(June, 2009)
Note: This analysis is based on the January 2008 edition of the form. Changes from the previous edition are in bold print.
The homeowners program offered by the American Association of Insurance Services (hereafter referred to as AAIS) is simply and logically structured as it is a form of an easy-to-read insurance document. Like its peers, the basic form policy begins with a table of contents.
The table of contents consists of the following:
· Agreement
· Definitions
· Property coverages (including principal/incidental property coverages, covered perils and property exclusions)
· Liability coverages (including principal/incidental liability coverages, medical payments and liability exclusions)
· Loss or claim provision
· Loss Settlement Provision
· Payment Provision
· Policy conditions
The policy's opening language states that the policy is subject to all of its terms and will provide property, liability and other insurance coverages that are described in the policy. These coverages are provided for a specific policy period. In return for this protection the insured must pay a premium as required. Principal coverages apply only if a limit is shown for it on the declarations.
The definitions section appears immediately after the Agreement.
You and
Your
The person(s) who appear on the declarations as insured(s). The named insured’s spouse is also defined as you, but ONLY if he or she lives in the insured's household.
Note: Where possible, it would be prudent to have both spouses appear on the declarations. If not, a non-resident spouse could be denied coverage under circumstances where coverage should actually apply.
We, Us, And Our
The company providing the homeowner's coverage.
Actual Cash Value
The amount it takes to repair or replace property, but that amount includes consideration of depreciation. How depreciation is determined is not established.
Aircraft
This term is used only in the Liability section and refers to property made or used for flying. If a model aircraft and model hovercraft is not designed or used to carry people or cargo, it is not considered aircraft. Also, a hovercraft is not considered aircraft.
Bodily injury
Actual or physical harm to a person. Harm includes sickness, disease, or death. Any required care and loss of services also qualifies as bodily injury. Unless a person has a physical injury first, there is no coverage for harm such as injury or death that comes from an emotional or mental injury.
Example: A neighbor visits an insured whose home is protected by a basic form HO policy. They are having a friendly chat in the insured’s backyard. The neighbor is leaning against the insured’s wood fence that, unknown to either person, was heavily damaged by dry rot. The fence suddenly collapses and the neighbor flails about wildly but does not fall and is uninjured. However, she is very embarrassed since several other neighbors witness the incident. They make fun of her rest of the summer. She files a lawsuit against the insured. The insured’s policy will not handle any damage claim because no physical harm was involved.
Business
A trade, profession or occupation including farming, even if only occasionally practiced. This term includes the rental of property to others but does not include the occasional rental for residential purposes of the part of the covered location that is normally occupied solely by persons in the named insured’s household.
If an insured receives money for an activity, it is considered a business. There are exceptions though. If an insured is caring for a relative, it is not a business even if money is exchanged. When an insured cares for a person, other than a relative, and, in exchange, receives like services, it is not a business.
Example: Jo Babyboom and Jack Paintur have an agreement. On Tuesdays, Jo watches Jack’s retired father. On Fridays, Jack takes care of Jo’s preschooler, Penny. The weekly arrangement allows both of them to have some time for themselves and to run errands. As long as neither receives any additional benefit from the agreement, the activity should not be considered a business.
Volunteer activities are also not a business even if the insured receives reimbursement for expenses. However, if compensation is provided, the activity no longer qualifies for an exception and the activity is considered a business. Other activities the insured may engage in are not considered business as long as a particular insured’s total compensation does not exceed $2,500 per year.
Declarations
This term refers to any document that is related to the homeowner policy and which may be called Declarations, Supplemental Declarations, or Schedules.
Described Location
A house (up to a four-family structure), townhouse or row house that is used by the insured for residential purposes provided it is described in the policy (schedule/declarations). The term also refers to related structures (such as garages, sheds, etc.) and grounds.
Private structures related to row houses and town houses qualify as described locations only if solely residential and used exclusively by the insured’s household.
Example: Gosh I. Ownit lives in (and owns) a town home that is insured by a Basic Form Homeowner policy. He also owns a small, unattached garage located behind and to the left of the town homes where he lives. In other words, the garage is NOT on the land directly behind Gosh’s town home. Directly behind Gosh’s town home is a small brick building that’s used to store the town home association’s lawn and maintenance equipment.
One day, a fire destroys the garage. Now, while the private garage does not share the adjacent portion of land as Gosh’s town home, he does use the garage in conjunction with his home, so it would be covered. On the other hand, if the small storage building located directly behind Gosh’s home was damaged in a fire, Gosh’s policy WOULD NOT cover the loss (though it might contribute to repairs via the loss assessment coverage).
Domestic employee
A person employed or leased under contract by an insured, to perform duties that are connected to the use and care of the described location such as a butler, housekeeper or gardener. Included are persons who perform duties of a similar nature elsewhere for an insured provided the duties do not include business related functions.
