consent.

Subrogation

An "insured" may waive, in writing, before a loss all rights of recovery against any person. If not waived, the insurance company may require an assignment of rights of recovery for a loss to the extent that the insurance company makes payment. If an assignment is sought, an "insured" must sign and deliver all related papers and cooperate with the insurance company.

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

Death

If any person named in the declarations or the spouse, if a resident of the same household, dies:

a. The insurance company will insure the legal representative of the deceased with respect to the premises and property of the deceased covered under the policy at the time of death.

Note: "Insured" includes any member of “your” household who is an "insured" at the time of “your” death, but only while a resident of the "residence premises"; and with respect to your property, the person having proper temporary custody of the property until appointment and qualification of a legal representative.

COMPARISON OF ISO Pre-H0 2000 HOMEOWNERS POLICIES

The Coverage descriptions in this comparison are general. Coverages are subject to applicable Policy provisions. Most of the coverage amounts we referenced are basic limits that may be changed by endorsement.

Analysis Topic	Form 8 (1) Modified Cov.	Form 2 Broad Form	Form 3 Special Form	Form 4 Contents	Form 3 and HO-15	Form 6 Unit Owners
Eligible Risks
Owner Occupied One or two family	Yes	Yes	Yes	N/A	Yes	N/A
Owner’s builders risk	Yes	Yes	Yes	N/A	Yes	N/A
Tenant or Condo occupancy	No	No	No	Tenant	No	Condo
Cooperative unit-owner	No	No	No	Yes	No	Yes
Incidental office occupancy	Yes	Yes	Yes	Yes	Yes	Yes
Coverage For
Dwelling (One or two family)	$15,000 min. no max. (2)	$15,000 min. no max. (2)	$20,000 min. no max. (2)	N/A	$30,000 min. no max. (2)	N/A
Related Private Structures	10% of dwelling limit may be increased	10% of dwelling limit may be increased	10% of dwelling limit may be increased	N/A	10% of dwelling limit may be increased	Owned garage or storage building $1,000
Seasonal (secondary) dwelling in same or other state	$10,000 minimum under separate policy (2)	$10,000 minimum under separate policy (2)	$10,000 minimum under separate policy (2)	$10,000 minimum under separate policy (2)	$10,000 minimum under separate policy (2)	$10,000 minimum under separate policy (2)
Personal property on premises	50% of dwelling limit.	50% of dwelling limit.	50% of dwelling limit.	$6,000 minimum	50% of dwelling limit.	$6,000 minimum
Personal property away from premises (worldwide)	Same, except 10% if normally situated at another insured residence	Same, except 10% if normally situated at another insured residence	Same, except 10% if normally situated at another insured residence	Same, except 10% if normally situated at another insured residence	Same, except 10% if normally situated at another insured residence	Same, except 10% if normally situated at another insured residence
Personal property at new principal residence	Yes 30 days	Yes 30 days	Yes 30 days	Yes 30 days	Yes 30 days	Yes 30 days
Business personal property	$2,500 on premises $250 off	$2,500 on premises $250 off	$2,500 on premises $250 off	$2,500 on premises $250 off	$2,500 on premises $250 off	$2,500 on premises $250 off
Scheduled personal articles	Yes	Yes	Yes	Yes	Yes	Yes
Loss of use	10 % of dwelling limit	20% of dwelling limit	20% of dwelling limit	20% of personal property limit	20% of dwelling limit	40% of personal property limit
Trees, shrubs, lawns, and plants	Yes	Yes	Yes	Yes	Yes	Yes
Replacement cost on buildings	Yes	Yes	Yes	N/A	Yes	Building items
Replacement cost on personal property	Only by endorsement	Only by endorsement	Only by endorsement	Only by endorsement	Only by endorsement	Only by endorsement
Debris removal	Yes	Yes	Yes	Yes	Yes	Yes
Grave markers	Yes	Yes	Yes	Yes	Yes	Yes
Stamps, manuscripts, securities	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000
Vehicle powered electronic equipment	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000

Analysis Topic	Form 8 (1) Modified Cov.	Form 2 Broad Form	Form 3 Special Form	Form 4 Contents	Form 3 and HO-15	Form 6 Unit Owners
Coverage For
Trailers not used with watercraft	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000
Watercraft, including trailer and OB motor	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000
Fire department service charge	Yes $500	Yes $500	Yes $500	Yes $500	Yes $500	Yes $500
Credit card, fund transfer card, forgery, and counterfeit money	Yes $500	Yes $500	Yes $500	Yes $500	Yes $500	Yes $500
Loss assessment	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000
Fire, lightning, windstorm, hail, riot, civil commotion, aircraft	Yes	Yes	Yes	Yes	Yes	Yes
Sonic Boom	No	Yes	Yes	Yes	Yes	Yes
Explosion other than boiler	Yes	Yes	Yes	Yes	Yes	Yes
Explosion of steam boiler	Yes	Yes	Yes	Yes	Yes	Yes
Bursting of steam or hot water appliances and heating systems or air conditioning system	No	Yes	Yes	Yes	Yes	Yes
Vehicle Damage to Building	Yes, except by occupant	Yes	Yes	N/A	Yes	N/A
Vehicle damage to fences	Yes, except by occupant	Yes, except by occupant	Yes	N/A	Yes	Yes, except by occupant
Vehicle damage to driveways	Yes, except by occupant	Yes, except by occupant	Yes, except by occupant	Yes	N/A	Yes, except by occupant
Vehicle damage to walks	Yes, except by occupant	Yes, except by occupant	Yes	N/A	Yes	Yes, except by occupant
Vehicle damage to lawns, trees, shrubs, plants	Yes, except by occupant	Yes, except by occupant	Yes, except by occupant	Yes, except by occupant	Yes, except by occupant	Yes, except by occupant
Smoke -industrial operations	No	No	No	No	No	No
Smoke- fireplaces	No	Yes	Yes	Yes	Yes	Yes
Smoke - heating or cooking unit	Yes	Yes	Yes	Yes	Yes	Yes
Vandalism and malicious mischief	Yes, unless vacant + 30 days	Yes, unless vacant + 30 days	Yes, unless vacant + 30 days	Yes, unless vacant + 30 days	Yes, unless vacant + 30 days	Yes, unless vacant + 30 days
Vehicle powered electronic equipment	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000
Watercraft, including trailer and outboard motor	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000
Fire department service charge	Yes $500	Yes $500	Yes $500	Yes $500	Yes $500	Yes $500
Credit card, fund transfer card, forgery, and counterfeit money	Yes $500	Yes $500	Yes $500	Yes $500	Yes $500	Yes $500

Analysis Topic	Form 8 (1) Modified Cov.	Form 2 Broad Form	Form 3 Special Form	Form 4 Contents	Form 3 and HO-15	Form 6 Unit Owners
Coverage For
Loss assessment	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000	Yes $1,000
Fire, lightning, windstorm, hail, riot, civil commotion, aircraft	Yes	Yes	Yes	Yes	Yes	Yes
Surface water or flood	No	No	No	No	No, except personal property away from premises	No
Backing up of sewers or drains	No	No	No	No	Only for personal property away from premises	No
Discharge or overflow from plumbing (not sprinkler) systems	No	Yes, excluding repair to system	Yes, excluding repair to system	Yes	Yes, excluding repair to system	Yes, excluding repair to system
Rain through doors, windows, bad roof	No	No	Building but not contents	No	Yes	No
Freezing of plumbing (not sprinkler) heating and air conditioning systems	No	Yes, except while vacant or not occupied and heat not maintained or system drained	Yes, except while vacant or not occupied and heat not maintained or system drained	Yes, except while vacant or not occupied and heat not maintained or system drained	Yes, except while vacant or not occupied and heat not maintained or system drained	Yes, except while vacant or not occupied and heat not maintained or system drained
Falling objects, including trees	No, except from aircraft	Yes	Yes	Yes	Yes	Yes
Weight of ice, snow, sleet	No	Yes	Yes	Yes	Yes	Yes
Wind damage to trees	No	No	No	No	No	No
Collapse, as defined, of building	No	Yes	Yes	Yes	Yes	Yes
Landslide, mudslide	No	No	No	No	Yes, personal property only	No
Earthquake	No, except by endorsement	No, except by endorsement	No, except by endorsement	No, except by endorsement	Yes, personal property Dwg by endt only	No, except by endorsement
Volcanic Eruption	Yes	Yes	Yes	Yes	Yes	Yes
Personal property damage by pets	No	No	No	No	No	No
Residence glass or safety glazing material breakage	Yes, unless vacant + 30 days	Yes, unless vacant + 30 days	Yes, unless vacant + 30 days	N/A	Yes, unless vacant + 30 days	N/A
Sudden and accidental injury to electrical appliances and fixtures	No	Yes	Yes	Yes	Yes	Yes
Theft of personal property	Yes, $1000 max. for property on premises	Yes	Yes	Yes	Yes	Yes
Theft of unscheduled jewelry and furs	Yes, $1000 max. any property on premises only	Yes, $1000 limit; additional by endorsement	Yes, $1000 limit; additional by endorsement	Yes, $1000 limit; additional by endorsement	$1000 under HO-15; additional by endorsement	Yes, $1000 limit; additional by endorsement
Theft of silverware	Yes, $1000 max. any property on premises only	Yes, $2500 limit; additional by endorsement	Yes, $2500 limit; additional by endorsement	Yes, $2500 limit; additional by endorsement	Yes, $2500 limit; additional by endorsement	Yes, $2500 limit; additional by endorsement
Theft of guns	Yes, $1000 max. any property on premises only	Yes, $2000 limit; additional by endorsement	Yes, $2000 limit; additional by endorsement	Yes, $2000 limit; additional by endorsement	Yes, $2000 limit; additional by endorsement	Yes, $2000 limit; additional by endorsement
Analysis Topic	Form 8 (1) Modified Cov.	Form 2 Broad Form	Form 3 Special Form	Form 4 Contents	Form 3 and HO-15	Form 6 Unit Owners
Coverage For
Theft from unattended auto	Yes	Yes	Yes	Yes	Yes	Yes
Theft of building materials, supplies	Yes, $1,000 except under construction and before occupancy	Yes, except under construction and before occupancy	Yes, except under construction and before occupancy	Yes, except under construction and before occupancy	Yes, except under construction and before occupancy	Yes, except under construction and before occupancy
Theft in or to dwelling under construction	No	No	No	No	No	No
Mysterious disappearance	No (4)	No (4)	No (4)	No (4)	Yes	No (4)
Consequential loss to personal property (spoilage)	Yes, if a covered peril damages premise’s power, heating, cooling equipment	Yes, if a covered peril damages premise’s power, heating, cooling equipment	Yes, if a covered peril damages premise’s power, heating, cooling equipment	Yes, if a covered peril damages premise’s power, heating, cooling equipment	Yes, if a covered peril damages premise’s power, heating, cooling equipment	Yes, if a covered peril damages premise’s power, heating, cooling equipment
Property loss deductible ($250)	Yes (3)	Yes (3)	Yes (3)	Yes (3)	Yes (3)	Yes (3)
Occurrence bodily injury and property damage claims	Yes, $100,000 basic	Yes, $100,000 basic	Yes, $100,000 basic	Yes, $100,000 basic	Yes, $100,000 basic	Yes, $100,000 basic
Liability coverage off premises for owned recreational vehicles	No, except cart on golf course	No, except cart on golf course	No, except cart on golf course	No, except cart on golf course	No, except cart on golf course	No, except cart on golf course
Negligent entrustment of motor vehicles, aircraft, and watercraft	No	No	No	No	No	No
Vicarious parental liability for use by child or minor of a motor vehicle, aircraft, or watercraft	No	No	No	No	No	No
Liability for transmitting a communicable disease	No	No	No	No	No	No
Business Liability, including day care	Only by endorsement	Only by endorsement	Only by endorsement	Only by endorsement	Only by endorsement	Only by endorsement
Liability assumed by the insured in writing prior to loss	Yes	Yes	Yes	Yes	Yes	Yes
Fire legal liability	Yes	Yes	Yes	Yes	Yes	Yes
Medical Payments	Yes, $1,000 per person	Yes, $1,000 per person	Yes, $1,000 per person	Yes, $1,000 per person	Yes, $1,000 per person	Yes, $1,000 per person
Damage to Property of Others Coverage	$500 replacement cost	$500 replacement cost	$500 replacement cost	$500 replacement cost	$500 replacement cost	$500 replacement cost
Coverage under Damage to Property of Others for rented property, including rented nonregistered recreational vehicles	Yes	Yes	Yes	Yes	Yes	Yes

(1) There is no replacement cost provision in the Modified Coverage Form 8 and no requirement to insure the dwelling to 80% of replacement value. Coverage is on an ACV basis.

(2) Note: Minimum limits may vary in some states. Companies often establish own limits.

(3) Deductible may be increased up to $2,500 or reduced to $100.

(4) Probability of theft from known location is covered.

ISO Pre-HO 2000 OPTIONAL COVERAGE ENDORSEMENTS

This section briefly discusses the common coverage options available for modifying ISO’s basic HO ’91 edition homeowner policies. Where applicable, you’ll find a reference to additional articles that discuss a particular endorsement in greater detail.

IMPORTANT: this section constantly makes reference to “basic homeowner forms or policies.” In all instances, the phrase refers to policies which are not modified by optional endorsements rather than to a HO 00 01, basic form policy.

SECTION I—PROPERTY ENDORSEMENTS

Property insurance (Section I) of the Insurance Services Office’s major homeowner forms offers broad protection that is intended to handle the loss exposures created by personal property ownership and modern living conditions. While the basic property coverage handles routine situations, in many cases the insured requires additional protection that makes it necessary to modify the basic property insurance in order to meet his or her particular needs.

Analysis of Optional Endorsements

The following are brief descriptions of the coverage for important optional property endorsements that generally have countrywide application:

HO 00 15—Special Personal Property Coverage Endorsement

When attached to Form HO 00 03, the modified policy provides coverage on a "risk of direct loss" basis.

HO 03 12—Windstorm or Hail Percentage Deductible

(All Forms Except HO 00 04 and HO 00 06)

This form allows a special deductible to be applied to any loss to insured property that results from a windstorm or from hail. The deductible is a stated percentage of the limit of insurance that appears for Coverage A—Dwelling. The special deductible would apply to any wind or hail loss that occurs under any Section I (property) coverage (Coverages A, B, C or D).

HO 03 22—Windstorm Deductible

(All Forms Except HO 00 04 and HO 00 06)

This form allows a special deductible to be applied to any loss to insured property that results from a windstorm. The deductible is a stated amount and it applies to any wind loss that occurs under Section I Coverages A, B, or C. In case of a loss involving Coverage D, Loss of Use, the insurer would apply the same deductible that would apply to a fire loss.

HO 04 12—Increased Limits on Business Property

This endorsement makes provision for increasing the special limit of $2,500 on business property on the residence premises ("built in" the new editions of the major forms) up to $10,000, in increments of $2,500. The special limit of $250 on business property away from the premises is automatically increased to equal 10% of the total on-premises business property limit. HO 04 13—Sections I And II Exclusions For Computer-Related Damage Or Injury

This form is meant to limit the additional coverages granted to an insured for permitted businesses operated on the insured premises. When a “business” endorsement has been added to a policy to cover businesses such as offices, studios, day care or farming operations, the HO 04 13 acts to exclude any computer hardware or software loss that is related to the business. Specifically, the endorsement was designed to bar coverage for any bodily injury or property damage caused by a computer, accessories, peripherals, or similar equipment, which failed due to Year 2000, related malfunctions. However, the form still permits coverage for “bodily injury” that occurs either on the residence premises or away from the residence as long as the “bodily injury” occurs at the premises where the insured’s described business is located.

HO 04 14 04 91—Special Computer Coverage

(All Forms Except HO 00 03 with HO 00 15 and HO 00 06 with HO 17 31)

This endorsement expands the protection that applies to its definition of computer equipment. Instead of being covered by the Coverage C perils, this endorsement extends coverage on, roughly, the same basis as the protection which applies to Coverage A, Dwelling and Coverage B, Other Structures. Computer equipment includes computer hardware, software, and peripheral equipment such as scanners, monitors, printers, and modems.

HO 04 17—Sections I And II Exclusions For Computer-Related Damage Or Injury

This form is meant to limit the additional coverages granted to an insured for permitted businesses operated on the insured premises. When the in-home business endorsement has been added to a policy, the HO 04 17 acts to exclude any computer hardware or software loss that is related to the business. The form eliminated coverage for any bodily injury or property damage caused by a computer, accessories, peripherals, or similar equipment, which failed due to Year 2000, related malfunctions. However, the form still permits coverage for “bodily injury” that occurs either on the residence premises or away from the residence as long as the “bodily injury” occurs at the premises where the insured’s described business is located.

HO 04 18—Deferred Premium Payment

This form allows an insured the option to pay the policy premium in installments, which are identified on the declarations. The annual premium amounts are based upon the rates in effect at the time the installment is due.

HO 04 19—Sections I And II—Limited Coverage For Year 2000 Computer-Related And Other Electronic Problems

(For Use Only With The Home Business Insurance Coverage Endorsement)

This form grants an insured that has paid to protect a business with a HO 05 90, Home Business Insurance Coverage endorsement; to “buy back” limited coverage for their computer related liability to others. Of course, interpretation of coverage then becomes a challenge, as the scenario would consist of a basic HO policy form, endorsed with the Home Business endorsement, modified by attachment of the computer-related damage exclusion form, and then altered by the HO 04 19 form.

HO 04 20—Specified Additional Amount of Insurance for Coverage A—Dwelling (HO 00 02 and HO 00 03 Policies Only)

This form provides an automatic increase in protection under Coverage A. The increase is limited to either 25% or 50% above the Coverage A limit, which appears on the declarations. This is an especially useful endorsement when the insured is making improvements or adding on to the building.

HO 04 30—Theft Coverage Increase (HO 00 08 Only)

This endorsement permits increases in the theft limit of $1,000 on the HO 00 08 policy. This endorsement also can add theft coverage, subject to a set limit, for theft of property away from the premises.

HO 04 35—Loss Assessment Coverage Endorsement

This endorsement extends a policy to cover loss assessment, up to a stated limit, levied by the association for an occurrence not covered by association insurance, but involving perils within the scope of the policy. Units other than the residence premises can also be covered by the endorsement. It does not apply to assessment for earthquake loss.

HO 04 36—Loss Assessment for Earthquake Coverage Endorsement

This endorsement covers an assessment for earthquake loss, within the stated limits, not covered by endorsement

HO 04 35. Coverage is provided for loss assessments made as a result of loss caused by earthquake, including land shock waves or tremors before, during or after a volcanic eruption. Units other than the residence premises can be covered, but it is stipulated that loss assessments charged by a municipality or other corporate governing body are excluded.

HO 04 40—Structures Rented to Others Endorsement

This endorsement provides coverage for structures (other than the residence) on the described premises, rented or held for rental to others. In order to be eligible for coverage the structures have to be used for residential purposes and cannot be occupied by more than two families or more than two roomers or boarders per family. Provision is made in the endorsement for as many as three such structures, each with its own limit of liability, rented or leased in whole or in part for dwelling purposes, or held for rental or lease.

HO 04 41—Additional Insured (Residence Premises) Endorsement

This endorsement extends a homeowners policy, without additional premium charge, to cover the interest of a non-occupant joint owner in the building and for premises liability.

HO 04 42—Office, Permitted Incidental Occupancies (Residence Premises) Endorsement

This endorsement may be used, when such activity is conducted by an insured on the residence premises, to modify basic policy provisions and extend coverage to personal property associated with the activity, to the liability exposure and, if conducted in another structure on the residence premises, to the structure (for the direct damage perils insured against). The full Coverage C limit applies to property of the business described in the endorsement.

HO 04 44—Residence Premises, Three- Or Four-Family Dwelling

This endorsement changes the policy’s definition of "residence premises" so that it includes three or four family dwellings described in the policy Declarations.

HO 04 46—Inflation Guard Endorsement

This endorsement increases coverages A, B, C and D on a pro rata basis subject to a selected annual percentage increase. The available percentages are 4, 6 or 8% per year.

HO 04 48—Other (Appurtenant) Structures Endorsement

This endorsement provides an additional amount of insurance on a specific appurtenant structure at the additional premium developed from the Premium Section of the Homeowners Manual. (The HO forms providing dwelling coverage include other structures coverage, Coverage B, affording insurance on garages, storage sheds and the like on an unspecified basis in the amount of 10% of the amount of insurance under dwelling coverage.) Several structures may be identified in the endorsement, with a specific amount of insurance applicable to each as an additional limit of insurance.

HO 04 49—Building Additions and Alterations Endorsement

This endorsement may be used to cover at another location, additions, alterations, and improvements made at the insured's expense, to that part of a building rented to the insured as a residence. The location and limit of liability are specified.

HO 04 50—Increased Limits on Personal Property in Other Residences Endorsement

This endorsement is used to increase the basic limit of liability under Coverage C that applies to personal property usually situated at other residences of an insured (normally 10% of Coverage C). The location of each such residence and the increased limit applicable to it are specified in the endorsement.