A person, who is furnished to the insured as a temporary substitute or to meet seasonal or short-term needs, is not a domestic employee.
Example: Henrietta works for Household Temps. Household’s owner has a friend, Marcy, who is overwhelmed with getting her home ready for an upcoming wedding. The owner sends Henrietta to Marcy’s home for one week to help with the cleaning. Henrietta is a not a domestic employee.
Employee
Refers to a party who is employed in the business of an insured. The term includes persons who are hired via a labor leasing arrangement. The duties of such persons involve an insured’s business and not the residential or personal-oriented activities performed by a domestic employee.
Fungi
Any fungus (including but not limited to mildew and mold) as well as any substances released or created by such matter qualifies as fungi.
Hovercraft
This term is used only in the Liability section and refers to machines (including property called flarecraft) that are capable of traveling over the ground or water via the use of a compressed air cushion. The term does not apply to motor vehicles, aircraft, or watercraft. It also does not refer to models of hovercrafts, aircraft or watercraft that are neither designed nor used for moving people or property.
Insured
Insured includes the person or persons named in the declarations (named insured) and that person’s relatives who live in the household. In addition, there are a number of persons who are insured based on conditions and circumstances:
· Relatives of the named insured who are under the age of 25, enrolled in school fulltime, are still financially dependent on the named insured and lived in the household prior to moving out to attend school
· Non-relatives of the named insured under the age of 21 who live in the household and are in that person’s care or in the care of a relative of a person who also lives in the household. These non-relatives are also covered while away from the household attending school full-time, provided they continue to be under the care of the named insured or a relative resident and had lived in the household prior to moving out to attend school.
Insured is further expanded but only for the Liability section of the policy:
· The named insured’s real estate manager but only within the scope of his or her duties that related to the described location
· Other parties also qualify as insured, but on a more limited basis. If a loss situation involves certain, qualified incidents such as an eligible craft or vehicle (such as a golf cart), animal (usually a pet), etc, coverage may extend to persons who, with the insured’s knowledge/permission, have some related responsibility for the loss. Therefore, the policy may grant insured status for such parties to the extent that they are liable for injury or harm involving insured property.
Example: The Carneys are on vacation and they ask their neighbor, Marsha, to feed their pets and to take their dog, Cooger, on daily walks. While going to a nearby dog park, Cooger slips out of his leash and attacks a young man who is eating a steak sandwich. The young man sues the Carneys as well as Marsha. The Carney’s policy, for the purpose of this particular loss, treats Marsha as an insured.
· persons using or caring for vehicles, watercraft, or animals owned by an insured
Example: Fred Landlocked takes the advice of George Goodtravel and buys a ‘fixer-upper’ sailboat. Fred also buys a trailer and the boat is towed over to George’s house. George volunteers to patch up the boat and to help paint it too. The boat is kept in George’s driveway and it has a ladder propped against it. George’s neighbor, Paul, comes over to see what George is up to, but George is in his basement, getting some tools to work on the boat. As Paul attempts to climb onto the sailboat, the ladder gives way and Paul suffers a broken leg and several serious cuts on his arms and face. In this instance, Fred’s HO liability and Med Pay coverage can be extended to deal with nosy Paul.
Insured premises
The described location (as defined above) is an insured premises. In addition, any premises that is listed on the declarations as an insured premises and is used by the named insured as a residence is an insured premises.
A premises acquired during the policy term and that a named insured uses as a residence, is also an insured premises. Finally, if there are premises that are used by the named insured in connection with any of the above-described insured premises, they are also insured premises.
The next grouping of insured premises applies to insureds, not just the named insured.
Cemetery and burial plots of an insured, regardless of location, are insured premises. An insured’s temporary residence that is within a structure not owned by an insured and premises rented occasionally, for non-business reasons, to an insured qualify as insured premises.
Vacant land owned or rented to an insured, including land being developed to be an insured’s residence is an insured residence. However, vacant land and farmland is not the same. Farmland is not insured premises.
Limit
The policy merely defines this as the amount of insurance.
Motorized vehicle
Land or amphibious vehicles that are self-propelled are defined as motorized vehicles. Exceptions are hovercrafts, watercraft and model hovercrafts and watercraft. In addition any trailer or semi trailer attached to or carried on a vehicle described earlier is also a motorized vehicles even if it becomes detached. By model, it is meant to apply only to those that are incapable of moving either persons or goods.
Occurrence
There are three specific requirements for an occurrence. First, there must be an accident. This means that the incident(s) cannot have been planned. There can be repeated accidents and still be the same occurrence. Second, bodily injury or property damage must result from the accident(s). Last, the bodily injury or property damage must happen during the policy period.