HO 04 51—Building Additions and Alterations Endorsement

This endorsement gives an insured the option to increase the coverage for building additions and alterations at the additional premium developed from the Premium Section of the Homeowners Manual. This endorsement may only be used with Form HO 00 04.

HO 04 52—Livestock Collision Endorsement

This endorsement is designed for gentlemen or hobby farmers. $400 is the maximum payable for one head of livestock. No deductible applies to this protection. The policy endorsement handles either a loss caused by a collision with a vehicle during the transportation of the animal or damage suffered by livestock that is struck after wandering onto a public road. Animals eligible for coverage are cattle, sheep, swine, goats, horses, mules, and donkeys.

HO 04 53—Credit Card, Fund Transfer Card, Forgery and Counterfeit Money Coverage Endorsement

This endorsement increases the limit of liability for such property and occurrences to the optional specified limit. While Federal law has reduced the financial risk faced by the loss or theft of a credit card, it has not eliminated the need for the total coverage provided by the HO 04 53.

The credit card risk has been reduced at a time when check forgery has reached serious proportions. Coverage is provided for loss by forgery or alteration of any personal checks or similar written instruments made or drawn by or upon the insured. The endorsement also indemnifies the insured for losses from acceptance, in good faith, of counterfeit United States or Canadian paper currency. Finally, protection is included for fund transfer and automated teller machine cards.

HO 04 54—Earthquake Endorsement

This endorsement provides protection under Coverages A, B and C against losses caused by earthquake, including land shock waves or tremors before, during or after a volcanic eruption.

Coverage for masonry veneer can either be included or excluded. The deductible is usually 5%—20% of Coverage A or C, whichever is greater, and the minimum deductible is $250. One or more shocks occurring within 72 hours are considered to be a single loss event.

HO 04 56—Special Loss Settlement Endorsement

This endorsement is useful for covering an older dwelling having a market value that is less than its replacement cost. With this form an insured can maintain broader coverage, while gaining the limits flexibility of a HO 00 08 policy. With the HO 04 56 form, the insured can choose to insure a home at 50%, 60% or 70% of its replacement cost value and not be penalized under a requirement to carry limits that equal 80% to replacement value.

HO 04 61—Scheduled Personal Property Endorsement

This endorsement may be attached to a homeowners policy to provide coverage for scheduled personal property on a special form basis. The coverage is subject to certain exceptions and to individual company guidelines.

This coverage becomes particularly important where expensive jewelry and furs are at risk because of the restricted theft coverage provided by the basic homeowners policies. The endorsement is also valuable for protecting camera equipment, musical instruments, silverware, golfing equipment, fine arts, collectible stamps, and rare and collectible coins. The HO 04 61 endorsement also has an option to cover breakage of art glass windows, glassware, statuary, marble, bric-a-brac, porcelains, and similar fragile articles.

HO 04 65—Coverage C Increased Special Limits of Liability Endorsement

This endorsement may be used to increase the special limits of liability provided under the homeowners forms for jewelry, watches, and furs; money and securities; silverware, gold ware and pewter ware; and guns. The increased limit of liability and the total limit of liability may be shown either on the endorsement or elsewhere for each class of property for which an insured wishes additional protection.

HO 04 66—Coverage C Increased Special Limits of Liability Endorsement

The form provides the same coverage as the HO 04 65, Coverage C Increased Special Limits of Liability Endorsement. The difference is that this form is used with endorsements HO 00 15 or HO 17 31. Please refer to the descriptions of these forms that are found in this section.

HO 04 77—Ordinance or Law Coverage

This endorsement may be used with all homeowner policy forms and it applies to Coverage A, Coverage B and, under form HO 00 04, to building additions and alterations. It provides coverage for contingent liability due to the operation of building laws. Loss is settled on the basis of any ordinance or law regulating the construction, repair, or demolition of a covered structure.

HO 04 78—Multiple Company Insurance Section I

This form is used when an insured property is covered by more than one insurance carrier. This is usually for accommodating special circumstances such as a very high-valued dwelling. The form documents the amount of coverage provided by the particular carrier (stated as a percentage of the total of all available liability coverage) as well as indicates the total available coverage written on the insured location. If the particular carrier does not provide Section II, Liability coverage for the home, the form has space to document the policy number and name of the carrier, which does provide the liability insurance.

HO 04 80—Residence Rental Theft Endorsement

This endorsement modifies basic policy limitations in order to provide coverage for theft while the residence premises is rented occasionally to others or is rented in part to a roomer or boarder. However, still excluded are losses:

· caused by a tenant

· involving jewelry, furs, stamps, money, silverware, gold ware and pewter ware

· involving theft from the part of the residence premises rented to others that is caused by a tenant, roomer, or boarder, or

· the regular rental of the entire residence premises, or of an apartment on the residence premises.

HO 04 81—Actual Cash Value Loss Settlement

(Required with Form HO 00 08)

This option converts the loss settlement provision of a basic policy to pay losses on an actual cash value basis UNLESS it costs less to repair or replace the damaged property.

HO 04 85—FIRE DEPARTMENT CLAUSE

(Subscription Contract Services)

This endorsement is really an added policy condition and not a coverage. It requires an insured to actively subscribe to a service that provides fire-fighting services to the insured property while the homeowners policy is in force.

HO 04 86—Windstorm Exterior Paint And Waterproofing Exclusion

This form excludes any damage suffered to waterproofing materials or paint, which is caused by the wind.

HO 04 90—Personal Property Replacement Cost

This endorsement changes the settlement basis under Coverage C from actual cash value to full replacement cost. Antiques, fine arts, paintings, collector’s items, and obsolete articles are not covered for replacement cost.

HO 04 91—Coverage B—Off Premises

(For use with HO 00 02 and HO 00 03)

This endorsement extends the policy’s protection under Coverage B for other/related structures that are located away from the "residence premises." For example, it would provide coverage for a barn located on your land that is separated from your "residence premises" by another person’s or organization’s land.

HO 04 92—Specific Structures Away from the Residence Premises

This endorsement is similar to HO 04 91, but this endorsement establishes a separate limit of insurance for the structure, rather than including the coverage in the existing Coverage B limit.

HO 04 93—Actual Cash Value Loss Settlement Windstorm or Hail Losses to Roof Surfacing

(All Forms except HO 00 04)

This form converts the loss settlement provision to an actual cash value basis when the force of winds or hail causes direct damage to a roof’s surface materials.

HO 04 94—Windstorm or Hail Exclusion

This endorsement bars coverage for damage caused by winds (including hurricanes) or hail. The form also considers the time when a hurricane watch or warning is announced until 72 hours after the official end of an announced watch or warning to be a single hurricane exposure.

HO 04 95—Water Backup and Sump Overflow

This form adds protection against losses caused to covered property by water which either backs up through drains or sewers or which overflows from a sump. FYI—a sump is a pit or well where water is allowed to drain or to collect. This form provides coverage even when the overflow from a sump is due to the mechanical breakdown of a sump pump. A special deductible of $250 applies to any occurrence covered by this endorsement. This form is subject to the policy’s applicable Coverage A, B or C insurance limits.

HO 04 96—No Home Day Care Coverage

This form permits an insured to preserve the policy’s liability protection while providing day care coverage to a relative. The form only permits this service when it is provided on the insured premises. For property that is used in connection with the home day care services, the policy provides up to:

· $2,500 in coverage for property located on the residence

· $250 in coverage for property located away from the residence.

HO 04 97—Home Day Care Coverage

This endorsement provides day care liability protection under Coverages E and F for bodily injury and property damage arising out of home day care coverages for which the insured receives compensation. $2,500 of business personal property is included. Under the unendorsed homeowners policy, other structures (Coverage B) are not covered when used for business. HO 04 97 has a provision to provide a separate coverage limit to the other structures where daycare is performed.

HO 04 98—Refrigerated Property Coverage

This endorsement covers up to $500 for property on the "residence premises" that is stored in freezers or refrigerators for damage from interruption of electrical service or mechanical failure of the unit. A separate $100 deductible applies to this endorsement.

HO 04 99—Sinkhole Collapse

This endorsement provides coverage for direct loss caused by sinkhole collapse and renders the basic policy exclusion of earth movement inapplicable to such an occurrence. Sinkhole collapse means, "the physical damage suffered when underground action of water on limestone or similar rock strata causes the actual collapse or settlement of the earth supporting the damaged property."

HO 05 31—Modified Functional Replacement Cost Loss Settlement

(Form HO 00 02 and HO 00 03 only)

This form is used with either form HO 00 02 or HO 00 03 and it replaces the basic policy’s loss settlement provision. The revised provision requires losses to covered property under Coverage A or Coverage B to be settled according to the limit of insurance which applies to the property or the cost to repair or replace the damage property with functional equivalents, whichever option is cheaper. This provision is used ONLY IF the insurance limit represents at least 80 percent of the home’s functional replacement cost. If the insurance limit is less than 80 percent; the loss is settled on an actual cash value basis.

HO 05 80—Property Remediation for Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability Coverages—All Forms Except Forms HO 00 04 and HO 00 06

This endorsement provides limited property and liability protection against losses caused by exposure to lead and by liquid fuel that escapes from its intended receptacle. The form alters the policy’s coverage by modifying the policy’s definition of “residence premises” and by adding the following new defined terms:

· Covered real property;

· Covered personal property; and

· Fuel system.

The added property coverage is a limited amount of protection against damage to the insured’s property that is caused by the escape of liquid fuel. It will reimburse the insured for damage to the insured’s dwelling, land upon which the dwelling is located, and personal property that is located within the residence premises. Coverage is also provided for an insured’s out-of-pocket expense to prevent further damages and to clean up or dispose of property damaged by liquid fuel.

The endorsement provides up to 5% of the property’s insurance limits to cover damaged trees, shrubs, and plants, but no more than $500 for any single tree, shrub, or plant. The policy’s Additional Living Expense is also expanded to reimburse extra costs faced by an insured whose home becomes unlivable due to being damaged by escaped liquid fuel.

Please see the liability section for information on the liability coverage provided by this endorsement.

HO 05 81—Property Remediation for Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability Coverages—Form HO 00 04 Only

Please refer to the description of coverage for endorsement HO 05 80. This form applies only to HO 04 policies.

HO 05 82—Property Remediation for Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability Coverages—Form HO 00 06 Only

Please refer to the description of coverage for endorsement HO 05 80. This form applies only to HO 06 policies.

HO 05 83—Rating Information—Property Remediation for Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability Coverages

This form is used in connection with ISO’s Property Remediation for Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability Coverages endorsements. It provides information on how to rate submissions for this aggregated coverage.

HO 05 90—Home Business Insurance Coverage

This endorsement is quite extensive, with the structure of a self-contained policy. It provides both property and liability coverage for losses related to a described business that is operated in the insured’s residence or other structure, such as an unattached garage, that is located on the residence premises.

The endorsement consists of a schedule for describing the business, the limit of insurance, the form of business entity, space for providing any information on loss payees and for indicating the limit of insurance for the liability coverages. Specifically, the endorsement consists of:

· Schedule

· Definitions (with 18 defined terms)

· Section I—Property Coverages

· Section II—Business Liability Coverage

Besides protection under Coverages A, B, and C of the basic policy, the endorsement also offers coverage for:

· trees, plants, and shrubs grown for commercial purposes

· losses related to credit card loss and counterfeit money

· accounts receivable

· valuable papers and records

· business income

· extended business income

· extra expense and

· losses caused by the action of Civil Authorities.

In addition to the basic policy’s Section I exclusions, the endorsement also excludes loss due to Dishonesty and False Pretense.

See the liability section for more information on this endorsement’s liability coverages.

HO 17 31—Unit-Owner's Coverage C

Provides similar coverages as HO 00 15, but for the condominium coverage form HO 00 06 Coverage C personal property.

HO 17 32—Unit-Owners Coverage A (Special Coverage)

May be attached to convert the "built-in" coverage under HO 00 06 that applies to additions and alterations made by an insured from a broad form to a special form basis.

HO 17 33—Unit-Owners Rental to Others Endorsement

This removes pertinent policy exclusions and extends coverage for personal property, including theft (but not theft of silver- or gold-plated ware or personal records) when the premises are regularly rented to others. The endorsement also extends personal liability coverage to the rental of the residence premises.

HO 23 43—No Section II—Liability Coverages For Home Day Care Business Limited Section I—Property Coverages For Home Day Care Business

This form is designed to be attached to the policies of homes, which include a home day care exposure. While liability arising out of this business exposure is excluded under Section II, the form provides up to:

· $2,500 in coverage for property located on the residence

· $250 in coverage for property located away from the residence.

The endorsement ALSO EXCLUDES any business exposure for an “other structure” that is used in a day care operation.

HO 23 51—Additional Limits of Liability For Coverages A, B, C and D

(Forms HO 00 02 and HO 00 03 Only)

Simply put, this endorsement provides coverage for property losses which exceed the written insurance limits shown on the declarations for Coverages A, B, C and D. The endorsement modifies the policy to provide whatever additional amount of coverage is necessary to cover the severe claim. However, an insured has to comply with strenuous requirements such as agreeing to give an insurer at least 30 days advance notice of any modifications or renovations as well as comply with inflationary increases in the insured home’s value. The increase may also include the impact of an ordinance or law that requires an insured to rebuild or repair a home according to local building and safety codes. Note that this option is only available for the Broad and Special Form homeowner policy forms.

HO 23 52—Specified Additional Amount of Insurance For Coverage A—Dwelling

(Forms HO 00 02 and HO 00 03 Only)

This form offers coverage on nearly the same basis as the HO 23 51 endorsement. It also provides coverage for property losses which exceed the written insurance limits shown on the declarations for Coverages A, B, C and D. However, instead of modifying the policy to provide whatever additional amount of coverage is necessary to cover total losses, a specified percentage of protection is granted. As with the HO 23 51, an insured has to comply with strenuous requirements such as agreeing to give an insurer at least 30 days advance notice of any modifications or renovations as well as comply with inflationary increases in the insured home’s value. The increase may also include the impact of an ordinance or law that requires an insured to rebuild or repair a home according to local building and safety codes. Note that this option is only available for the Broad and Special Form homeowner policy forms.

ISO HOMEOWNERS OPTIONAL LIABILITY ENDORSEMENTS—SECTION II

These endorsements are designed to expand coverage under a policy to protect the insured against third party claims arising from exposures peculiar to his property and activities that are not basically covered under the HO 00 02.

The endorsements are HO 00 03, HO 00 03 plus the HO 00 15, HO 00 04, HO 00 06 and the HO 00 08 forms. Optional endorsements are available to cover a variety of situations such as:

· when an additional residence is maintained,

· instances when certain types of residence employees are retained by an insured, or

· when professional, private school or studio occupancy exists.

Analysis of Optional Liability Endorsements

The following are brief descriptions of the coverages to expand Section II of a homeowners policy to apply to risk situations that are frequently encountered. These forms require additional premium.

HO 04 13—Sections I And II Exclusions For Computer-Related Damage Or Injury

This form is meant to limit the additional coverages granted to an insured for permitted businesses operated on the insured premises. When a “business” endorsement has been added to a policy to cover businesses such as offices, studios, day care or farming operations, the HO 04 13 acts to exclude any computer hardware or software loss that is related to the business. The form was intended to prevent coverage for any bodily injury or property damage caused by a computer, accessories, peripherals, or similar equipment, which failed due to Year 2000, related malfunctions. However, the form still permits coverage for “bodily injury” that either occurs on the residence premises or away from the residence as long as the “bodily injury” occurs at the premises where the insured’s described business is located.

HO 04 15 09 98—Section II—Limited Coverage For Year 2000 Computer-Related And Other Electronic Problems

This form allows an insured who has paid to protect a business with either a Home Day Care, Permitted Incidental Occupancies, Farmers Personal Liability, or Business Pursuits endorsement to “buy back” limited coverage for their computer related liability to others. Of course, interpretation of coverage then becomes a challenge as the scenario would consist of a basic HO policy form, endorsed with one of four “business” endorsements, modified by attachment of the computer-related damage exclusion form, and then altered by the HO 04 15 form.

HO 04 17 09 98—Sections I And II Exclusions For Computer-Related Damage Or Injury

This form is meant to limit the additional coverages granted to an insured for permitted businesses operated on the insured premises. When the in-home business endorsement has been added to a policy, the HO 04 17 acts to exclude any computer hardware or software loss that is related to the business. Specifically, the endorsement bars coverage for any bodily injury or property damage caused by a computer, accessories, peripherals, or similar equipment, which failed due to Year 2000 related malfunctions. However, the form still permits coverage for “bodily injury” that either occurs on the residence premises or away from the residence as long as the “bodily injury” occurs at the premises where the insured’s described business is located.

HO 04 40—Structures Rented to Others Endorsement

This endorsement provides coverage for appurtenant structures on the described premises, rented or held for rental to others, provided that such structures are used for residential purposes and are not occupied by more than two families or more than two roomers or boarders per family. The endorsement allows for as many as three such structures to appear in the form. Each eligible building would be shown with its own limit of insurance. Eligible buildings are those which are rented or leased in whole or in part for dwelling purposes, or which are held for rental or lease.

HO 04 97—Home Day Care Coverage Endorsement

This endorsement is used to extend Section II of a homeowners policy to cover a day care business operated on the residence premises. The endorsement does not cover losses arising from physical or mental abuse, a reasonable exclusion that should be made known to the insured. Coverage is provided as an annual aggregate limit of liability. The pertinent manual rule provides a rate for the care of one to three persons other than insureds. The company will determine eligibility and rating for larger exposures.

The home day care form also makes provision for expanding Section I coverage for such a business operation. The policy limit of $2,500 for business personal property is replaced, with respect to the home day care operation, with a provision including such property under the Coverage C limit. If the activity is conducted on the residence premises in a structure other than the dwelling described in the declarations, the endorsement makes provision for removing the structure from Coverage B and making a selected amount of specific insurance applicable to it.

HO 05 80—Property Remediation for Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability Coverages—All Forms Except Forms HO 00 04 and HO 00 06

This endorsement provides limited property and liability protection against losses caused by exposure to lead and by liquid fuel that escapes from its intended receptacle. The form alters the policy’s coverage by modifying the policy’s definition of “residence premises” and by adding the following new defined terms:

· Covered real property;

· Covered personal property; and

· Fuel system.

The added liability coverage is for protection against either “bodily injury” or “property damage” liability that is caused by the escape of liquid fuel from a “fuel system” or by lead contamination. The liability has to be a result of conditions on the residence premises. The limit of insurance that applies to escaped fuel and lead liability is an aggregate limit. In other words, each occurrence, which is paid during the policy period, reduces the amount of coverage available. Once the limit is exhausted, no more coverage is available during the policy period. The policy provides coverage for Loss Assessment to an insured that’s assessed by a property association for damage caused by escaped fuel or lead contamination.

Please see the property section for information on the property coverage provided by this endorsement.

HO 05 81—Property Remediation for Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability Coverages—Form HO 00 04 Only

Please refer to the description of coverage for endorsement HO 05 80. This form applies only to HO 04 policies.

HO 05 82—Property Remediation for Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability Coverages—Form HO 00 06 Only

Please refer to the description of coverage for endorsement HO 05 80. This form applies only to HO 06 policies.

HO 05 83—Rating Information—Property Remediation for Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability Coverages

This form is used in connection with ISO’s Property Remediation for Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability Coverages endorsements. It provides information on how to rate submissions for this aggregated coverage.

HO 05 90—Home Business Insurance Coverage

This endorsement is quite extensive, with the structure of a self-contained policy. It provides both property and liability coverage for losses related to a described business that is operated in the insured’s residence or other structure, such as an unattached garage, that is located on the residence premises.

The endorsement consists of a schedule for describing the business, the limit of insurance, and the form of business entity, space for providing any information on loss payees and for indicating the limit of insurance for the liability coverages. Specifically, the endorsement consists of:

· Schedule

· Definitions (with 18 defined terms)

· Section I—Property Coverages

· Section II—Business Liability Coverage

Please see the property section for information on the property coverage provided by this endorsement.

The endorsement provides liability coverage to protect an insured against losses for which he or she is liable to others because of their described business operations. Specifically, liability coverage, on an aggregate limit basis, is provided for insurance for completed operations, certain other business liability, and Medical Payments to others. However, this portion of the endorsement excludes losses arising out of:

· professional services

· advertising injury

· damages to impaired property

· damages to certain types of property

· damages to an insured’s product or work

· employer’s liability

· personal or advertising injury

· pollution

· product or work that is recalled.

HO 23 43—No Section II—Liability Coverages For Home Day Care Business Limited Section I—Property Coverages For Home Day Care Business

This form is designed to be attached to the policies of homes, which include a home day care exposure. While liability arising out of this business exposure is excluded under Section II, the form provides up to:

· $2,500 in coverage for property located on the residence

· $250 in coverage for property located away from the residence.

The endorsement ALSO EXCLUDES any business exposure for an “other structure” that is used in a day care operation.

HO 24 13—Incidental Motorized Land Conveyances

This endorsement adds coverage for vehicles (not golf carts, motorized bicycles, or mopeds) not licensed for road use and incapable of going more than 15 MPH or used in business.

HO 24 43—Permitted Incidental Occupancies (Other Residence) Endorsement

This endorsement is available to provide liability insurance for incidental business activity conducted by an insured at premises situated at another address.

HO 24 64—Snowmobile Endorsement

This endorsement may be attached to policies in many states to provide personal liability coverage and medical payments coverage for owned snowmobiles that are scheduled. (Refer to appropriate State Pages in the Homeowners Manual.) Such property is not basically covered under the major homeowners forms. A premium charge applies separately to each snowmobile and varies according to the limits of liability selected. Complete coverage for snowmobiles, including physical damage insurance, may be arranged under a separate policy designed for snowmobiles and other recreational vehicles.

HO 24 70—Additional Residence Premises—Rented to Others Endorsement

This endorsement provides coverage for additional one or two, or three or four, family residence premises, rented to others, owned by the named insured or spouse, at an additional premium developed from the Premium Section of the Homeowners Manual. The endorsement extends the definition of "insured premises" contained in the policy to include designated premises under Coverage E (personal liability coverage).

HO 24 71—Business Pursuits Endorsement

This endorsement may be attached to a homeowners policy to provide coverage for the liability of an insured arising out of business activities, other than a business of which the insured is sole owner or a partner. Rates are shown in the Premium Section of the Homeowners Manual for clerical office employees; salespersons, collectors, or messengers; and teachers with and without coverage of liability for corporal punishment included. See the reference to HO 04 97 at the end of this discussion for information on protection for day care providers. Refer to the company for rates applicable to other occupational classifications.

HO 24 72—Incidental Farming Personal Liability Endorsement

This endorsement extends coverage to incidental farming at the residence premises. Farming on a commercial basis is no longer eligible as it had been under earlier homeowners policies

HO 24 73—Farmers Comprehensive Personal Liability Endorsement

This endorsement may be attached to a homeowners policy to cover farm liability exposure of a risk, which would otherwise qualify for coverage under a basic, ISO homeowner policy. Since the intent is to cover modest farm operations, the endorsement does not cover farms which supply commodities for manufacturing or processing by the insured for sale to others, such as creameries and dairies (but not dairy farms), farms operating freezing or dehydrating plants, and poultry factories. The word "processing" does not apply to:

· the slaughtering and dressing of livestock;

· operations like bunching of vegetables or crating of berries;

· farms where the principal purpose of the farm is the raising and using of horses for racing purposes; or,

· incorporated farms.

This endorsed coverage may be extended to include employer’s liability insurance, including medical payments, for farm employees of any insured. Animal collision coverage may also be made effective with a specified limit per animal.

HO 24 74—Three or Four Family Dwelling Premises Liability Endorsement

This endorsement extends liability coverage for the owner-occupant of a 3 or 4 family dwelling to include that portion of the described premises used for residential purposes not occupied by the named insured as his private residence. Medical payments to others coverage is included under this endorsement. The additional premium is developed from the Premium Section of the Homeowners Manual. The endorsement is available for use only in conjunction with Form HO 00 04. Property coverage for the building is presumably being carried under other insurance.

HO 24 75—Watercraft Endorsement

This endorsement provides coverage for an outboard motor or combination of outboard motors of more than 25 total horsepower or for watercraft not basically covered under a homeowners policy. Premiums are shown in the Premium Section of the Homeowners Manual for each outboard motor less than 50 horsepower and for those 50 horsepower and over; inboard or inboard-outdrive motorboats; and sailboats over 26 feet in length. Refer to the company for any boat with an inboard motor. Coverages for other boat types are available under yacht policies. The new edition of the endorsement is revised to track with the basic policy exclusion of all inboard or inboard-outdrive motors.

HO 24 82—Personal Injury Endorsement

This endorsement may be added to a policy under ISO's current Homeowners Program to amend the definition of "bodily injury" in personal liability coverage to include "personal injury." The concept of "personal injury" means injury arising out of false arrest, detention or imprisonment, or malicious prosecution; libel, slander, or defamation of character; invasion of privacy; or wrongful eviction or wrongful entry. Important exclusions include injury arising out of business pursuits or civic or public activities performed for pay.

It has been made clear in the latest editions of the endorsement that coverage is provided for an indemnity obligation assumed by the insured under a written contract relating directly to the ownership, maintenance or use of the premises.

Personal injury coverage is included in personal umbrella liability policies. Credit will likely be allowed in the premium for such a policy carried by an insured whose homeowners policy is endorsed to include the coverage.

RISK OF DIRECT LOSS HOMEOWNERS POLICY

Coverage for dwellings and personal property on an open perils basis is provided in the ‘91 edition of the ISO Homeowners Program by using Special Personal Property Coverage Endorsement HO 00 15 with Special Form HO 00 03. The policy protects owner-occupied dwellings; private structures related to dwellings and unscheduled personal property located either on or away from the premises, anywhere in the world. There is also coverage for loss of use of a covered dwelling that is caused by the occurrence of an insured property loss. The endorsed policy also includes the following coverages:

· Comprehensive Personal Liability insurance

· Medical Payments coverage

· Physical Damage to Property of Others

Various endorsements are available for optional use to expand the scope of coverage or to adapt it more specifically to an insured’s needs. This policy is designed for families whose primary concern is to be covered with the most complete insurance protection available for their real and personal property. Ownership of very high quality and expensive property usually inspires desiring a high level of coverage. With this in mind, close attention should be paid to the special limits of liability under personal property Coverage C that applies to specified classes of property. Insureds who are attracted to very broad coverage would also be concerned about the severe limitations placed on property such as silverware, jewels, and money. A method to handle this problem would be to add the Coverage C Increased Special Limits of Liability Endorsement, HO 04 65. This form may be used to raise the amount of insurance on such property. Another method for expanding coverage is to schedule valuable items for their full value under Scheduled Personal Property Endorsement HO 04 61. The advantage of the latter method is that scheduled items are removed from the overall limit of insurance applicable to Coverage C, preserving it for unscheduled property.

DWELLING AND OTHER STRUCTURES

The "risk of direct loss" policy that is available under the ‘91 edition of the ISO Homeowners Program uses special form HO 00 03 as the basic form

PERSONAL PROPERTY COVERAGE

Attaching a Special Personal Property Coverage Endorsement HO 00 15 endorsement to a HO 00 03 replaces the form’s Section I Perils Insured Against. The substitute is a "risk of direct loss" provision for personal property Coverage C. The result is that personal property protection is granted on the same basis as it is under Coverages A and B rather than on a named perils basis.

PERSONAL PROPERTY SPECIAL LIMITS

The special limits of insurance applicable to certain classes of property in all of the major homeowners forms are modified with use of the Special Personal Property Endorsement HO 00 15, in three respects. The impact is due to the "risk of direct loss" nature of the coverage provided for personal property. The major homeowner forms include limitations for loss by theft on the following classes of valuable personal property:

· jewelry and furs,

· silverware, gold ware and pewter ware, and

· firearms

The endorsement re-directs the special limits. As amended by the HO 00 15 form, the sublimit applies only to losses involving "theft, misplacement or loss (mysterious disappearance) of such property.

EXCLUSIONS

The endorsement includes special application of several exclusions:

Earth movement – under the special form HO 00 03 and all of the other major homeowners forms, the exclusion applies only to the coverage for the dwelling and other structures. The restriction does not apply to personal property coverage, under the "open perils" homeowner policy.

Water damage – the endorsement modifies the water damage exclusion so that it does not apply to covered personal property while it is located away from "a premises or location owned, rented, occupied, or controlled by an insured”. There is coverage in such circumstances.

Example: Mallory has a HO 03 policy with a HO 15 form attached to it. Mallory goes on an out-of-state visit to see her twin sister, Pallory. The highlight of her visit was rushing out of her sister’s home to escape a flash flood. The flood was caused by a sudden, torrential storm.

Mallory and her sister’s family have to stay in a hotel and it takes several days for the waters to recede. The lower floor of her sister’s home was severely water damaged. Mallory’s imported leather luggage and her travel wardrobe are ruined. Since the water damage took place away from any location owned or controlled by Mallory, the loss is covered by her policy.

Collapse - Under Section I Additional Coverages of Form HO 00 03, the form states that the limitations specified for collapse coverage apply only to Coverages A (dwelling) and B (other structures), not to personal property Coverage C.

ISO Pre HO 2000 HO BROAD FORM COVERAGE ANALYSIS

The following is a detailed analysis of the ISO (Insurance Services Office) Homeowners Coverage Broad Form Policy which includes examples and, where possible, relevant court cases.

Agreement

The insurer agrees to provide homeowner’s insurance on the basis described in the policy. In exchange for this protection, the insured must pay the policy premium AND comply with the required policy provisions. The insured's obligation is not either/or. He or she has to meet both conditions in order to qualify for coverage. Faithful premium payments will not convince an insurer to overlook an insured that destroys his home on purpose to collect the money to cover some unrelated medical bills. The reverse is also true. Submitting a request for coverage on a type of claim that is covered by the homeowner’s policy is meaningless if the policy lapsed two years ago because the premiums went unpaid.

Definitions

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

"You" and "your"

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

"Our," "us," and "we"

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

After the above two definitions appear in the policy’s opening paragraph, eight additional terms follow.

"Bodily injury"

This term refers to a variety of physical injury such as sickness, disease, or bodily harm, and includes any resultant death.

"Business"

This term refers to any activity having the goal of generating personal income whether the activity is a trade, occupation, or profession.

Note: The policy states that trade, occupations, and professions are included in the term. There is no mention of length of time or how much income is involved with an activity. Therefore, many instances would qualify as a 'business."

Example: Jan Duzitall, a parent of an eighth grader, agrees to run the fundraising for the eighth grade's trip to England. The fundraising period lasts 6 months and involves a wide variety of work-intensive events including weekend spaghetti dinners, bake sales, raffles, (and a complex pyramid scheme which won’t be discussed here). Because of the hard work and difficulty of finding volunteers, Jan is paid $500 by the PTA to handle the fundraising. When a parent who is injured while helping at an event sues Jan, Jan is denied coverage. Because she was paid, the insurer considers her participation to be a business activity.

"Insured"

The Broad Form homeowner’s policy considers all of the following to be insureds (with notes on any exceptions):

· you - (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 or spouse as their caregiver.

Other persons gain status as insureds under the liability portion of the homeowner policy:

· any person or entity, which has legal responsibility for either animals or watercraft, that qualifies for coverage under the homeowner policy.

Examples:

- a 10-year-old neighbor who cares for an insured's dog would qualify as an insured

- a friend who rents an insured's lawnmower to cut a school or church playground's lawn would not be an insured

- a friend from work who borrows an insured's canoe would qualify as an insured

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

· any person who works 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.

“Insured location”

This term refers to a variety of circumstances, which include 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: Tom’s home is covered by a Broad Form policy and so is a small cottage on a lot that adjoins Tom's house at the moment that Tom buys the building and land.

· any premises that is related to property covered by a Broad Form policy AND which is used by an insured

· a premises that IS NOT owned by an insured but becomes an insured location while it’s used by an insured as a residence

Example: A hotel room while reserved and used by an insured (for personal rather than business activity).

· vacant land that is owned by or rented to an insured EXCEPT farmland

Example: An insured rents a grassy lot in the middle of a city for a family picnic.

· land that contains a structure that will eventually be an insured’s (1 through 4) family residence

Note that the building has to be intended as an insured’s residence. Land where an insured is building rental property 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 premise, which is rented by and used by an insured

“Occurrence”

This term refers to an accident that causes "bodily injury" or "property damage" during the policy period. A repeated exposure to similar conditions is also considered an “occurrence” IF it takes place within the policy period.

"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.

“Residence Employee”

This term refers to a person with job duties related to the ordinary use of a covered dwelling and related property. The duties may include premises maintenance, cleaning, cooking, etc. A person may qualify as a residence employee even when such tasks occur at another location. However, regardless of the nature of the work, it is barred from protection if it is related to an insured’s business activity.

Example: Clyde is a cook who works for Johnson. While a cook is potentially eligible as a residence employee, Clyde works for Johnson’s Catering, which is run from Johnson’s home. Clyde is disqualified as a residence employee because he is a business employee, not a residence employee.

"Residence Premises"

Refers to a one- or two-family house that is used mainly for family residential purposes.

The term also applies to the part of ANY other building where an insured lives as well as any other structures and grounds that exist at that location. HOWEVER, that location must be listed on the policy declarations as the residence premises.

Dwelling Coverage - Coverage A

This section explains the coverage available for the dwelling itself. The term dwelling does not apply only to the dwelling on the “residence premises” which is shown on the declarations. The dwelling also includes any structures which are attached to the dwelling and materials and supplies which are located on or next to the “residence premises” if such material is being used to construct, alter, or repair the dwelling or other structures on the “residence premises.”

Example: One of your insureds is building an addition onto her home. On the day that the insulation is delivered it is destroyed by a fire at the construction site (the insured’s premises). The uninstalled insulation that was consumed in the fire is covered under Coverage A. Even though it was not part of the dwelling, the end use for the insulation was intended to be part of the house so, therefore, it is covered. Not included in this coverage is the land on which the dwelling is located.

Example: During a tornado, a tree is uprooted in an “insured’s” lawn and damages the roof over the porch of her home. The roof will be covered but the damage to the lawn caused by the tree’s displacement is not covered.

When insuring a home, care should be taken to determine its proper replacement value. In other words, the insurance limit selected for a home should be minus any land value. In many regions, the lot upon which the dwelling is built will be far more valuable than the dwelling itself. Therefore, the market value of the home is a weaker indicator for determining its insured value.

Other Structures Coverage - Coverage B

Additional structures located on the "residence premises" are also covered under this form. However, certain criteria must be met in order for the policy to extend coverage. The structure must be located away from the dwelling and separated by clear space. Included in what is considered a clear space are structures that are connected only by fences, utility lines, or similar types of connecting devices. Again, this coverage does not apply to land, including the land upon which the other structure sits.

Other structures, which are used in any “business” activity, are disqualified from coverage including those, which an “insured” rents to the public.

Example: To earn extra money, a homeowner decides to dabble in the antique business. On the weekends, the client goes to antique shows with his various collections and sells antiques. Business is good and since the client lives on a well-traveled street, she puts a little sign out that says, ANTIQUES and points to the garage. People stop by and purchase antiques. Lightning strikes the garage and it burns to the ground. There is NO COVERAGE for the garage. It is used for a “business.”

There is an important exception to this business exclusion. Coverage is provided for structures rented for garaging.

Example: A homeowner wants to earn some extra money, so she rents out her detached garage as a private garage for her neighbor. The neighbor doesn't have space for her teenager's car and she rents the garage so that it is sheltered and more secure. Later, lightning strikes and burns down the garage. It is covered because, although rented out to another party, it is being used as a private garage. The use does not increase the insurance company's overall loss exposure.

The limit of insurance for other structures is restricted to a maximum of 10 percent of the limit assigned to the covered dwelling (no more than 10% of the Coverage A limit.) Further, this coverage is an additional amount of protection that doesn’t affect the Coverage A amount.

Example: A severe windstorm completely destroys a home and a freestanding garage. The home was insured for $127,000 and the garage for one-tenth of this amount ($12,700). The entire $12,700 is required to replace the garage, but this still leaves $127,000 to cover the home. In other words, a total of $144,700 is available to cover both the dwelling and the garage.

Personal Property Coverage - Coverage C

Personal property belonging to or used by an “insured” is protected on a worldwide basis. The policy’s protection can be extended by the “insured.” For instance, at the insured’s request, coverage is granted for personal property belonging to:

· others when the property is on the part of the “residence premises” which is occupied by the “insured,”

· guests or a "residence employee,” if their property is in any residence occupied by an “insured.”

If the insured has personal property that is usually kept at another premises, coverage for that property is restricted. The maximum coverage for such property is 10% of the Coverage C insurance limit or $1,000, whichever is the higher amount. This limitation does not immediately apply for an “insured” who buys a new principal residence. The entire Coverage C insurance limit is available for property kept at the new residence for up to 30 days after property is relocated to the new purchase. On day 31, the 10 percent limit again takes effect.

Personal Property Special Limits

Certain items (listed below) have specific coverage limitations. These special coverage maximums do not increase the personal property (Coverage C) insurance limit.

$200 SUBLIMIT

· money

· bank notes

· bullion

· gold other than gold ware

· silver other than silverware

· platinum

· coins and medals

$250 SUBLIMIT

· property that is:

-located away from the "residence premises," and

-used for any "business" purpose

$1,000 SUBLIMIT

securities	accounts	deeds	evidences of debt
letters of credit	notes other than banknotes	manuscripts	personal records
passports	tickets and stamps	watercraft, including their trailers, furnishings, equipment, and outboard engines or motors	trailers not used with watercraft
theft loss to jewelry, watches, furs, and gemstones	* loss to electronic apparatus

* The exclusion for loss to electronic apparatus applies while it is in or upon a motor vehicle or other motorized land conveyance (if the electronic apparatus is equipped to be operated by power from the electrical system of the vehicle or conveyance while retaining its capability of being operated by other sources of power). Electronic apparatus includes accessories or antennas, tapes, wires, records, discs, or other media for use with any electronic apparatus.

Note: The sublimit applying to valuable papers is in effect regardless of how the papers are stored. This sublimit includes the cost to research, replace, or restore the information from the lost or damaged material.

$2,000 SUBLIMIT

· loss by theft of firearms

In other words, guns or rifles lost in a fire would be covered according to their actual value, rather than be capped by the sublimit.

$2,500 SUBLIMIT

· loss by theft of silverware

· silver-plated ware

· gold ware

· gold-plated ware

· pewter ware

Note: This includes flatware, hollowware, tea sets, trays, and trophies made of or including silver, gold, or pewter.

· property, on the "residence premises," used at any time or in any manner for any "business" purpose

Personal Property Not Covered.

Under Coverage C--personal property—the following types of property are ineligible for coverage:

· animals, birds, or fish

· motor vehicles or all other motorized land conveyances including their equipment and accessories. For more information regarding personal autos, refer to PF&M section 410.2.

· electronic apparatus that are designed to be operated solely by use of the power from the electrical system of motor vehicles or all other motorized land conveyances. Electronic apparatus includes:

- accessories or antennas, or

- tapes, wires, records, discs, or other media, for use with any electronic apparatus.

Note: The exclusion of property described in 1 and 2 above applies only while the property is in or upon the vehicle or conveyance. Why is this? The property is considered to be better covered elsewhere; such as in an auto policy, which generally affords coverage for permanently installed electronic apparatus.

· aircraft and parts. Aircraft is defined as any contrivance used or designed for flight, except model or hobby aircraft not used or designed to carry people or cargo. The only kind of coverage found in “your” homeowner’s policy relating to aircraft and aircraft parts is strictly related to hobby aircraft, which CANNOT carry any passengers or cargo. The definition cannot be stretched to include ultra-lights and similar aircraft, which some people consider to be hobby aircraft.

· property of roomers, boarders, and other tenants, except property of roomers and boarders related to an “insured”

· property in an apartment regularly rented or held for rental to others by an “insured,” except as provided in Additional Coverage

· property rented or held for rental to others off the "residence premises"

· "Business" data, including such data stored in:

- books of account,

- drawings or other paper records, or

- electronic data processing tapes, wires, records, discs, or other software media.

Example: An “insured” takes copies of her paper accounting records from her business to her home every month and re-enters and stores them on her personal computer. When all the information on her computer is wiped out during an electrical storm, there is no coverage available for the cost of restoring her business data.

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

· credit cards or fund transfer cards except as provided in Additional Coverages.

Other items that are excluded under this coverage part are property that is separately described and specifically “insured.” This exclusion is effective whether the separate insurance is provided by another policy or by another coverage part or endorsement to the same policy. Without this limitation, an “insured” could collect more than once for the same loss. Another reason for the exclusion is to encourage insurance consumers to protect property with the most appropriate form of coverage. Basic homeowner policies are designed for property of ordinary value.

Vehicles That Are Covered

Certain types of vehicles, as long as they are not required to be registered as motor vehicles, are covered. These are:

1. vehicles used to service an “insured’s” residence.
Examples: lawnmowers, snow blowers, lawn tractors, and attachments

2. vehicles designed for assisting the handicapped.

Example: motorized wheelchair

Why is there a reference to motor vehicle registration? Without this limitation to the vehicle exception, cars and other vehicles could qualify for coverage under a homeowner policy.

Examples:

· a pickup with a snow blade used to clear the homeowner’s driveway

· a vintage VW Beetle with a mower blade attachment

· a motorcycle used by a slightly handicapped homeowner who can’t walk long distances

Coverage D -Loss Of Use Coverage

This section of the policy provides Additional Living Expense or Fair Rental Value coverage. The insurance limit appearing next to Coverage D is the maximum amount of coverage for all of this coverage part’s protection. This insurance takes affect when the covered property is not suitable to live in because of a covered loss. In other words, if a home cannot be used because of a flood, Coverage D doesn’t apply. However, if an apartment is filled with smoke and debris, Coverage D protection is granted.

Additional living expenses

Refers to payment for expenses that are beyond normal living expenses that allow “you” to maintain “your” current (or normal) standard of living. In other words, the insurance company will not allow “you” to incur additional living expenses to vacation in Bermuda in a villa with a private beach while “your” two-bedroom bungalow is being rebuilt after a fire. The insurance company will consider expenses related to living away from home such as meals (staying in a hotel and eating out every day) and laundry (paying to have “your” laundry done since “your” washer and dryer is not available), etc.

Fair rental value

Refers to the local market rental value of the portion of a "residence premises" that an insured either actively rents or makes available for rental to the general public. Any rental value is reduced by expenses, which do not continue while the premises are uninhabitable.

Example: During the rebuilding of the “residence premises” “you” have the utilities turned off. “You” normally pay the utilities for “your” renters. The insurance company is not going to reimburse “you” for the average cost of “your” utilities while they are turned off. In other words, “you” must incur an expense before being reimbursed.

Please Note: This coverage is available only if the “residence premises” is “your” principal place of residence. If not, this option is unavailable.

Payment under additional living expenses or fair rental value will be for the shortest period of 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.

Example: “Your” home is totally destroyed in a fire. Rather than live in a hotel, “you” decide to rent a house. The insurance company will first determine what the fair market value would be to rent “your” house and that amount is what will be paid toward “your” alternate living arrangement. In other words, an “insured” should not expect to experience a big standard of living increase when receiving reimbursement from the insurance company.

Payment under fair rental value will be for the shortest time required to repair or replace that part of the premises rented or held for rental.

Civil Authority

This coverage assists insureds who lose use of their covered residence due to the order that a civil authority prohibits. However, the order has to be related to direct damage to neighboring premises that is created by a covered cause of loss. When the loss of use is from this indirect, governmental source, the insurer is obligated to cover the additional living expense and fair rental value loss up to a maximum of two weeks.

Example: “Your” neighbor’s home burns down and an inspector decides, due to a danger of collapse, that it would be best for “you” to live elsewhere while the neighboring property is made safe again. The most that the policy will pay is two weeks. After that, “you” are on “your” own!

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

There is no coverage available due to the cancellation of a lease or an agreement. No coverage is available to an insured whose renter decides to break a lease and move elsewhere due to a loss. Once the property is restored, coverage for fair rental value ends. If the property sits empty for three months after being repaired, “you” will not be reimbursed for the loss due to the cancellation of “your” lease. While an insured may have a cause of action against his tenant, such recovery is outside of the obligation under the homeowners broad form coverage.

Additional Coverages

While the policy provides coverage against all of the additional sources of loss, the additional coverage does not increase the limit of insurance that applies to the damaged property (exceptions are noted).

Debris Removal

Under this coverage, the policy is obligated to pay for the removal of:

· debris of covered property, but only if an eligible cause of loss is responsible for the damaged property, or

· volcanic ash, dust, or particles when a covered building and/or its contents have been damaged by an eruption.

This expense is included in the limit of insurance that applies to the damaged property. If the amount to be paid for the actual damage to the property plus the debris removal expense is more than the limit of liability for the damaged property, an additional 5% of that limit of liability is available to cover the expense of debris removal. The policy also provides up to $500 to pay for the removal from the "residence premises" of:

· an insured’s tree(s) which is (are) destroyed by windstorm or hail

· a neighbor's tree(s), which is (are) blown over or around by an “insured” peril under Coverage C if: the tree(s) damage(s) property insured under the policy.

This is an important item affecting coverage. If a neighbor’s tree does not fall on protected property, such as a house or garage, then the “insured” and the “insured’s” neighbor will be left to determine who pays without the help of the insurance company.

Note: The limit for any one loss is $500 regardless of the number of trees. This may be an issue if a large storm damages many trees in one storm.

Reasonable Repairs

The coverage for reasonable repairs acknowledges reality. Once covered property suffers damage by a source of loss that is eligible for insurance protection, an insured is obligated to protect the property from additional damage. However, the policy recognizes that out-of-pocket expense is likely to result from this duty. Under reasonable repairs, the insurer agrees to pay an insured for ordinary or reasonable costs related to the steps taken to preserve covered property. Unfortunately, any payments made for this expense reduces the amount available to settle losses for actual damage to covered property. Therefore, substantial repair expense could create a gap in coverage for property that is damaged or destroyed.

Example: An insured comes home during a violent windstorm to find that all of the windows of his home have been blown out. He enters the home and finds that his piano and most of his fine wood furnishings have been severely damaged by wind and rain. He rushes out to buy supplies to temporarily cover all of the openings and it costs several thousand dollars. The repair expense reduces his Coverage C limit to the point that it is inadequate to cover some losses of expensive furniture.

Another important element about reasonable repairs is that such expenses are not reimbursed when protecting property against sources of loss that are ineligible for coverage.

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 a resident of the "residence premises"

· 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. However, $500 is the maximum that will be paid for any single item. A positive factor is that this protection represents additional coverage. Therefore, the policy’s insurance limit may be exhausted by payments to settle damage to the insured residence, but coverage up to 5% of that limit is still around to pay for losses to trees, lawns, and plants (as long as the plants aren’t business property).

Fire Department Service Charge

The policy reimburses an insured who has an agreement to pay a fire department for responding to emergencies to his residence. A maximum of $500 is available unless the residence is located within the political (geographical) limits of the responding department. Why? This expense should be covered by your tax payments, not by a separate charge. Because of the nature and modest relative amount of coverage involved, no deductible applies.

Property Removed

If covered property is being removed from premises that are endangered by a covered peril, the property moved will have coverage for a maximum of thirty days from the removal date. The policy states that moving property does not change the insurance limit that applies to it.

Example: Carl’s home is in a neighborhood of homes located next to a national forest. As wildfires threaten, he begins moving his belongings, completely moving everything out just as the fires reach his home. His HO policy had a limit of $40,000, which applies to his belongings while they are temporarily located in a public storage warehouse.

Of course, while this limitation is true if all of the property were moved and then suffered damage at another location; it’s not true if the contents are split into more than one location.

Example: Let’s use Carl again. This time as the wildfire approaches, he only has time to safely move his entertainment system (worth around $7,000) before the fire reaches and consumes the home and the rest of his belongings. A neighbor lets Carl keep his entertainment system in his home. A day later, the fire spreads to the neighbor’s home and Carl’s system is destroyed. Carl had $40,000 under Coverage C, which would apply separately to the property in his home as well as to his contents in his neighbor’s home since the two losses are separate occurrences. So, Carl could recover up to $40,000 for the loss of property at the fire in his home on day one and recover up to $7,000 on his contents loss on day two.

Also note that this additional coverage is broader since, in the course of being removed, protection exists against any direct cause of loss.

Credit Card, Fund Transfer Card, Forgery, And Counterfeit Money

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

· if an “insured” is legally obligated to pay because a credit card that was registered in his or a thief or an unauthorized party used her name.

· loss caused by the theft or unauthorized use of an “insured’s”. Such use includes deposits, withdrawal or transfer of funds.

· if an “insured” has a loss caused by forgery or alteration of any check or negotiable instrument.

Example: The forgery could be a check drawn on an “insured’s” own account where the amount of the check is changed or it could be for a check made out in the “insured’s” name and then fraudulently cashed by someone else.

· if an “insured” suffers a loss by his or her good faith acceptance of counterfeit U.S. or Canadian paper currency.

Example: Jeff sells his electric piano to a person responding to a newspaper ad. Jeff later finds out that the $400 in “currency” he received from the buyer was worth as much as a used newspaper.

There are exceptions to coverage for losses involving credit cards and fund transfer cards.

There is no coverage under the following circumstances:

· 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

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

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

Example: An insured is immediately aware that he lost his charge card at a shopping mall. Even though she is aware that her credit card agreement requires her to notify the credit card company right away, she waits a week to see if it turns up. The insurer could deny any coverage under this circumstance.

Another limitation is that all loss resulting from a series of acts committed by any one person or in which any one person is concerned or implicated is considered to be a single occurrence. This is an important distinction.

Example: An “insured’s” checkbook is stolen and fraudulent checks start cropping up everywhere. If the above limitation did not exist, the insurance company would be responsible for each and every check that is written. Assuming that one person writes all the series of fraudulent checks, there is only coverage for $500. This would also apply to a series of fraudulent ATM transactions. Note that no deductible applies to this coverage.

Defense under this coverage - The insurance company providing coverage has the right to investigate and settle any claim or lawsuit that it believes to be appropriate. When the insurance company has paid out the limit of liability, its duty to defend ends.

If a suit is filed against an insured (or an insured’s bank), which involves the credit card, fund transfer card, or forgery coverage, the insurer will defend the suit at its own expense, using legal representation of its choice.

Loss Assessment

The insurance company will pay up to $1000 for an insured who is assessed by a corporation or association of property owners. The assessment has to involve direct physical damage to property commonly owned by that association or corporation. The loss has to be due to a cause of loss insured under the policy’s dwelling coverage--Coverage A.

Example: Dave and Laura Young own a condominium in an exclusive development. There is 24-hour security, large walls and gates surrounding the property, a well-appointed clubhouse, tennis courts, health club, etc. They belong to the homeowner’s association, which oversees the management and the maintenance of the common property. On the Fourth of July, there is a fire, which destroys the health club and the clubhouse. Even though the association has a fire policy, it does not pay the entire loss. Dave and Laura, along with the other homeowners in the development, are assessed $1,500 to pay for the expense of rebuilding. The homeowner’s policy will pay $1,000 of the couple’s assessment.

No coverage is available due to earthquake, land shock waves, or tremors before, during, or after a volcanic eruption. Nor does coverage exist for assessments involving any governmental body. The coverage applies only to loss assessments charged against an insured as owner or tenant of the "residence premises.” Finally, $1,000 is the maximum that applies to a single covered loss.

Example: A month after the first assessment is made, Dave and Laura Young receive a second assessment for $350. It appears that the first one for $1,500 was inadequate. Even though this is a second, separate assessment, it is ineligible for coverage since the limit was exhausted by payment of part of the first assessment and they both are related to the same loss.

Collapse

The broad form policy provides coverage for collapse, but only under select circumstances. Specifically, insurance is allowed for a partial or total building collapse that is caused by the perils listed under Coverage C, decay, insect, or vermin damage (only if the decay or damage is hidden). Collapse is also covered if it’s due to the weight of persons, animals, equipment, or building contents.

Example: Joan arrives home from work to see that her upstairs bedroom is now located directly on top of her downstairs living room. The loss was caused by a combination of her new, solid steel frame bedroom suite and the partial dry rot in a main ceiling joist.

Other eligible causes of collapse are from the weight of rain that collects on a roof collapse due to defective material or defective construction methods. But to be eligible, the collapse would have to take place during the construction, remodeling, or renovation.

Collapse loss to awnings, fences, patios, pavement, swimming pools, underground pipes, flues, drains, cesspools, septic tanks, foundations, retaining walls, bulkheads, piers, wharves, or docks may be covered if they are directly damaged by a collapsed building. If such property collapses on its own, no coverage applies.

What Collapse Does Not Include:

· settling

· cracking

· shrinking

· bulging

· expansion

Example: 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.

Glass Or Safety Glazing Material

Under this additional coverage, protection is extended to replace broken glass/glazing material or to repair damage caused by broken glass/glazing material. However, such material has to be a component of a covered building, storm window, or storm door. Therefore, a glass sculpture that falls over, smashes onto an inlaid Teak coffee table, hopelessly marring the polished surface, would not be covered.

This coverage does not include loss occurring at "residence premises" that has, at the time of loss, been vacant for 30 or more days. The coverage makes an important exception by exempting construction projects from being considered vacant. If required by law, the policy will pay for replacing damaged glass with safety glazing material.

Landlord's Furnishings

The broad form policy provides up to a maximum of $2,500 to pay for loss to certain types of property, which belongs to an insured, and which is located in a part of the residence premises that is rented out to others as an apartment. The eligible property includes appliances, carpeting, and other household furnishings. It is important to be aware that the coverage is for all of the causes of loss listed in the policy’s Section 1 – Perils Insured Against with the exception of theft.

Example: Dr. and Mrs. DeSoto convert their carriage house into an apartment and rent it out. Landlord’s furnishings coverage will pay for appliances, carpeting, and other household furnishings. It would not take long to exhaust the $2,500 limit, so it is important in this situation to tell the DeSotos about the limitation.

Section 1 – Perils Insured Against

The broad form homeowners policy insures the listed dwelling, other structures, and personal property against the following causes of loss:

· Fire

· Lightning

· Windstorm or Hail

This coverage is extended to watercraft, trailers, engines, motors, and related property when such property is stored in a totally enclosed structure. However, in order for any property contained in a building to be protected against direct damage of wind or any wind-driven elements, the same forces must first create an opening in a roof or wall. In other words, while furniture ruined by rain and wind would be covered if winds first blew off a portion of a roof; they wouldn’t be covered if the wind and rain entered through an open door or window.

· Explosion

· Riot or civil commotion

· Aircraft, including self-propelled missiles and spacecraft

· Vehicles

· Sudden and accidental damage from smoke

Note: Smoke damage that is the result of agricultural smudging (use of smudge pots to cover growing crops with a sticky substance to protect them from frost) or industrial operations is not eligible for coverage. While damage to covered property from either source is unlikely to be intentional, the proximity of either operation substantially increases the probability of smoke damage occurring.

· Vandalism or malicious mischief

· Theft--includes attempted theft and loss of property from a known place when it is probable that the property has been stolen

Note: The peril of theft is not all-inclusive. In certain instances, coverage for theft is excluded. In the following situations, theft is not covered:

· When the theft is committed by an “insured”;

· When the theft is in or to a dwelling under construction;

· When the theft is to materials and supplies used for the construction of a dwelling until it is finished and occupied; or,

· When the theft is from the part of a "residence premises" rented by an “insured” to someone other than an “insured.”

Additional restrictions are listed for theft that occurs off of the “residence premises.” The situations that follow are restricted as explained or not covered:

· Property while 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” while at a residence away from home as long as the student has been there at any time during the 45 days immediately preceding the loss

· Watercraft, including their furnishings, equipment and outboard engines or motors; or trailers and campers

· Falling objects

Note: This 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. Damage to the falling object itself is not included.

· Weight of ice, snow, or sleet

This peril protects against damage to any covered building. It also covers damage caused to property within a building if that building is first breached by the weight of ice, sleet, or snow such as a snowdrift bursting out windows and then damaging contents.

· Accidental discharge or overflow of water or steam

Covered discharges may be any residential system or appliance such as air conditioning, heating plumbing, refrigerator, washer, sprinkler system, etc.

Note: While this peril covers an insured who suffers damage from a discharge, it does not cover the damage to the faulty or broken system of appliance (with the exception being any coverage available under the policy’s “freezing” peril). Further, for coverage to apply, the discharge has to occur on the residence premises.

Example: Jane’s wooden floors are ruined when the water supply pipe connected to her washer bursts – covered by this peril, except for the cost to replace the burst pipe.

Example: Jane’s wooden floors are ruined when the water supply pipe connected to her neighbor’s water heater bursts and water flows underneath her front door – not covered by this peril.

Finally, the discharge peril does not recognize sumps, sump pumps, and similar equipment as part of any plumbing system. Neither damage caused by discharges nor damage to the property from which the discharge originates is covered.

· 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.

Note: Under the tearing apart peril, no coverage is provided for losses related to freezing.

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

Note: There is no coverage included for loss at the "residence premises" while the dwelling is vacant or unoccupied. This restriction also applies to homes not occupied because they’re under construction. This coverage exception is waived for insureds who either maintain heating or turn off the premise’s water supply (including draining water from any plumbing systems or appliances).

· Sudden and accidental damage from artificially generated electrical current.

Note: Such damage suffered by transistors, tubes, or other, similar electronic equipment is excluded from coverage.

· Volcanic eruption - other than loss caused by earthquake, land shock waves or tremors. In other words, coverage is restricted to direct damage by lava flow, heat waves, ash debris, etc.

Exclusions—Section I

Like its peer policy forms, the broad form homeowners policy contains broad exclusions for a number of causes of loss. The exclusions apply to direct and indirect damage as well as damage that is created by more than one type of excluded loss. When more than one peril is involved in a loss and one of the perils is excluded by this section, none of the damages are covered. This restriction applies whether the causes of loss occur simultaneously (concurrent) or sequentially. Here are the causes of loss excluded by the broad form policy’s property section:

· Ordinance or Law

No coverage is provided for damage or loss related to a law involving any structure’s construction, demolition, or repair.

Example: Two-thirds of an older, two-story home, which is located near a downtown business district, is destroyed in a fire. Local law requires that the standing portion be razed before any rebuilding takes place. The extra costs associated with the demolition and rebuilding from scratch are not covered by the policy.

· Earth movement

The policy defines earthquakes, land shock waves, tremors, landslide, mine subsidence, mudflow, earth sinking, rising, or shifting as earth movement and bars coverage. There are two exceptions. Coverage is allowed for direct loss ensuing from broken glass or glazing material, explosion, or fire. However, any payment would be for the damage that occurs at the point that a fire, explosion, or broken glass is triggered.

Example: A mudslide slams into the Kling family’s home, collapsing most of the wall it hits and causing $43,000 in damage. After the wave of mud hits, the force shatters a huge bay window installed in the home’s opposite wall. The shower of glass ruins the carpeting and shreds wallpaper, curtains, and furniture in the amount of $3,400. The insurance would only apply to the $3,400 in losses, not the other $43,000.

The other exception is that coverage still applies to theft.

Example: After escaping the mudslide and glass damage, the Kling Family returns home to find that someone entered through their home’s wall opening and stole their TVs, VCRs, camcorder, computer, and other property. This loss would be covered by the broad form policy even though the theft was indirectly caused by an excluded peril (earth movement).

· Water Damage

This peril is also broadly defined to exclude damage created by flooding, waves, tides, overflows, and sprays, even if wind contributes to cause the damage. It also applies to water from sewers, drains, and sump systems, as well as water that seeps or leaks in from any source, either natural (nearby lake) or not (backyard swimming pool).

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

· Power Failure

This exclusion refers to loss caused by a utility service interruption that occurs at a location that is not part of the residence premises. Such losses are ineligible for coverage with the exception of ensuing direct damage that is caused by a covered peril such as fire or windstorm. However, only the ensuing damage would be eligible for protection.

Example: Jim Electron’s home is shrouded in darkness after a fire at Happy ValleyCon shuts down the generator that supplies his electricity. When the power shuts down, the electrically powered fireplace damper closes and smoke from Jim’s fireplace spreads throughout the house. Cleaning up and handling the smoke damage would be eligible for coverage.

· Neglect

Under this exclusion no coverage applies when an insured fails to take the steps necessary to save or preserve covered property after a loss occurs. Of course, what is considered to be a reasonable effort can vary according to the details surrounding a loss. If an insured’s well being or life would be threatened by an attempt to preserve property, then this exclusion would not apply. Heroic efforts are not necessary, merely ordinary attempts are called upon. This exclusion may also be subject to the type of insured involved. A naturally calm, younger insured may be able to take valuable possessions out of a house that has caught fire. An older, excitable insured may panic at the first hint of smoke and abandon the house without a thought of delaying their escape to pick up a jewelry case. Would or even should an insurer attempt to evaluate an insured's state of mind in order to exercise this provision?

· War

This source of loss is excluded because of its potential for catastrophic loss and the fact that its occurrence is controllable and intentional rather than accidental. This term is also defined liberally so that it excludes war whether or not it is officially declared as well as insurrections, rebellions, revolutions, civil war, and warlike acts. Further it also bars recovery for loss that results from militaristic actions involving military personnel including their seizure or use of covered property. This exclusion is sensitive to the involvement of nuclear weapons to the degree that their discharges, even when accidental, are considered to be warlike acts.

· Nuclear Hazard

The policy’s exclusion involving nuclear material is according to its “Nuclear Hazard Clause” that is found under the SECTION I--CONDITIONS.

· Intentional Loss

This exclusion is meant to deny coverage for acts performed by an insured or done at the direction (order) of an insured. The insured’s act or order of others to act must have been performed for the purpose of causing a loss. This exclusion, when debated by insurance professionals and in courtrooms, tends to be subjective. Interpretation of what is meant by “intentional” can vary. There can be a difference between what an individual’s view of their intent as compared to what a “reasonable person” might understand to be intentional.

Example: Jeff comes home late and finds that, once again, his driveway is blocked by a car belonging to his neighbors’ teen-aged son. Jeff has warned the teen about his rude parking habit and this is the third time it has happened in the last week. Usually Jeff parks his car, tracks down the teen (who is often not home) and gets him to move the car. Tired and impatient, Jeff decides to use his car to push the other vehicle out of the way. Misjudging his speed and the weight of his SUV, Jeff ends up seriously crushing the back end of the small car. While the damage may have been foreseeable, Jeff’s intent was merely to move the car so he could get into his driveway and not to destroy it. This situation might have to go to a court to be resolved.

For two court cases, which determine whether losses were intentional, refer to PF&M section 469_C035, “Intentional Act Exclusion Held Not Applicable When Severe Injury Was Not Intended,” and refer to PF&M section 469_C036, “Intentional Damage Exclusion Held Applicable Although Damage Was More Severe Than Expected.”

Conditions—Section I

Insurable Interest and Limit of Liability

Regardless of the number of people who have an insurable interest in the covered property, the insurer’s financial obligation has a maximum. It will pay no more for the covered property than:

· each eligible insured’s interest at the time of loss; or

· the applicable insurance limit

Example: A policy is issued to cover a luxury ranch style home in the name of Ned Needmine. The policy has a $1 million insurance limit and, shortly afterwards, the new home is totally destroyed by a fire. While investigating the loss, the insurer discovers that Ned only owns 50% of the home. The other half is owned by a trust in the name of Ned’s stepbrother. In this case, Ned could only collect his share of the home’s value. The other insurable interest was not shown as an insured under the policy.

“Your” Duties After Loss

When covered property is damaged or destroyed in a manner that is eligible for coverage, an insured has a grocery list of obligations to have his claim honored. First an insured must quickly notify either the insurer (or his authorized agent), call the police for losses involving theft, and make a reasonable effort to protect property from further harm. He or she must assist the insurer by preparing an inventory of the damaged property which should have complete information of the property’s quantity, actual cash value, documents that support the existence and value of the property (such as bills, receipts, and appraisals), and the amount of the loss.

If the loss involves a credit card or funds transfer card, the insured must contact the card’s issuer in order to minimize or prevent unauthorized card use.

Another obligation involves the insured allowing the insurer adequate access to damaged property and to any documents related to the damaged property. An insured also has the duty to agree to be examined about the loss and signing his or her name to the statements made while examined. Displaying property and making statements are often points of contention between insurers and their customers since misunderstandings may arise over the scope of the loss adjustment effort. An insurer may ask to see the damaged property or to question an insured several times. The insurer may see the requests as reasonable and the insured may become hostile over repeated requests. Another sensitive requirement springs up when more than one insured exists. Examinations and signing such examinations are usually done separately with each insured. This precaution allows an insurer to verify that it is getting accurate loss information.

An arduous duty that is similar to displaying property and submitting to examinations, but which is distinct, is the obligation to give the insurer a sworn proof of loss. This statement is due to the insurer no later than 60 days from the date the insurer asks for it. In this statement, an insured has to, in effect, testify to the significant elements of the loss such as the date, time, and source of loss that damaged or destroyed the property. The proof of loss also has to contain full details on the various insurable interests, any liens (lenders’ claims), titleholders, and occupancy. Other required information involves the existence of other sources of insurance, a list of damaged property, and details on the nature or extent of the loss as well as estimates on repairs (several of these are typically required). If the loss involves a claim for additional living expenses or loss of rental income, the insured must provide supporting documents (such as utility bills or rental receipts). Finally, an insured also has to submit a special statement that is officially witnessed (affidavit) to accompany any claim involving:

· Credit cards

· Funds Transfer Cards (ATMs)

· Forgery or

· Counterfeiting.

Loss Settlement

This portion of the policy concerns itself with the method used by an insurer to settle losses. The settlement method, actual cash value or replacement cost, can be affected by the type of property that has been lost or damaged.

Actual Cash Value

This settlement choice is used when the loss involves personal property, non-building structures (e.g., playground sets, gazebos) or supplemental housing features that, while not permanent, they do not have the portability of personal property. Such property includes carpeting, antennas, awnings, appliances, and outdoor equipment. With the latter, the settlement is not affected by whether the equipment is attached to a residence or other building. Actual cash value is generally understood to be the value of a piece of property new, minus the effect of routine use and depreciation.

Replacement Cost

This settlement choice is used when the loss involves buildings such as the insured residence, detached garage, utility sheds, storage barns, guest cottages, etc. Replacement cost means using the value of the damaged or lost property as if it were new. In other words, there is no reduction connected to how much the building may have depreciated since the carrier initially wrote the coverage. However, there are important strings attached to the use of replacement cost. First, the insurance limit written for the building must equal at least 80% of that building’s full replacement cost at the time that the loss takes place. If the limit meets this hurdle, repairs or replacement occurs according to the damaged area’s full replacement value, the applicable limit of insurance or the actual cost to repair or replace; whichever option is the least expensive.

Actual Cash Value

Another set of options rule should the policy insurance limit (at the time of loss) fall under the 80% barrier. In this case settlement will be based on the current, depreciated value of the damaged or destroyed property or the proportional repair/replacement cost of the damaged or destroyed property, whichever method results in the higher payment. The proportional payment is based upon a formula that compares the amount of insurance carried to the amount of insurance necessary to meet the 80% requirement. This comparison creates a multiplier that is used to determine an amount that is often called the coinsurance penalty payment.

Example: Corliss TooLow’s has a broad form homeowner policy covering her home, which has a replacement cost of $200,000. Corliss’ home is partially destroyed by a severe windstorm. The replacement value of the damaged property is $40,000. The actual cash value of the damaged property is $26,000. Since her home’s total replacement cost is $200,000, in order to qualify for replacement cost settlement, she needs to have insurance limits of at least $160,000 ($200,000 x .80). Depending upon the amount of coverage she carried at the time of loss, Corliss’ recovery could vary substantially.

Scenario one

Coverage A $170,000

RC damage - $40,000

ACV damage - $26,000

Amount recovered $40,000

Scenario two

Coverage A $140,000

RC damage - $40,000

ACV damage - $26,000

Amount recovered was $37,500 based on multiplying RC loss amount times coinsurance percentage (87.5%) which was determined by dividing the amount carried by the amount of insurance required to meet 80% coinsurance ($140,000/$160,000 equals .875).

The policy is lenient in one respect. When determining a home’s total replacement cost, certain structural components do not have to be included in the computation such as items that are below the basement or lowest floor or the foundation.

Even when settlement is based on replacement cost, the insurer can choose to delay payment of the full claim until the repair or replacement is finished. Before completion, payment can be based on the actual cash value of the claim. This option protects insurance companies from customers who, if paid the entire replacement cost amount up-front, may get repairs done more cheaply to pocket the difference. The insured also has some flexibility in deciding on what to do. An insured can opt to take an actual cash value payment initially and then take up to 180 days after the loss date to ask for the difference based on the replacement cost. There is also a practical side to this condition that simplifies things for both insurers and persons suffering a loss. However, this flexibility is not cost-effective on smaller losses. Therefore, an insurer can automatically pay according to replacement cost for losses that are less $2,500 and less than 5% of applicable insurance limit.

Other Considerations

Besides replacement cost or actual cash value, an insurer may be able to handle the loss settlement more economically by repairing or replacing the damaged property. An insurer has the right to find the least expensive method to fulfill its insurance obligation though an insurer also must be sure that the option is fair to its customers. Replacing an insured’s antique oak dining set with one made of unvarnished particleboard would be very economical, but not fair.

Remember that, regardless of settlement method, the payment is always reduced by the applicable Section I deductible.

Loss to a Pair or Set

When a pair (e.g., earrings, crystal bookends, matching pewter candlesticks) are damaged or destroyed by a covered cause of loss, the insurer has two options. The insurer could restore the set or pair to its “pre-loss” value by repairing or replacing the property or it could determine the property’s “pre-loss” and post-loss actual cash values and pay the monetary difference. The latter option is typically exercised when repair or replacement is impossible or impractical.

Glass Replacement

When the damage to glass is caused by an eligible peril and a law exists that requires the use of safety glazing material instead of glass. The insurer is obligated to make payment based upon the cost of using safety-glazing material. This is a practical measure that acknowledges a modest increased cost that is out of the hands of an insured.

Appraisal

This condition applies when insureds and insurers dispute each other over the value of the loss and can be initiated by either the insurer of the claimant. The process involves the following:

· Both parties choose a qualified appraiser (within 20 days after one party tells the other that it wants a loss appraised)

· The appraisers choose an umpire within 15 days after their selection

· If the appraisers fail to choose an umpire one may be selected by an appropriate judge from the area of the insured residence premises

· Each appraiser will make their own estimate of the loss amount and, if they agree, the amount becomes binding on both the insured and the insurer. If their amounts do not agree, they are submitted to the umpire and the decision between the umpire and either appraiser then becomes binding.

· The insured and insurer must pay the cost of their selected appraiser as well as half the expense of the umpire.

Other Insurance

The insurer’s obligation is substantially affected when an eligible loss occurs and that loss is covered by the broad form homeowner policy as well as another source of insurance. In this circumstance, they only need to pay its proportional share of the loss. Its proportion is determined according to the total value of the insurance limits that apply to the loss.

Example: Harley Skimpsher files a claim to repair a collapsed wall. Klaimsquawk Mutual values the loss at $10,500 while Harley, who had his close friend (an engineer) look at the loss, claims damages of over $25,000. Harley eventually requests an appraisal. The appraisers submit their amounts to the umpire and the umpire agrees with the figure submitted by Klaimsquawk’s appraiser and the loss is settled for $17,000.

Suit Against Us

This condition acts as a control against a disputed loss immediately becoming an issue for a court to resolve. The condition requires a policyholder to fulfill all required policy provisions before seeking satisfaction through a lawsuit. Also, once the other provisions have been met, the suit has to be filed within a year after the loss date. In other words, a policyholder who suffers a loss would have to fulfill her various duties such as reporting the loss, submitting a proof of loss, allowing access to the damaged property, submitting to appraisal, etc., before filing a suit. This provision makes sure that other avenues for settling a claim are used before legal action begins.

Our Option

If an insured is given written notice within 30 days after the insurance company receives a signed, sworn proof of loss, the insurance company may repair or replace any part of the damaged property with similar property. Note that this option should present an acceptable solution for both the insurance company and the policyholder. A substitute often represents the most economical method to handle a loss, which benefits the insurer. If the substitute property or materials are equal in quality to what was lost or damaged, the quicker repair or replacement benefits the policyholder.

Loss Payment

The insured will be the contact point for the insurer to handle all aspects of a claim including correspondence, phone calls, arranging for visits and statements, receipt of any notices, requests for appraisal and payment. An exception to this is necessary if some other party has a right in this process because they are the one suffering the loss.

The condition says that losses will be paid 60 days after receiving the insured’s proof of loss. However, it should probably state that losses would be paid no later than 60 days after receiving a valid proof of loss. There are other requirements that must be met in order to trigger the insurer’s obligation to pay. An insured and insurer must either agree that some payment is due or a final judgment has been entered or the insurer has received an appraisal award filing.

Abandonment of Property

An insured may abandon damaged property after a settlement has been made. However, this act does not obligate the insurer to accept or dispose of such property.

Mortgage Clause

This condition states that any reference to the term “mortgagee” also refers to any trustee having an insurable interest needing protection under the policy. It then explains that, whenever a mortgagee appears on the policy under any coverage for building structures, losses will be adjusted and paid in accordance to the insurable interest held by the mortgagee and the insured. The process is complicated a bit if there is more than one mortgagee. In those cases, the mortgagee payments are made according to the lender’s order of precedence.

A very important wrinkle may be created on a policy that has a mortgagee. Since the insured and the mortgagee have distinct insurable interests, the insurer is obligated to recognize the distinction and add safeguards that allow the mortgagee to preserve its protection under the policy.

A policyholder may have a claim for damages turned down because they have breached the insurance contract by hiding or not telling the insurer of some important fact that may affect their coverage. Other reasons for having a claim denied might be due to failing to pay the policy premium or filing the documents required to process and settle a claim. A mortgagee may preserve its claim if it fulfills any of these obligations in place of the insured.

In the event that a mortgagee cannot preserve its protection, it is due some advanced notice of a decision to terminate coverage. This gives the mortgagee time to find replacement coverage.

If the mortgagee receives an insurance payment that has been denied to the policyholder, the lender is obligated to assign its rights to recovery (subrogation) to the insurer. The insurer may choose to recover its payment from the insured, but this fact does not affect the mortgagee’s right to be fully paid for its loss. Finally, in order to gain control of the mortgage, an insurer has the option to pay the remaining loan principal and interest. When this occurs, the insurer may take possession of the mortgage and any related securities.

No Benefit to Bailee

Any claims by any entity that stores, moves, or controls any covered property for a fee will not be honored by the insurer. Such entities are bailees who should obtain their own coverage for property in their control.

The insurance company will not recognize any assignment or grant any coverage that benefits a person or organization holding, storing, or moving property for a fee regardless of any other provision of this policy.

Nuclear Hazard Clause

"Nuclear hazard" refers to any incidence of nuclear activity, whether the damage stems from either an intended, accidental, or even unforeseen process. The term includes nuclear:

· contamination,

· radiation,

· reaction, or

· any (direct or indirect) consequences related to the above.

Damage caused by nuclear hazard will not be re-defined as loss arising from fire explosion or smoke and this portion of the exclusion is unaffected by such perils being covered under the policy’s section, “Perils Insured Against.”

There is an exception concerning fire. Coverage is permitted for any direct damage that can be attributed solely to a fire that may result from a nuclear incident.

Example: Rhonda Isotope’s home is located in a residential complex that was originally built for employees at the Feartowne Nuclear Facility. A meltdown warning alarm goes off and when Feartowne Facility’s Technical emergency team introduces additional water into a cooling tower, a small explosion occurs. Wind carries flaming debris that lands on Rhonda’s roof and starts a fire. Though the fire was indirectly caused by a nuclear hazard, the damage is directly caused by fire and it is covered. However, if the explosion at the facility were serious enough to damage Rhonda’s home, the explosion damage would still be excluded.

Recovered Property

Often settlement of a loss does not end the matter and this provision deals with a common claim aftermath, recovered property. After a payment is made, the insured property that was the subject of the payment could be recovered by either the insured or the insurance carrier.

The party receiving the recovered property is obligated to contact the other party to determine how the recovery should be handled. Be clear on one point: the insured must notify the insurer or vice versa about property that has been reacquired. At that point, the insured controls what happens to the property. After the insured makes a decision, applicable adjustments are made. If the insured decides to keep the settlement (because replacement property has already been purchased), then the property belongs to the insurer and they have the right to do what they want with it. If the insured wants the original property returned, the insurer will give back the property and then ask for all or part of the settlement payment to be returned. The insured may keep part of the payment if the parties determine that the value of the returned property has been reduced by the loss event.

Example: Speedy Mutual pays the Borrowah family several thousand for a theft loss involving jewelry and electronic items. Two months later, a local burglar is convicted of the crime and the police return the property to the policyholder. Since many of the pieces were family heirlooms, the Borrowahs asked for them back. The jewelry was returned, but not the electronics since the Borrowahs had already replaced those items. The family then wrote a check to the insurance company for the amount of the settlement made for their returned jewelry.

Volcanic Eruption Period

Certain types of damage related to volcanic activity are covered, but eruptions often occur in a series and within close proximity to each other. This partially covered cause of catastrophic loss would also be catastrophic for an insurer if it had to treat each upheaval as a separate covered event. Therefore, the policy consolidates all action within a 72-hour period (3 days) into a single occurrence.

LIABILITY COVERAGES--SECTION II

Personal Liability (Coverage E)

While section one focused on protecting property, section two handles losses caused by the actions of insureds. Specifically, the broad form homeowner’s policy pays for damages to other persons or their property for which an insured is legally responsible. Eligible losses have to meet the policy’s definitions of what constitutes covered damages. If a covered loss takes place, the insurer is obligated to make its full insurance limits available to pay for damages including prejudgment interest. The insurer also owes its insureds a legal defense against claims, even ones that prove to be without merit (groundless).

While providing protection and a legal defense, the insurer reserves the right to fully investigate any claim another party makes against an insured. While the insurer bears the cost of a legal defense, this particular duty ends once:

· its limit of insurance is exhausted by payments or

· the insurer makes a settlement or

· the insurer pays a final judgment.

Note: The act of settling or paying a judgment terminates the duty to defend even if the payment or settlement is for less than policy’s insurance limit.

Medical Payments To Others (Coverage F)

Within three years from the date of an accident that causes “bodily injury,” the insurance company will pay the necessary medical expenses that are incurred or medically ascertained. Medical expenses include reasonable charges for:

· medical,

· surgical,

· x-ray,

· dental,

· ambulance,

· hospital,

· professional nursing,

· prosthetic devices, and

· funeral services.

Medical payments are not available to any person defined as an insured by the policy, which includes the named insured, resident spouse, and other residents of the insured household. The only exception is for employees of the residence.

Medical payments coverage is designed to cover outside or ‘third parties” such as visitors or guests at the insured home including persons who are injured while at any place that is defined as an insured location. However, their presence has to be with an insured’s permission, so trespassers would not typically be covered. This coverage extends slightly beyond the boundaries of any insured location to include areas that are next to an insured location and/or which provide direct access to or from an insured location.

Other persons eligible for coverage would not have to be on an insured location. If a person suffers physical injury because of an action or activity of an insured (including a residence employee), he or she may also qualify for medical payments. However, a person hurt by a residence employee only qualifies for coverage if the activity that caused the injury was directly related to the employee’s job.

Example: An insured’s gardener tosses a pair of pruning shears behind him without looking and the sharp blades cut the legs of a neighbor child coming up the walk to visit the insured’s child. Treating the child’s cuts would qualify for medical payments.

Finally, persons who are injured by animals that are either owned or controlled by an insured can also qualify for medical payments.

Exclusions--Section II

There are a wide variety of circumstances that bar any liability coverage under the broad form homeowner policy.

1. Coverage E – Personal Liability and Coverage F – Medical Payments to Others

The following are circumstances that prevent any coverage for bodily injury or property damages:

· Injury or damage that is intentionally caused or expected by any insured.

In this case, “expected” means what an insured “foresees.” Use of this word allows the exclusion to encompass injury or damage that an insured may not have literally intended, but which should have been expected/foreseen because of the originating act.

Example: A driver who nearly hits him at a crosswalk angers a pedestrian insured. The insured quickly picks up a stone and flings it at the driver’s car. The stone misses the car but hits another pedestrian, breaking her nose and her glasses. The injury to the person was not intended by the insured, but it should have been expected because of throwing a stone. The injury would not be eligible for protection under the homeowner policy.

· Injury or damage that is related to an insured’s business

The business exclusion applies to both acts and omissions (failure to act) which allows the exclusion to apply to duties or services supplied by an insured. The broad form homeowner policy’s liability protection is meant for injury or damage related to homeownership or for non-business activities.

· Injury or damage related to actively renting or making all or part of an insured premises available for rent

Example: Phil Scoffzone rented his detached two-car garage to his neighbors who use it to house their small engine repair shop. One day a customer leaves the shop with his repaired lawn mower. The customer trips on a broken piece of driveway pavement and breaks his arm. This injury is not covered.

There are some exceptions to the rental exclusion. It does not affect coverage for occasional rentals, rental for residential use (unless it involves more than two persons), or for rentals involving offices, private garages, schools, or studios.

· Loss related to professional (medical, financial, legal, etc.) services, regardless whether they are acts or failures to act.

Example: Jeffersina Thomas has a residence, which, in its backyard, contains a 600 square foot cottage (put in by the previous owners for an elderly parent). Jeffersina converts it into her law office. One day she receives notice of a lawsuit from a client. The suit alleges that because Jeffersina failed to file some legal papers, the client lost her right to proceed with a suit over a land ownership dispute. Coverage related to Jeffersina’s failing to perform a legal service is excluded.

· Any injuries or damages related to the use, occupation, ownership, or control of premises that does not qualify as an insured premises. In other words, the particular injury or damage is a moot point if it occurs in relation to a location that is not eligible for coverage under the homeowner policy.

· Loss related to motorized vehicles

One area that commonly collides with the liability coverage intent of a homeowner policy is any sort of loss involving motorized property. Homeowner policies have a great aversion to covering vehicle liability for the simplest reason: the exposure should be handled by purchasing the appropriate coverage such as an auto or recreational vehicle policy. Therefore, the vehicle exclusion is written as broadly as possible. It intends to deny nearly all injuries and damages related to the ownership, use, or possession of a vehicle, including related equipment such as trailers. Due to the imagination of persons looking for coverage for damages, the vehicle exclusion also bars indirect attempts to gain compensation from a homeowner policy. For instance, persons allege that the cause of an injury or damage involving a vehicle was due to entrusting dangerous property or that the liability is vicarious because of a loss involving a minor. However, the exclusion still prohibits coverage for the direct involvement of a vehicle. There are a number of exceptions such as allowing coverage for loss involving:

- a vehicle trailer that is detached from a vehicle

- an off-road recreational vehicle that is not required to be registered as a vehicle

- vehicles used directly for home or premises maintenance (lawn mowers or tractors)

- a golf cart while used on a golf course

- a non-owned off-road, registration exempt vehicle while used on an insured premises

- a motorized vehicle that is designed for handicap assistance (motorized wheelchair)

- a registration exempt vehicle that is in dead storage on the insured premises

· Loss involving the ownership or use of sail, engine, or motor propelled watercraft. This exclusion extends to loss alleged to involve entrustment as well as vicarious or statutory liability. There are some exceptions for the watercraft exclusion, with coverage permitted for:

- Non-owned inboard or inboard/outboard engines of 50 horsepower or less (so rental would be covered)

- Non-owned or rented inboard or inboard/outboard engines of more than 50 horsepower (so borrowed units would be covered)

- Watercraft (even owned craft) powered by outboards of no more than 25 horsepower

- Watercraft powered by outboards of more than 25 horsepower if the outboard is not owned by an insured

- Sailing craft shorter than 26 feet if owned by an insured

- Sailing craft of 26 or more feet as long as it is not owned by an insured

- Watercraft in storage (dovetails coverage with watercraft policies that suspend coverage while craft is stored during the off-season or other extended non-use)

- Certain instances involving craft that was acquired before or during the homeowner policy period.

· Any incident involving aircraft, including its entrustment, statutory or vicarious liability. Model or hobby aircraft that cannot be used to transport persons or property is not subject to the exclusion.

Example: An insured whose glider aircraft smashes into the front of a home located next to a field where he attempted to land would not be covered.

Example: An insured, whose radio-controlled helicopter runs out of fuel, drops from the sky, and onto the head of a woman walking her dog would be covered.

· Any incident related to war or similar acts. The war exclusion is not affected by the formality of having war actually declared and it also applies to related, larger scale violent protests and loss or loss of use of property due to the actions of military personnel. This exclusion defines any loss involving a nuclear weapon as an act of war.

· Losses involving an insured infecting others with a communicable disease, or allegations of damage or injury against the insured that is due to sexual molestation, corporal punishment or physical or mental abuse

Example: An insured wife agrees to watch her neighbors’ children for a week while the adult couple travels on a romantic summer getaway. After the children are returned, the babysitter and her husband are sued. The neighbors’ two daughters accuse the husband of forcing himself on them several times during the week after the wife was asleep. The insurer would not be obligated to defend the claim nor respond to any monetary damages. FYI, this could also be denied because it involves an insured’s intentional act.

The policy also excludes any injury or damage that is connected to controlled substances. The policy incorporates the substance definition found in sections 811 and 812 of the Federal Food and Drug Law. The exclusion references a list of examples of controlled substances such as cocaine and other recreational and narcotic drugs. However, the exclusion exempts losses related to legitimate use of drugs by prescribed by a licensed doctor (as long as the drugs are taken according to doctor’s instructions).

Note that the exclusions concerning watercraft, vehicles, aircraft, and rented premises do not apply to losses involving bodily injury that is suffered by a residence employee if the injury occurs while the employee is performing his or her job.

2. Personal liability (Coverage E)

The broad form homeowner’s Personal Liability also excludes coverage related to the following:

· Liability for loss assessments levied against an insured because the insured belongs to a group of property owners

Example: A contractor who won a bid to build a major shopping mall sues the Golden Snobtowne Housing Community because it blocked the project through gathering petitions. The Community’s Board assesses each member $3,000 to pay for legal representation to fight the suit. This assessment would not be eligible for coverage.

· Losses related to a contract or agreement entered into by an insured, except for written contracts related to maintaining, owning, or using an insured location (as defined by the policy). An exception also exists for an insured who assumes another party’s liability for an eligible occurrence, as long as the liability was assumed before the loss happens.

Example: An insured receives a copy of medical and hospitalization bills for a youngster who was paralyzed when he made a tackle in a peewee league football game. The paralysis was caused because the helmet he was assigned by the assistant coach did not have the proper padding to absorb the collision. The insured discovers that the paragraph on the peewee league application included an agreement that each parent assumes the liability of the league for damages suffered by participants. The insured’s share of the judgment covering the medical/hospital expense is $12,000. The broad form homeowner’s policy would cover the assumption of liability.

· Losses involving “property damage” to property an insured either owns, rents, occupies, uses, or that are in an “insured’s ” care. Exceptions exist for damage to property due to explosion, fire, or smoke, and for bodily injury to persons eligible or required to receive benefits under a worker’s compensation, occupational disease, or non-occupational disability law.

· Bodily injury or property damage that is covered by a nuclear liability policy (even if such a policy cannot respond because of exhausted insurance limits). The policy considers a nuclear liability policy to be one provided by the American Nuclear Insurers, Mutual Atomic Energy Liability Underwriters, the Nuclear Insurance Association of Canada (or their successor) companies.

· "Bodily injury" suffered by any person who meets the policy’s definition of “insured.”

3. Medical payments to others (Coverage F) is denied for "bodily injury":

· Injury suffered by a "residence employee" if the "bodily injury" does not occur on an “insured location” and it is unrelated to the person being employed by an “insured”.

· To any person whose injury is eligible for coverage under another source of protection that is required by law (workers compensation, occupation disease or non-occupational disability). The exclusion also is in effect for persons who receive similar benefits because a party volunteers to provide them.

· That is the result of any nuclear event (nuclear reaction, nuclear radiation, or radioactive contamination). The exclusion is effective no matter how the nuclear incident occurs and it extends to both direct and indirect (consequential) injury.

· Suffered by any individual (except “residence employees) who regularly lives anywhere on an insured location (location as defined by the policy).

Section II - Additional Coverages

The broad form homeowner’s policy provides several coverages that are in addition to the protection mentioned in Coverage E – Personal Liability and Coverage F – Medical Payments to Others. The protection is “additional,” so it does not reduce the limits of insurance provided under the other liability coverage parts.

In relation to claims, the policy will pay expenses that the insurance company incurs and any costs experienced by an “insured” related to any suit that the insurance company defends. Besides these costs, the broad form homeowner policy will also pay for bonds required by a lawsuit. The most the insurer will pay for is the insurance limit provided under Coverage E – Personal Liability. Though the insurer will bear the bond cost, it is not obligated to either furnish a bond or apply for any bond. The latter would be the responsibility of the insured. Ironically, any expense that the insured incurs in acquiring a bond would be reimbursed by the insurer. Once a court enters a judgment, there is typically a delay before the judgment is paid (one reason for a delay is that the decision may be appealed to a higher court). It is common for a court to establish an interest rate that applies to the judgment until it is paid. The insurer assumes the interest costs that accumulate on the judgment, but only on the portion of the judgment that falls under the policy’s insurance limit.

Example: Fanny is covered by an Acme Mutual homeowner policy with a Coverage E insurance limit of $200,000. Fanny is sued by the parents of a child who is hurt while playing on a swing set in Fanny’s backyard. The court awards the child $230,000 for her injuries. Acme Mutual files an appeal and interest starts to accumulate on the award. Two months later, the higher court agrees with the trial court. Acme Mutual pays the child’s parents $200,000 and the entire interest amount. Fanny has to pay $30,000 (the amount that exceeds her insurance limit) but is not responsible for any of the accumulated interest charge.

There is another class of claims-related expense paid by the insurer. If a policyholder incurs expenses because of participating in the claims investigation or in the defense of a lawsuit, the insurer will pay these costs. A typical cost is loss of earnings because of missed work. The policy will pay a maximum of $50 a day for lost income and expenses.

In relation to first aid expenses, the policy will pay first aid expenses that an insured incurs for treating persons who suffer "bodily injury" that is eligible for coverage under the broad form homeowner policy. If an insured pays for treating a person whose injury is not eligible for coverage, that amount is an out-of-pocket expense that has to be borne by the policyholder. Note: Reimbursement is not available for first aid expenses involving any person who qualifies as an “insured.” First aid expenses are typically understood to be costs related to aid provided before a person enters a treatment facility (clinic, hospital, etc.).

In relation to damage to property of others, the policy will pay a maximum of $500 per eligible loss for damage to property belonging to other persons when that damage is caused by an insured. Damage is paid on the basis of replacement cost. The insurer is not obligated to pay for damage under this additional coverage if payment is made under another coverage part. In other words, if payment were made under Coverage E – Personal Liability, a duplicate payment would not be made under the Damage to Property of Others too. No coverage is available for property owned by any insured, tenant of an insured, or resident in the insured home. Even property rented by a tenant of an insured is ineligible for coverage. Property damage that is intentionally caused by an insured does not qualify for protection unless the insured is younger than 13 years of age. Finally, property damage related to business activities, ineligible motorized vehicles, or crafts or to locations that do not qualify, as insured locations will not be paid under this portion of the policy.

In relation to loss assessment, the policy will pay up to a maximum of $1000 for a loss assessment charged against an insured as a member of a group of property owners. The assessment has to be related to "bodily injury" or "property damage" that is eligible for coverage under the liability portion of the broad form homeowner’s policy. It also has to be related to the insured’s ownership or tenancy of the premises described under the policy.

Example: Jim files a request to have his insurer pay for a $950 assessment he is charged for a lawsuit filed against Sunshine Condominium Association, where Jim is a condo owner. Jim’s insurer refuses to pay the assessment when it discovers that its policy covers Jim’s regular residence and the condo are covered by a different insurer.

Loss assessment coverage also extends to an insured’s liability created by an act of a director, officer, or trustee in the capacity as a director, officer, or trustee. In order to qualify for reimbursement, the act has to be directly related to the voluntary performance of a director, officer, or trustee who is elected by a group of property owners. Assessments related to acts of a paid director, officer, or trustee does not qualify for reimbursement. $1,000 is the maximum that will be paid for assessments related to a single eligible loss or single act of a director, officer, or trustee. No coverage is available for assessments levied by a government body.

Section II - Conditions

Limit of Liability

The maximum amount that the insurer is obligated to pay for a single, eligible occurrence is the applicable limit of insurance that appears under either:

Coverage E – Personal Liability or

Coverage F – Medical Payments To Others.

The maximum obligation under Coverage F is unaffected by the number of insureds, claims made, or persons injured under a single occurrence (which includes repeated or ongoing exposure to the same set of conditions). The maximum obligation under Coverage E applies to each individual suffering injury.

Severability of Insurance

This insurance applies separately to each “insured,” but this condition does not increase the insurer’s limit of liability under any single "occurrence."

Duties After Loss

When an accident occurs, the insured owes a number of obligations to the insurer including:

· promptly notifying the insurer (or agent) in writing. The notice has to include details on the policy, insured, time, place, and loss details as well as contact information on claimants and witnesses.

· sending the insurer copies of any legal paperwork related to a claim such as any notice, demand, summons, etc.

· Assisting the insurer with settling any claim, enforce any recovery rights against other liable parties, participating in hearings, trials, depositions, and in gathering evidence or attendance of witnesses

When payment involves Damage To Property of Others, the insured is obligated to display the damaged property and to send a completed proof of loss within 60 days of the loss date.

An insured must understand that, with the exception of first aid, any payments he or she volunteers to make will be an out-of-pocket expense rather than a financial obligation of the insurer. Volunteering payments can create a perception that an insured is legally responsible for damages, so an insurer, to protect its position, cannot authorize or reimburse additional payments without investigating the loss.

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

When an incident eligible for coverage under this coverage part occurs, an obligation for the injured party is created. Either the person suffering an injury or a representative has to provide the insurance company a written proof of loss. If requested the party may have to testify about the loss under oath. The injured person must also give the insurer access to any relevant medical information and, if requested by the insurer, must also be willing to be examined by a physician selected by the insurer. The insurer may make more than one request for a physical examination, but the requests must be reasonable. Naturally, what is considered reasonable could be an area of dispute between the injured party and the insurer.

Payment of Claim - Coverage F - Medical Payments to Others

Any payment an insurer makes under this coverage part is to be viewed as an admission of liability by either the insurance company or any person insured by the broad form homeowner’s policy.

Suit Against Us

Any party making a claim under this policy has the right to file suit against the insurer until the:

· party complies with all required policy provisions

· insured’s legal financial obligation has been determined by either a final judgment or agreement signed by the insurer.

No other person or organization has any right to include itself a party to legal action the insurer takes against any insured. In other words, other parties that have a legal grievance against an insured has to handle its own legal action.

Bankruptcy of an Insured

An insured’s bankruptcy or insolvency has no effect on the insurance company’s obligations created by the broad form homeowner’s policy.

Other Insurance - Coverage E - Personal Liability.

If there is other collectible insurance that applies to a loss involving the coverage provided by the broad form homeowner policy, the policy’s coverage will respond on an excess basis.

Example: Chloe Namberson is sued for injury she caused to a co-worker at a church fair. She is sued for $150,000. Her insurer discovers that the church paid for a special event policy that has a $100,000 insurance limit that applies to the loss caused by Chloe. In this event, Chloe’s insurer would only pay the $50,000 in excess of the coverage provided by the fair’s insurer.

However, if the other coverage was written specifically on an excess basis, then this policy will respond to the damages or suit on a primary basis. In other words, this policy would pay first and the other coverage would, if necessary, pay afterward.

Sections I And II - Conditions

Policy Period

This coverage is provided on an occurrence basis, so it will only respond under Section I or Section II to eligible injuries that take place within the policy effective dates.

Concealment or Fraud

The coverage provided by the broad form homeowner’s policy is based upon dealing with any insured in good faith. An insured that lies, misrepresents, or conceals relevant information or attempts to defraud the insurer voids the policy coverage. Losing the policy’s coverage can occur whenever an insured performs acts in bad faith, either before, during or after a loss.

Liberalization Clause

This condition controls what happens when an insurer makes more coverage available under a given policy edition. If the change is made for free and it is made without changing the edition date of the policy, the added coverage applies to all of the policyholders in the state where and when the change is made. However, the coverage change has to have been made no earlier than 60 days before the stated policy period. Automatic application of the added coverage does not apply when it requires additional premium or if the change is made in a revised policy edition.

Waiver or Change of Policy Provisions

No waiver or policy change is valid unless and until the insurance company agrees to the change or waiver in writing.

Example: Jane has a homeowner policy with insurance limits on the dwelling in the amount of $125,000. Her house is destroyed in a windstorm and she requests that she be paid $150,000. Jane shows the insurer her copy of the policy where the $125,000 has been crossed out in red ink and Jane has written in $150,000. The insurer says that they never agreed to Jane’s “policy change,” so the original limit applies to her loss.

If an insurer asks for an appraisal or an examination of any damaged property, the request does not affect the insurer’s other rights under the policy.

Cancellation

Note: The cancellation process is usually controlled by individual state law, so the termination information provided under the policy may be superseded by requirements that appear in a separate document that changes the policy terms. The termination provisions discussed below only represent what appears in the policy and should be verified by applicable state requirements.

Insured - An insured can cancel the policy coverage by sending a written request to the insurance company. The request has to include the effective date of the cancellation.

Insurer - The insurance company is only allowed to cancel coverage for the reasons that appear in the policy.

The insurer is obligated to send the notice to the insured at the address that appears in the policy declarations. As proof that a notice of cancellation was sent, the insurer must have proof that the notice was mailed.

Non-payment of premium

If an insured fails to pay for the policy, an insurer can cancel coverage by sending advanced notice at least 10 days before the cancellation effective date.

Less than 60 days of coverage

If the policy has been newly issued and has been in effect less than 60 days, coverage can be cancelled for any reason as long as the insured receives at least 10 days advanced notice.

60 or more days of coverage

When coverage has either been effective for 60 or more days or has been renewed from a previous policy term, the insurer’s ability to cancel coverage is severely restricted. This restriction is due to an insurer only having a certain amount of time to investigate the worthiness of an insurance customer. The legal assumption is that if an insurance company does not make an effort to verify that a customer qualifies for coverage, then it forfeits a right to end coverage without a serious reason.

Two reasons that allow an insurer to cancel coverage are material misrepresentation and a substantial change in risk. If the insurance company discovers that an insured was dishonest in applying for coverage, or it discovers some substantial information that affects the nature of the exposure it thought it accepted, then it has the right to send a cancellation notice. In such instances, the insurer has to give the policyholder at least 30 days advanced notice.

Any reason after one year

When this policy is written for a period of more than one year, the insurance company may cancel for any reason if the coverage is scheduled to end at the policy’s anniversary date and if the policyholder receives at least 30 days’ advanced notice.

Money refunded

When an insurer cancels a policy, it is obligated to refund any premium. The refund is calculated according to the date of cancellation and the policy’s original date of expiration. The insurer may either include the refund with the cancellation notice or send it shortly after the cancellation date. A company that either fails to return a premium or fails to return it in a reasonable time period endangers its cancellation decision.

Nonrenewal

If an insurance company decides not to renew a policyholder’s coverage, it has to mail the insured a notice at least 30 days before the policy expiration. As with cancellation, the insurer has to send the notice to the address that appears on the policy and proof that it mailed the notice acts as valid proof that it sent the notice. Proof of notice is critical since a loss could occur after a policy has been cancelled. A policyholder could claim that it never received a notice of cancellation or that he or she did not get enough advanced notice. The parties must be able to depend upon a recognized way to resolve a dispute about a policy cancellation.

Assignment

A policy assignment refers to coverage being transferred from one party to another. It may occur when one party buys a home from the original insured and wants the coverage to be shifted. However, unless the insurance company gives its written approval, any attempt to assign coverage under the policy is unenforceable.

Subrogation

An insured may be paid for a loss under the provisions of the insurance policy. However, the insured also holds a right to seek payment from any person or party who is legally responsible for damages. If the insured chooses, he or she may, in writing, waive (give up) the right to recover (subrogate) from another party. If the insured retains this right, the insurance company can require the insured to transfer the right by signing any required paperwork. The insurance company then gains the insured’s ability to recover payment from another party. The insured is also required to help the insurer with any effort to make a recovery from a liable party.

Death

Death substantially affects the insurance company’s obligation under the policy. If a named insured or eligible spouse dies, some coverage under the policy may then apply to the deceased’s legal representative. The coverage may apply under either the policy’s property or premises coverage. Under such circumstances, the legal representative becomes an insured under the policy. However, the coverage only applies to the representative while acting within his or her capacity.

Example: Paul’s friend Josie dies and she named Paul as her estate administrator. A few days after the funeral, Paul is in Josie’s insured home, creating an inventory of furnishings and property. Paul answers a doorbell and lets in a homeowner inspector. Paul goes on about his business but forgets to warn the inspector about a loose stair. The inspector is seriously injured in a fall and sues Paul. The broad form homeowner policy in Josie’s name would insure Paul.

Other persons considered, as insureds are any members of a deceased insured’s household while they live in the property listed on the policy as the residence premises. A person who has temporary custody of the insured property gains status as an insured. The coverage only applies to liability for losses related to the covered property and the status as insured ends when another party is appointed as a legal representative.

ISO Pre-HO 2000 UNIT-OWNERS FORM COVERAGE ANALYSIS

This policy form provides coverage for the personal property and activities of the owner of a condominium or cooperative unit. The form has been designed to dovetail with coverage provided by a condominium association’s master policy.

Unscheduled personal property and loss of use coverage are included for loss caused by fire, the Extended Coverage hazards, vandalism and malicious mischief, theft, and the Broad Form perils. Coverage is included, on a replacement cost basis, for unit-owners building items. Personal liability insurance, including medical payments coverage, is a part of the package. This analysis reflects the Homeowners 91 program’s unit-owners form.

Personal Property Coverage

The new form provides worldwide coverage for unscheduled personal property located away from the described premises.

Note: This coverage is not constrained by the "off-premises" maximum of 10% of the Coverage C insurance limit. However, the 10% limit (minimum $1,000) still applies to personal property normally located at another residence of the insured. Keep in mind that, as has previously been true of the named peril forms, theft coverage does not apply to "property while at any other residence owned, rented to, or occupied by any insured. This theft exclusion has an exception. Theft coverage is provided while any insured is temporarily residing there."

The 10% of Coverage C limitation does not apply to a newly acquired principal residence for 30 days after the moving process has begun. The full Coverage C limit applies to property in transit.

However, the 10% limitation clearly extends to the property of a student away from home at college, an exposure that has created uncertainty and frequent questions. "Insured," with respect to personal property coverage, includes "residents of your household who are your relatives, or other persons under the age of 21 and in the care of any person named above."

The policy forms’ theft peril coverage responds to certain loss of student property. Specifically, it covers such property if the student has resided in the space where the stolen property was taken at least 45 days before the date of loss.

Personal Property Special Limits

Coverage C limitations apply to loss involving certain kinds of personal property, largely of high value and vulnerable to loss. Each of the following special limits is the total amount of coverage available for all property in the described category per a single loss:

· $200 on money, bank notes, bullion, gold other than gold ware, silver other than silverware, platinum, coins, and medals.

· $1,000 on securities, accounts, deeds, evidences of debt, letters of credit, notes other than bank notes, manuscripts, passports, tickets, and stamps.

· $1,000 on watercraft, including their trailers, furnishings, equipment, and outboard motors.

· $1,000 on trailers not used with watercraft.

· Grave markers are covered up to the limit of Coverage C. (Homeowners 89 limit on grave markers was $1,000.)

· $1,000 ($1,500 in some states) for loss by theft of jewelry, watches, furs, and precious and semiprecious stones.

· $2,500 for loss by theft of silverware, silver-plated ware, gold ware, gold-plated ware, and pewter ware. Included in this category are plated ware, flatware, hollow-ware, tea sets, trays, trophies, and the like, and other utilitarian items made of or including silver, gold, or pewter.

· $2,000 for loss by theft of firearms.

· $2,500 on property used for business, while on the residence premises; $250 on such property off the premises. Business property was previously excluded.

· $1,000 for adaptable electronic apparatus equipped to be operated by power from the electrical system of a vehicle while it is in or on a vehicle and while it is away from the premises if the equipment is used solely for business.

Most of the above limits may be increased by using Coverage C increased special limits of liability endorsements. Another option is to insure property for its full value by adding a scheduled personal property endorsement.

Personal Property Not Covered

Personal property specifically barred from coverage includes:

· Articles separately described and specifically insured elsewhere.

· Animals, birds, and fish.

· Motor vehicles and their equipment. (Except vehicles used to service your "residence premises" or for assisting the handicapped.)

· Aircraft and parts.

· Property of roomers and boarders who aren't related to you.

· Rental property away from the "residence premises."

· Rental property on the residence premises above $2,500.

· Business data: books, tapes, and software (except for blank tapes or store bought programs).

Loss Of Use Coverage

Loss of use Coverage D makes provision for two kinds of reimbursement:

· Additional Living Expense

· Fair Rental Value

The former involves any necessary increase in living expenses; the latter, the fair rental value of that part of the residence premises rented to others or held for rental by an insured. It is a condition of coverage that the premises be "uninhabitable."

Note: If no additional living expense is incurred while the insured's residence is uninhabitable, this coverage applies to the fair rental value of the home. Coverage applies to the personal property as well as the structure housing the covered property.

Additional Coverages

· Debris removal coverage includes the expense of removing your tree(s) felled by windstorm, hail, sleet and snow and a neighbor's tree(s) felled by any peril under Coverage C, but only for a maximum of $500 per loss no matter how many trees fall. The coverage has also been expanded to include removal of ash, dust or particles from a volcanic eruption that has damaged covered property.

· Trees, shrubs, and other plants coverage apply with a limit of $500 per item. The total limit for the coverage of 5% of the amount of insurance under Dwelling Coverage A is an additional amount of insurance.

· Fire Department Service Charge coverage is specifically limited to property located outside of recognized fire districts. The coverage does not apply when the property is located in the same territory as the responding fire department. The $500 reimbursement allowance, when applicable, pays for calling the fire department to protect property from any covered peril. This limit is an additional amount of insurance.

· Credit Card, Fund Transfer Card, Forgery and Counterfeit Money coverage includes insurance for fund transfer cards issued by banks. For coverage to apply, an insured has to comply with all of the card's terms and conditions. This coverage pays up to $500. Higher limits of coverage are optionally available by endorsement.

· Loss Assessment coverage applies, up to $1,000, to the insured's share of certain loss assessments made by the insured's condominium unit-owners association. The coverage is restricted to assessments resulting from the residence premises and the limit applies to each loss rather than each assessment. In other words, while a single loss may result in more than one assessment, the $1,000 limit is the maximum amount of coverage available for a given loss.

· Collapse coverage applies to direct physical loss to covered property involving collapse of a building or any part of a building caused by one or more specified perils.

· Glass or safety glazing material.

Perils Insured Against

Personal property and "improvements and betterments" are covered against direct loss caused by:

· Fire or lightning

· Windstorm or hail

· Explosion

· Riot or civil commotion

· Aircraft, including self-propelled missiles and spacecraft

· Smoke, meaning sudden and accidental damage from smoke including, for example, from emission through registers caused by furnace malfunction. It does not include smoke from agricultural smudging (crops that are covered with a greasy, smoky layer to protect them from frost) or industrial operations.

· Vandalism or malicious mischief, excluding loss to property if the dwelling has been vacant for 30 days or more.

· Theft, including attempted theft and loss of property from a known location when it is likely that the property has been stolen.

· Breakage of glass or safety glazing material which is part of a building, storm door or storm window and covered as Unit-Owners Building Items, except when the residence premises has been vacant for more than 30 days.

· Falling objects

· Weight of ice, snow, or sleet (with respect to property contained in a building)

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

· Sudden and accidental tearing asunder, 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.

· Freezing of a plumbing, heating, or air conditioning system or of a household appliance.

· Sudden and accidental damage from artificially generated electrical current.

· Coverage is newly included, countrywide, for volcanic eruption, other than loss caused by earthquake, land shock waves or tremors.

Changes In Covered Perils

Loss is excluded for theft of property from residence space that an insured rents to third parties. Theft from other unrented portions of the residence is covered.

The theft peril includes coverage for unattended property in motor vehicles or watercraft.

Exclusions

The policy bars coverage for losses (directly or indirectly) involving the following sources:

Ordinance or Law

This means enforcement of any ordinance or law regulating the construction, repair, or demolition of a building or other structure, unless specifically provided under this policy. The amount of damage attributed to the ordinance or law would not be covered. Building codes amended or enacted after the original construction of a building are a major reason for the implementation of this exclusion; requirements for changes in wiring or plumbing, for example. In some areas there are laws, which prevent the repair of a building, which has suffered damage of 50% or more of its value.

Earth Movement

Earth Movement means earthquake including land shock waves or tremors before, during or after a volcanic eruption; landslide, mine subsidence, mudflow; earth sinking, rising or shifting, unless directly caused by fire, explosion or breakage of glass, or safety glazing material which is part of a building, storm door or storm window and then only for the ensuing loss.

Note: Coverage exists for direct loss from volcanic blast or airborne shock waves, ash, dust or particulate matter, and lava flow. It also covers the removal of ash, dust or particulate matter that causes direct loss to eligible property. Water Damage

The meaning is clearly spelled out in the form. Questions arise, however, over what constitutes "surface water" loss, as this loss is not covered. Surface water refers to water, which stands or runs on the surface of the ground. It includes rainwater that forms in pools or otherwise collects on the ground. It also encompasses similar conditions created by garden hoses and irrigation systems.

Power Failure

The form simply excludes losses related to power failure (loss of service from a remote utility service, transformer, etc.). However, there is coverage for any resulting loss involving a covered peril.

Example: Lightning strikes and damages wiring on the insured premises, knocking out all power to the home. The power failure exclusion would not apply and the policy would pay for damage to covered property resulting from power failure caused directly by the lightning.

Neglect

This means the neglect of the insured to use all reasonable means to save and preserve property at and after the time of a loss. This exclusion underscores the insured's obligation to protect property that may have been damaged by a peril insured against. While an insured is obligated to take reasonable steps are to protect property, the obligation does not mean taking risks to personal safety, such as rushing into a burning building to save a DVD player.

War and Nuclear Hazards

The policy’s reference to "war" includes undeclared war, civil war, insurrection, rebellion, revolution, warlike act by a military force or military personnel, or destruction or seizure or use for a military purpose, and any consequence of any of these. Discharge of a nuclear weapon is deemed a warlike act, even if accidental. "Nuclear hazard" means any nuclear reaction, radiation, or radioactive contamination, controlled, uncontrolled or however caused, or any consequence of any of these. It is clear, however, that direct loss by fire resulting from the nuclear hazard is covered.

Intentional Loss

This exclusion applies to loss caused by and intended by an insured and denies coverage for all insureds when any insured commits an intentional loss.

Example: Launching a model rocket in a backyard and it goes off-course, through a neighbor’s bay window and into their large-screen TV – covered.

Example: Launching a baseball bat through the bay window of a neighbor because the insured was upset with the neighbor – not covered.

Conditions

This portion of the policy identifies a number of provisions and obligations that are critical to the contractual function of the HO 00 06 form. Breach of a condition could result in relieving an insurer of having to respond to a loss or lawsuit.

Your Duties After Loss Condition

This includes an obligation on the part of the insured to notify the credit card company (companies) in case of loss under the credit card coverage. The form, additionally, makes this condition applicable to bankcards.

Loss Payment

Loss is payable 60 days after the insurance company receives the insured's proof of loss and either reaches an agreement with the insured; or there is an entry of a final judgment; or there is an offering of an appraisal award with the insurer.

Mortgage Clause.

If the company cancels a policy or decides not to renew, it is a condition of the insurance that notice of such action will be sent to the mortgagee, as well as to the insured. It is specified in the form that the mortgagee shall be notified at least 10 days before the date that the cancellation or nonrenewal takes effect.

Note: This provision may be changed by laws or requirements of a particular state in which the form is issued.

Loss Settlement Clause

Losses involving amounts less than $2,500 can be adjusted at replacement cost without requiring that the item is repaired or replaced.

Personal Liability Coverage

Section II of the Homeowners policy includes personal liability coverage and medical payments to others coverage. This section also covers, as a supplement, damage to property of others coverage up to $500. Complete details of the coverage for personal liability are explained under a separate analysis since this coverage is identical in all HO policy forms.

Basic personal liability limit is $100,000 per occurrence and the basic limit for medical payments to others coverage is $1,000. Liability coverage is provided on the basis of an occurrence during the policy period, and defense of suits is covered, even if groundless, false, or fraudulent.

HOME BUSINESS INSURANCE COVERAGE - HO 05 90

Editor’s Note: This description involves the HO 05 90 Endorsement. It is no longer used with the latest edition of the ISO HO Policy. Such coverage is now provided by the HO 07 01 (and related) endorsements.

Home businesses are commonplace. These operations may be as simple as the employee who brings work home at night, to part-time “extra-income” ventures, to full-time occupations. Included are operations such as baby-sitting or daycare, craft or hobby risks, small catering or food processing, dressmaking, tailoring, or clothing design, photography, stenography, or data processing and so on. The list of the many types of home businesses is limited only by personal insureds’ time, resources, and entrepreneurial imagination.

The coverage provided by homeowners policies, even when supplemented with incidental business endorsements, falls far short of addressing the needs of most in-home businesses. However, commercial policies are often much too expensive an option for covering a home business. Even when commercial coverage is affordable, an in-home business may not have the necessary prior experience or credible financial information to qualify for a small commercial policy.

The Insurance Services Office (ISO) answers this situation with an endorsement that adds protection for an in-home business to a homeowners policy: the HO 05 90, Home Business Insurance Coverage Endorsement. This form is structured like a “mini” Businessowners Policy. Under a strictly controlled set of circumstances, the endorsement provides property and business liability. It even includes products-completed operations, business income/extra expense, and crime coverages.

Note: The business liability protection is not as broad as what is found in a commercial general liability policy (CGL). Premises liability coverage is limited compared to the CGL, and the definition of coverage territory is more restrictive. Further, the Home Business Insurance Coverage Endorsement does not provide two important coverages:

· professional liability and

· pollution liability.

ELIGIBILITY

OWNERSHIP

An eligible business must be owned by one of the named insureds listed on the homeowners policy or by a partnership, joint venture, or other organization to which the named insured belongs.

Important: The partnership, joint venture or organization can only be comprised of the named insured and that named insured’s resident relatives. Corporations are not specifically addressed in the ISO eligibility. Since corporations are a type of “organization,” it would appear that corporations are eligible. However, since all corporate officers would have to be either a named insured or his/her resident relatives, it is unlikely that many corporations would qualify for coverage. Qualifying “family” corporations would likely be modest. Finally, corporate eligibility would also be controlled by the amount of receipts, size, etc. Therefore, a qualifying corporation is unlikely to represent any greater loss exposure than non-corporate home businesses. A business may be operated (insured) under a business name other than the named insured shown in the homeowners declarations; however, that name should be listed either on the endorsement’s schedule or elsewhere in the policy.

LOCATION

The business generally should be operated from the “residence premises” declared in the homeowners policy and, if located on the residence, the business must be incidental to the home’s primary use as a residence. The business may be operated out of another structure as long as that structure is located on the described “residence premises.”

Example: Bill and Bettye Bizwell own a home that is insured under a special form policy. The policy is modified with a Home Business Endorsement. It is described as Bill & Bet's Country Collectibles. The business is operated from their home. However, their home is quite large, exceeding 4,500 square feet and 75% of the space houses their business. Bill and Bettye work for Country Collectibles full-time and they net a six-figure income each year. This operation is greater than what is intended to be covered by the Home Business Endorsement.

EMPLOYEES

An eligible business may not have more than three employees. Applying this rule to corporations can be problematic. There is no guidance regarding active or inactive corporate officers, so there may be some questions when a corporation is being evaluated for coverage as an in-home business. The possibility of one or more active officers, one or more inactive officers, and one or more employees may exist. Would a business with two active officers, one inactive officer, and one employee qualify? Since the ISO eligibility is unclear on this matter, it would be up to an individual company to establish its own criteria. Of course, practically speaking, a corporation that is established to the point that it has active and inactive officers along with employees is less likely to meet other eligibility criteria, so the situation might be a rare occurrence.

RECEIPTS

Only businesses that generate $250,000 in annual receipts or less may be considered for the Home Business Insurance Coverage endorsement. A business capable of exceeding this income maximum would be smart to purchase conventional commercial coverage.

INELIGIBLE BUSINESSES

If the business operation involves any of the following, the Home Business Insurance Coverage endorsement may not be used:

· manufacture, sale, or distribution of food products

· manufacture of personal care products such as shampoo, hair color, soap, perfume, or other similar items that are applied to the body or that may be consumed

· the sale or distribution of any personal care products that are manufactured by the insured such as shampoo, hair color, soap, perfume, or other similar items that are applied to the body or that may be consumed

· exposures, which can be, covered with either the Permitted Incidental Occupancy (HO 23 41) or the Home Day Care Coverage (HO 04 97) Endorsements. Businesses that commonly qualify for these two endorsements are some day cares, offices, professional, studios, and some private schools.

The ISO eligibility does not list any other program exclusions. However, ISO does provide a structure where each insurer may develop a format for eligible and ineligible business types. Since the Home Business Insurance Coverage form provides products/completed operations protection, it should be expected that most insurers will not cover high products-hazard risks, such as machine shops, any type of metal goods manufacturing other than purely decorative, and toy or furniture manufacturing.

CLASSIFICATIONS

ISO has developed four broad classifications for use with this program. However, they have left the decisions regarding the classification, eligibility, and acceptability of specific business types within the classifications, to the individual insurers. The classifications are:

OFFICE

Professional or administrative concerns such as accounting, resume writing, telephone answering, and similar operations.

SERVICE

Businesses that provide repair or other services. Examples include repair operations like bicycle, clock, jewelry, computer, electronics, or non-repair services such as housecleaning, carpet or drapery cleaning, photographers, videographers, etc.

SALES

This category is meant for businesses that sell products (EXCEPT crafts made at the residence premises) and includes operations that sell books, magazines, costume jewelry, plants, flowers, stationery, other paper products and so forth.

CRAFTS

This category includes operations that sell crafts that are made at the residence premises such as ceramics, dolls, quilts, and clothing.

Note: Individual insurers will set their own criteria, so vast differences in categorizing businesses will exist among different carriers. What is acceptable to one insurer will be ineligible for another or two different insurers may accept a certain business but classify it differently.

COVERAGE ANALYSIS

The Home Business Insurance Coverage endorsement provides coverage for business exposures by changing the way the homeowners policy defines “business” and “insured.” The modified definitions coupled with the addition of nearly 20 other business or commercial terms amends the homeowners policy to provide business protection. Let us look first at the two redefined terms.

“business” - refers to a trade, profession or occupation that is described in the Home Business form’s Schedule. The operation must be run either at or from the "residence premises" and it must be owned by either:

· the named insured,

· a partnership, joint venture, or

· other organization.

If the business is owned by an entity that is larger than the named insured, that entity has to consist only of the named insured and relatives who are members of the named insured’s household. The restriction of business owners to the named insured and resident relatives applies not only to business partners; but also, to stockholders.

“insured” - is modified to refer to both the named insured and any residents of the named insured’s household who are relatives, but only if they are partners, members, or stockholders in the insured’s business operation. However, the named insured and any resident relatives must be the business’s ONLY partners, members, or stockholders. If there are any other partners, members, or stockholders, the business is not eligible for the program since it does not meet the definition of “insured.”

Note: Pay particular notice to the fact that, if the described business involves an ownership interest which is neither a named insured nor a relative of the insured who lives in the insured’s house, the situation does not qualify under the Home Business form’s definition of “insured” nor “business.” Therefore, a loss involving a business, which is partially owned by someone other than, an insured or his resident relative is ineligible for coverage. Obviously, this form should not be used for any home business exposure that faces the likelihood of adding a new ownership interest.

Example: Jason Argonut runs Sue-ME.com out of his home. Sue-Me is a specialized Internet search engine that helps users identify the easiest way to file a lawsuit against another person or company. Jason hires one employee and then another as his business grows. His insurance agent has kept track of his business and had Jason add the HO 05 90 Home Business Insurance Coverage endorsement to his policy. Three months into his modified homeowners policy term, Jason rewards his two, hard working employees with stock in his Sue-Me.com. A couple of months later, a client who is visiting Sue-Me for guidance on working with their search engine trips over a pile of cables and hits her head against a desk. The client slips into a coma and loses her business. The client’s family uses Sue-Me.com’s search engine to file an airtight lawsuit against Sue-Me.com. When Jason requests that his insurer protect him against the claim, he’s told that, because his employees have received stock, the Home Business endorsement is voided.

Employees of the described business are also insureds when acting within their job duties. However, injury by an employee:

· to the named insured or other members of the insured’s household

· that is caused by providing or not providing professional health care service

· which involves paying on behalf of or sharing a loss that must be paid because of an injury to an insured or resident relative

are excluded from coverage.

Further, there is no coverage for property damage to property owned or controlled by any insured or his employees.

The revised definitions are consistent with those found in the ISO version of the BOP (Businessowners Policy). The additional definitions are:

advertising injury - injury from oral or written material that slanders, libels, or disparages; or violates a right of privacy; misappropriation of ad ideas or business style; infringement of copyright, title, or slogan

business income - the net income (net profit or loss before income tax), plus normal continuing operating expenses including payroll

coverage territory - The U.S., its territories and possessions, Puerto Rico, Canada; international waters or airspace, as long as travel or transport is to or from a listed coverage territory; worldwide products for goods made or sold by the insured in the coverage territory and for suits brought in coverage territory. Coverage is also worldwide for the insured or other person while on the insured’s business, provided that person lives in the coverage territory and is away from the coverage territory for less than one month

employee - includes a “leased worker” but not a “temporary worker”

extra expense - the necessary expense incurred during the period of restoration, as long as the expenses actually reduce the amount of loss

impaired property - refers to tangible property, excluding product or work of the insured, that has lost all or part of its usefulness because it contains a product or work of the insured that is known or thought to be defective, deficient, inadequate, or dangerous and that property can be restored by repair, replacement, adjustment or removal of the product or work of the insured. Property is also considered impaired if its usefulness has been wholly or partially destroyed by the insured’s failure to fulfill the terms of a contract/agreement and the property can be restored by the fulfillment of that contract/agreement

leased worker - a person leased to the insured by agreement with a labor-leasing firm to perform the duties of the insured’s business, excluding “temporary workers”

loading or unloading - the handling or movement of property onto, into, while on, and until delivered-off of or from, any aircraft, watercraft, or “auto,” Loading/unloading DOES NOT include property moved by mechanical devices other than a hand truck or those attached to the vehicle

operations - "your" business activities at the “residence premises”

period of restoration - begins 72 hours after direct physical loss (immediately for extra expense) and ends on the date property SHOULD be repaired with reasonable speed and same quality, or when the business is resumed at a new permanent location

personal injury - loss other than “bodily injury” from false arrest, detention, imprisonment; malicious prosecution, wrongful eviction, entry or invasion of the right of privacy of a room, dwelling or premises occupied with permission, oral or written material that slanders or disparages goods, products, or services; oral or written material that violates a right of privacy

pollutants - any solid, liquid, gaseous, thermal irritant or contaminant, smoke, vapor, soot, fumes, acids, alkalis, chemicals, and wastes-including products to be recycled, reconditioned, or reclaimed

products-completed operations hazard - “bodily injury” and “property damage” away from insured premises, caused from the product/work of the insured, except products in the insured’s physical possession or work not completed/abandoned. Completed work is when all work in the contract is complete; or finished work on a site if the contract calls for work at more than one site; or work on a site has been put to its intended use by other than a contractor or subcontractor working on the same project. No transportation of property, unless loss from “loading or unloading”; or tools, uninstalled equipment, or abandoned/unused materials

suit - a civil proceeding alleging damages for injury/offenses covered by this insurance, including arbitration or other alternative dispute resolution proceedings with insurer consent

temporary worker - a person furnished to the insured to substitute for a permanent “employee” on leave, or to meet a seasonal/short-term workload condition

valuable papers and records - inscribed, printed, or written documents; manuscripts; records, abstracts, books, deeds, drawings, films, maps, or mortgages. Not included: “money,” “securities,” converted data, programs, instructions used in data processing, nor materials the data is recorded on

your product - any goods, products (other than real property) manufactured, sold, handled, distributed, or disposed of by the insured, including containers other than vehicles, materials, parts, or equipment furnished in connection with such goods or products. Also includes warranties/representations regarding the fitness, quality, durability, performance, or use of the product; the providing of or failure to provide warnings or instructions. Not included are vending machines or other property rented to or located for the use of others but not sold

your work - work or operations performed by, or on behalf of, the insured; materials, parts or equipment furnished in connection with such; as well as, warranties or representations made with respect to the fitness, quality, durability, performance, or use of the work; the providing of, or failure to provide, warnings or instructions

Again, these definitions are consistent with those found in the ISO version of the Businessowners Policy (BOP).

SECTION 1—PROPERTY

A. OTHER STRUCTURES USED FOR BUSINESS

In the basic homeowners policy any structure, other than the dwelling itself that is in any way, at any time, used for business purposes is not covered. The Home Business Insurance Coverage endorsement provides coverage by adding separate insurance for another structure. That structure has to be described and must specify a separate insurance limit. Once scheduled, the applicable other structure is not covered by the policy’s insurance limit appearing under Coverage B.

Example: scenario one - Cloy Benspot’s home is, inexplicably, insured under a Broad Form Homeowners policy with a Coverage B insurance limit of $20,000. His premises include two large, detached garages. Garage A houses the Benspot family vehicles while Garage B is used as the office/warehouse for Benspot Home Cleaning Services. Garage B is scheduled on the Home Business Insurance Coverage endorsement for $8,000. However, when Garage B is flattened during a severe windstorm, the loss to the building is estimated at $13,000. In this instance, only $8,000 is available to replace Garage B even though the policy has $20,000 under its Coverage B limit. ONLY the SCHEDULED coverage applies to another structure that has a business use. On the other hand, if Garage A were destroyed and the Coverage B limit was inadequate to replace the building, the insurance under the Home Business endorsement WOULD NOT be available for the loss.

The fact that the regular insurance provided under the basic homeowner’s Coverage B and that granted under the Home Business endorsement’s Coverage A are mutually exclusive generally makes sense. However, what would happen if, for some reason, the business use terminated?

Example: scenario two - Cloy Benspot’s home is, inexplicably, insured under a Broad Form Homeowners policy with a Coverage B insurance limit of $20,000. His premises include two large, detached garages. Garage A houses the Benspot family vehicles while Garage B had been used as the office/warehouse for Benspot Home Cleaning Services and were scheduled on a Home Business Insurance Coverage endorsement for $8,000. Several months after scheduling the other structure, Garage B is flattened during a severe windstorm. Again, the loss to the building is estimated at $13,000. When Cloy is told that, per the endorsement, only $8,000 is available to replace Garage B, Cloy gives the insurer proof that the business use of the garage ended two months before the loss. Due to this circumstance, how should coverage apply?

A. The $8.000 should be the total coverage available since it was specifically scheduled for Garage B?

B. The endorsement should be ignored and full ($13,000) coverage be provided under Coverage B of the homeowners policy? or

C. The homeowners policy should provide $5,000 in excess of the $8,000 provided by the endorsement?

The way the policy and the endorsement are worded, the appropriate response should be item B. above. While the homeowners excludes coverage for items that are specifically covered, the endorsement’s coverage was lost once the garage was no longer used in business. It appears appropriate that the basic policy coverage be applied and, if allowed by the insurer’s rules, a partial refund should be returned on the Home Business Insurance Coverage endorsement premium.

B. COVERAGE C PERSONAL PROPERTY

Personal property used for business purposes may be covered, up to the limit selected and stated in the endorsement, while contained in the dwelling that is located on the “residence premises” insured in the homeowners policy. The option also exists to designate a specific limit for personal property coverage in other structures, as long it is located at the “residence premises.”

If no limit is shown for business personal property, then the $2,500 currently provided for in the homeowners policy is the maximum coverage available.

Also covered as personal property is the property of others in the insured’s care, custody, and control, as well as leased personal property that the insured has a contractual responsibility to insure.

MONEY

The unendorsed homeowners policy provides a maximum of $200 for money, bank notes, bullion, gold (other than gold ware), silver (other than silverware), platinum, coins, and medals. With the Home Business Insurance Coverage endorsement, the limit is increased to $1,000. This $1,000 is the maximum available for the combination of personal and business loss. For example, it does not give $200 for personal money losses and $1,000 for business money losses; it only increases the total limit provided, so the result is that the Home Business endorsement provides an additional $800 coverage for money, bank notes and similar property.

VALUABLE PAPERS AND RECORDS

No coverage is provided under the homeowners policy Coverage C for the cost to research, replace or restore business information on lost or damaged material. This exclusion applies to business information in any format whether it is paper, electronic, and so forth. However, the Home Business endorsement, under its Additional Coverage section, does add some coverage for this class of property.

OFF-PREMISES

The limit for business property while it is away from the residence premises is increased to $5,000 from the $250 set in the homeowners policy. This increase in off-premises protection does not apply to money and securities.

PROPERTY NOT COVERED

In addition to the types of property not covered in the underlying policy, one additional type of property is also excluded - contraband or property that is used in the course of illegal transportation or trade.

C. SECTION 1—ADDITIONAL COVERAGES

Two coverages provided in the homeowners policy as homeowners additional coverages are expanded for commercial application. They are:

1. Trees, Shrubs And Other Plants - normally, this type of property grown for commercial use is excluded, but in the Home Business endorsement it is now covered for the same insurance limits as non-commercial trees, shrubs, and plants.

2. Credit Card, Fund Transfer Card, Forger and Counterfeit Money - was limited to $500 in the homeowners policy with no coverage is the loss was related to business activity. It has now been increased to $1,000, and the business use restriction has been eliminated.

Five new “business” additional coverages are added by the Home Business endorsement:

1. Accounts Receivable - The form provides up to $5,000 on premises and $2,500 away from the residence premises.

2. Valuable Papers and Records - A maximum of $2,500 is available for direct damage to such property while located on the residence premises. The coverage includes the cost of research and other expenses to recreate or restore business records. However, the coverage DOES NOT apply to:

- business samples

- property to be delivered after being sold

- property located away from the residence premises.

3. Business Income - actual loss sustained (the business income definition has been added in this endorsement). Included with Business Income is additional coverage for Extended Business Income, which provides protection for up to 30 days after the business has been restored with reasonable speed when a covered business income loss has occurred.

4. Extra Expense - actual expenses incurred (the extra expense definition has been added in this endorsement).

5. Civil Authority - covered is the actual loss sustained for business income and extra expense as a result of action by a civil authority prohibiting access to the residence premises.

EXCLUSIONS

The following additional exclusions apply:

1. Dishonesty

No coverage exists for any loss or damage from any dishonest or criminal act related to the actions of the insured. Such actions are also excluded when they involve anyone with any interest in the property; any of their partners, employees, directors, trustees, authorized representatives; or anyone at all to whom property has been entrusted for any purpose. This exclusion applies regardless whether any of the mentioned persons were acting alone, or in collusion. It also applies whether or not the actions occur during business hours or in the course of employment.

There are a couple of exceptions to this exclusion. The exclusion does not affect coverage for acts of destruction by employees. (Theft by employees is definitely excluded but acts of destruction are covered.) It also does not affect loss or damage to accounts receivable and valuable papers and records by carriers for hire.

Example: Rita Naywirth runs a modest bookstore out of her home called “Easy Readers.” Rita’s homeowners policy includes a Home Business endorsement that contains a description of her business. Rita still hasn’t recovered from the huge argument she had a few days earlier when she fired Bernie, a very lazy employee. Her new employee, Trudy, is a pleasant surprise. However, Rita is stunned when Trudy calls her over with a discovery. A display containing scores of her store’s bestsellers had all been saturated with glue…Bernie’s farewell shot. This loss would be covered by the Home Business endorsement.

2. False Pretense

In cases where loss or damage has occurred because the insured, or someone the insured entrusted with property, voluntarily parted with the property through a fraudulent scheme, trick, device or false pretense, there is no coverage.

Example: It’s Rita Naywirth again. She's reported the loss of a shipment of a bestseller. Last week, a person identifying herself as the president of a local school board arranged to purchase three dozen copies of a bestseller. She said she was going to share the books with the board members and other school parents for a review. Rita agreed to ship the books and the president gave her a shipping and billing address. Rita shipped the books later that day. The next week, Rita called the board's office to follow-up on the sale. She discovered that the number was valid, but the board was not at the address she was given by the "president." Further, Rita happened to have called the board's real president who said she had never heard of the person who bought the books. The address Rita shipped the books to an abandoned storefront. Since Rita was tricked into delivering property, the loss was not covered.

3. Business Income and Extra Expense Exclusions

The Home Business Insurance Coverage form will not provide protection against any business income loss or extra expense that is related to:

· delays in rebuilding, repairing, or replacing property or resumption of operations that are caused by strikers or other persons;

· suspension, lapse, or cancellation of a license, lease, or contract; or

· consequential losses.

4. Accounts Receivable and Valuable Papers and Records Exclusions

The exclusions that apply to Accounts Receivable and Valuable Papers and Records are similar to those found in standard commercial property policies. Briefly, there is no coverage for loss to either of these property classes which:

· are due to War, Neglect, Nuclear Hazard, or Intentional Loss

· involve erasure or distortion of business information that is caused by programming errors, faulty machine instructions or by the improper installation/maintenance of data processing equipment or parts (but there is coverage for such damage when it’s caused by lightning strikes)

· is contraband or illegally traded or transported property.

Under Accounts Receivable, there is not protection against losses:

· revealed by bookkeeping errors including erroneous billing

· due to altered, falsified, concealed, or destroyed records, or

· revealed by auditing or inventory computations.

Under Valuable Papers and Records, no protection is available for losses:

· due to processing or copying errors (including omissions) or

· resulting from wear and tear, deterioration, or latent defect.

CONDITIONS

All of the basic homeowner policy provisions apply to the Home Business Insurance Coverage endorsement; however, a number of property conditions are added or revised. The changes result in making the Home Business coverage similar to what is found in commercial property forms.

Loss Payable - obligates the carrier to include any “business” loss payable in any loss adjustment or claim settlement.

Lender’s Loss Payable - similarly, a mechanism is provided to add coverage for loss payees who, through various circumstances, are loss payees. The insurable interest of such payees is commonly established by the following:

· warehouse receipts;

· contracts for deeds

· bills of lading

· financing statements

This condition further obligates an insurer to make payments that are proportionate to each person’s insurable interest in the property that suffers damages.

Contract Of Sale - likewise, coverage is available to protect the interest of the parties involved in contracts of sale on covered property

Property Of Others - the value of property of others in the insured’s care, custody, or control will be determined by the amount for which the insured is liable PLUS the insured’s labor, materials, or service costs.

Valuable Papers And Records - for those valuable papers and records that are not replaced or restored, their value will be based upon the cost of either prepackaged software programs or the blank materials needed for reproducing the records, plus the labor to transcribe or copy such.

Accounts Receivable - when the insured is not able to accurately determine the accounts receivable that are outstanding at the time of loss, a particular valuation method is used. Under this method, the amount of recovery is, basically, the average monthly values of accounts receivable for the 12 months preceding the loss. These monthly values are adjusted for seasonal or normal fluctuations minus undamaged accounts, collectable accounts, bad debts normally uncollectible, and unearned interest and service charges.

No Benefit To Bailee - this condition found in the homeowners policy is reworded to clarify that no entity or party other than the insured who has custody of covered property will benefit from this insurance. The condition preserves the insurer’s position to subrogate against a bailee for losses it pays out under the policy.

Example: Pete Klericul is a freelance restaurant critic who works from his home’s office. His multitude of equipment, including a state-of the-art laptop, is insured under the Home Business Insurance Coverage endorsement. Pete stops in the Great Purchases Hotel and Consumer Warehouse to pick up his laptop. The store’s PC Services Dept. had the laptop to upgrade its memory. The manager says that the previous night, someone broke into the store and Pete’s laptop was among the stolen merchandise. A couple of weeks later, after paying Pete for the loss, his insurer then contacts Great Purchases to get reimbursed for the loss.

Coverage Territory - this condition states, with respect to business property, that any loss or damage that commences or begins within the coverage territory or is otherwise in transit between points in the coverage territory, is covered.

This statement appears to be redundant considering wording found elsewhere in the endorsement.

Resumption Of Operations - in order to encourage speedy resumption of operations after a loss, if the insured can resume operations in whole or in part by using the property at the residence premises, whether damaged or not, the insured must do so, or the amount of business income or extra expense coverage will be reduced accordingly.

Limitation - Electronic Media And Records - the Home Business Insurance Coverage form will not pay for loss of business income involving electronic media and records that still exist after 60 days from the loss date or the time it takes to replace, rebuild or repair other business property that was damaged in the same loss. This limitation protects the insurer against prolonged business information recovery efforts such as situations where no backups or copies exist.

Electronic media and records are defined as:

· EDP recording or storage media including films, tapes, discs, drums, or cells; the data stored on the recording media; or the programming records used for electronic processing; or

· electronically controlled equipment. Programming records can include operations manuals, procedure manuals, development manuals, or printouts of actual computer code.

SECTION II - BUSINESS LIABILITY COVERAGE

Coverage E—Personal Liability is extended to cover business liability for on-premises and products-completed operations hazards as long as the occurrence takes place in the coverage territory and during the policy period. Further, the loss must result from the necessary or incidental use of the residence premises to conduct the business. Coverage is also extended to include both personal injury and advertising injury liability.

If you’re used to working with CGLs, it is very important to resist the temptation of assuming that the coverage is the same. This portion of the Home Business Insurance Coverage form is not as encompassing as a CGL. This form is a narrower type of commercial liability coverage that offers: the following:

· on-premises liability at the residence premises,

· limited off-premises protection, and

· products/completed operations coverage.

Coverage F—Medical Payments to Others is similarly extended to business occurrences.

EXCLUSIONS

The Home Business Insurance Coverage adjusts the homeowner policy’s liability exclusions to suit its needs by modifying the following:

The exclusion against coverage of business-related losses by redefining it to make an exception for losses involving the business described in the endorsement; including the insured’s work or product.

The exclusion against professional liability by including nine examples of professional services that do not qualify for coverage. Note that the examples are illustrations of what is excluded and are not intended to be merely a list of ineligible activities.

The Home Business Insurance Coverage adjusts the homeowner policy’s liability exclusions to suit its needs further by adding several exclusions. The following do not qualify for coverage under the endorsement:

· specified instances of personal or advertising injury like breach of contract, other than misappropriation of advertising ideas under an implied contract; the failure of goods, products or services to perform or conform with advertised quality; wrongful description of price or goods/services; or any offenses committed by an insured while in the advertising, broadcasting, publishing or telecasting business

· damage to impaired property or property not physically injured

· damage to particular property, such as premises the insured has sold, given away, or abandoned; damage to premises at which the insured, or a contractor/subcontractor working on behalf of the insured, is performing operations; or any part of any property that has to be repaired or replaced because work done by the insured was not correctly performed

· damage to your product or any part of it

· damage to your work or any part of it (unless performed on the insured’s behalf by a subcontractor)

· employer’s liability—excluded is any bodily injury to an employee of the insured, or the spouse, child, parent, brother, or sister of that employee, as a consequence or result of employment or performance of duties necessary and relating to the conduct of the insured's business. It is further clarified that the exclusion applies whether the insured is liable as an employer, or in any other capacity, or whether the insured is obligated to share damages with or repay someone else, who must pay damages because of the injury, recall of products, work, or impaired property

· personal or advertising injury

· pollution

· recall of product, work, or impaired property.

EXCLUSIONS TO MEDICAL PAYMENTS TO OTHERS

Excluded are any medical payments to others for bodily injury suffered by any insured, by a person hired to work for or on behalf of the insured or tenant of the insured, by persons involved in athletics, by injury otherwise covered by the products/completed operations hazard, or by any other injuries otherwise excluded under the Coverage E – Personal Liability exclusions.

C. SECTION II – ADDITIONAL COVERAGES

In the Personal Liability Additional Coverage 3 for Damage to Property of Others, the exclusion regarding the business of the insured is deleted. All of the exclusions in this endorsement already discussed as applicable regarding property damage apply to this additional coverage. However, the limit of liability for this coverage is increased to $2,500 per occurrence, subject to the aggregate limit shown in the schedule.

D. SECTION II - CONDITIONS

LIMITS OF LIABILITY

1. The limit for products-completed operations hazard is the same as that for the Coverage E limit shown in the declarations.

2. The limit for all other business liability is twice the sum of the Coverage E and F limits shown on the declarations.

3. The limit for Damage to Property of Others is increased to $2,500 per occurrence.

IMPORTANT: All of the limits referenced above are annual aggregates. In other words, these limits are reduced by each and every loss that qualifies for coverage and are only restored when the policy renews to a new, annual policy period. Therefore, any or all of the limits could be exhausted during a policy period.

SEVERABILITY OF INSURANCE

The coverage in this endorsement will be applied separately to each insured except for the Limits of Liability. The Annual Aggregate Limits of Liability are not increased in any way no matter how many insureds are involved.

Of course, the fact that the Home Business form’s coverages apply separately and equally to any and all insureds is an extremely minor point considering that each and every loss reduces the annual aggregate limits of insurance. This condition is just another way of saying that all losses within a policy period may be racing with each other to exhaust coverage.

E. SECTIONS I AND II—CONDITIONS

POLICY PERIOD AND COVERAGE TERRITORY

The homeowners condition regarding policy period and coverage territory is replaced by wording that clarifies that losses must occur during the policy period and within the defined coverage territory to be protected by this endorsement.

EXAMINATION OF YOUR BOOKS AND RECORDS

A new final condition is added which gives to all insurers the right to examine and audit the insured’s books and records as they relate to the insurance coverage provided. The insurer many examine this material at any time during the policy period, plus any time up to three years after expiration.

ISO PERSONAL PROPERTY REPLACEMENT COST ENDORSEMENT—
HO 04 90 04 91

Purpose

This endorsement allows losses to personal property (Coverage C) to be covered on the basis of its replacement cost, rather than at actual cash (depreciated) value.

What Is Covered

The optional form applies to:

personal property	awnings
carpeting	household appliances
outdoor antennas	outdoor equipment

However, the above property must also be covered by the basic (unendorsed) homeowners policy. If, for some reason, any category of property is NOT covered by the unendorsed HO, that coverage limitation follows through to this endorsement.

Note: Outdoor equipment is covered, regardless whether it is attached to any structure.

The following types of property will be covered for replacement cost if they are separately described and specifically insured in this policy:

· jewelry

· furs and garments trimmed with fur or consisting principally of fur

· cameras, projection machines, films, and related articles of equipment

· musical equipment and related articles of equipment

· silverware, silver-plated items, goldware, gold-plated items and pewterware (not including pens, pencils, flasks, smoking implements or jewelry)

· golf clubs, golf clothing and golf equipment

Note: Personal property replacement cost coverage does not apply to other classes of property separately described and specifically insured.

Property Not Covered

Certain types of property are not eligible for replacement cost coverage. Losses involving the following classes of items will be settled according to the property's actual cash value at the time of the loss. In no instance will the amount paid out for the loss exceed the actual amount that is required to repair or replace the item(s).

1. Articles of rarity or antiquity that cannot be replaced, including (but not limited to):

· antiques

· fine arts

· paintings

2. Articles whose age or history contribute to their value including (but not limited to):

· memorabilia

· souvenirs

· collector’s items

3. Articles that are not maintained in good or workable condition.

4. Articles that are outdated or obsolete and are stored or not being used.

The reasoning behind the above limitations is solid. A homeowners contract is built on certain assumptions regarding personal property value. A major assumption is that a policy is designed and rated for "normal" property. Normal or regular property consists of property that is:

· fairly new

· commonplace

· readily replaced (not obsolete)

· in ordinary household use and

· has no special (appreciating) value

Restricting replacement cost coverage to normal property is consistent with the idea of indemnification (restoring "pre-loss" condition). Making replacement cost coverage available to any and all property results in a post-loss condition that is a substantial improvement over the pre-loss situation.

Replacement Cost

Certain procedures apply to all property insured at replacement cost under this endorsement.

The insurance company will pay the least of the following amounts:

· Replacement cost at the time of the loss, with no depreciation for deduction.

· The entire cost of repairing property at the time of the loss.

· The entire limit of insurance that applies to Coverage C if that is the applicable coverage part.

· Any special limits, when applicable, that are separately stated in this policy.

· The limit of liability that applies to any item of property that is separately described and specifically insured.

Note: If the entire loss exceeds $500, the insurance company will not pay any more than actual cash value until the repair or replacement is complete. “You” may make any claim for loss on an actual cash value basis and then submit to the insurance company proof of any additional liability within 180 days of the date of the actual physical loss.

Additional Premium

The additional premium for converting Coverage C from an actual cash value basis to a replacement cost basis is developed by applying a factor to the base premium for a homeowners policy, including any premium adjustment for Coverage C limits.

Underwriting Considerations

A company's underwriting rules govern the use of its personal property replacement cost endorsement. Most companies make it available for all homeowners forms except Form HO 00 08 (where available). Some require a specified percentage increase in Coverage C limits and a substantially increased minimum amount of insurance for Forms HO 00 04 and HO 00 06.