Pollutant
Any solid, liquid, gaseous, thermal, or radioactive irritant or contaminant, including acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Also electrical, magnetic or electromagnetic particles or fields – visible or invisible plus sound.
Waste includes materials to be recycled, reclaimed, reconditioned as well as disposed of.
Property damage
Physical injury or destruction of tangible property; or the loss of use of tangible property, whether or not it is physically damaged (in other words, theft qualifies as property damage).
Terms
Refers to any written policy components including exclusions, conditions, defined words, etc.
Vermin
Refers to a wide variety of creatures that tend to be ideal candidates as pests that damage property because of their tendency to infiltrate structures as a source for dining or housing. Policy examples include raccoons, possums, skunks, snakes, armadillos, bats, etc.
Watercraft
This term
refers to items that are designed for traveling over water, whether powered by
engines, motors, or wind. There’s no reference to manually powered, small craft
(such as canoes, rafts or rowboats). The term does not apply to motor
vehicles, aircraft, or watercraft. The term also does not apply to models of
hovercrafts, aircraft or watercraft that are neither designed nor used for
moving people or property.
PRINCIPAL PROPERTY COVERAGES
Coverage A—Residence—What is covered
There is coverage for the residence that is situated on the described premises. This coverage includes additions, built-in components, fixtures, and building materials and supplies that are located on or next to the described premises. However, building materials and supplies are only eligible for coverage when they are to be used in the construction, alteration, or repair of the residence or a structure on the described location that is related to the residence.
Example: Laynie and Peter are neighbors in a new housing sub-division and both own homes that are insured by a Basic Form Homeowners policy. One night, a crew of thieves goes through the area, stealing building supplies from several homes including Laynie’s and Peter’s homes. Laynie’s loss is covered because the material was meant for building a screened-in porch on the back of her home. Peter’s loss is not covered. The loss adjuster questioned Peter carefully and found out that the stolen material should have been delivered to his children’s school as part of its playground equipment.
Coverage A—Residence—What is not covered
There is no coverage for land, including the land on which covered property is located. There is no coverage for underground or surface water. Coverage A also does not apply to damage to grave markers, mausoleums, trees, plants, shrubs, or lawns. Important: Limited coverage is available for such property under Incidental Property Coverages.
Example: Larry Cookout is preparing for his annual Oak Street Neighbors’ Barbecue. This year, as a surprise, he’s roasting a pig. It has been a very dry summer and everyone’s lawns are brown and dry (the city has severely restricted water use). A few minutes after getting a large fire started in his prize grill, Larry goes inside to get his cooking gear. While the grill is unattended, a gust of wind knocks it over. Larry’s lawn, brown and tinderbox dry, is ablaze within minutes. Larry and his next door neighbor put the fire out, but not before three-fourths of his back lawn is charred to the earth. Larry plans to repair his lawn with sod, but the cost will be out of his own pocket.
Coverage A – How much
is covered
The most that is paid for all Coverage A covered property in a single occurrence is the limit that applies to Coverage A.
Coverage B—Related Private Structures—What is covered
There is coverage for related private structures on the
described premises that are not attached to the residence covered under
Coverage A. If structures are connected to the residence by a fence, a utility
line, or a similar connection, they are not considered attached. There is
coverage for fences, driveways, sidewalks, and other permanently installed
outdoor fixtures.
Coverage B—Related Private Structures—What is not covered
There is no coverage for land, including the land on which covered property is located. There is no coverage for underground or surface water. Coverage B also does not apply to damage to grave markers, mausoleums, trees, plants, shrubs, or lawns. Important: Limited coverage is available for such property under Incidental Property Coverages.
There is no coverage for structures used for business purposes. However,
this limitation does not apply to structures that are:
·
rented to a tenant of the Coverage A residence and
not used for business
·
used solely for private garage purposes
Example: An insured rents his location’s detached
garage to three persons. The renters park their cars in the garage and then
walk the two blocks to their jobs at a nearby office building. Losses involving
the garage would be eligible for coverage.
·
used to store vehicle or equipment owned by either
the insured or a tenant and that equipment (as well as a maximum of five
gallons of fuel supply) are used for grounds maintenance such as mowing
equipment, snow plowing equipment, etc.
·
used to store business property that is owned by an
insured or tenant, as long as the property does not qualify as a motorized
vehicle.
Coverage B – How much
is covered
The most that is paid for all Coverage B covered property in a single occurrence is the limit that applies to Coverage B.
Coverage C—Personal
Property—What is covered
The coverage terms under this coverage part are a little more complicated than what is found under coverage parts A and B. The AAIS Basic Form policy protects the following:
·
personal property that belongs to or property that,
while not owned by an insured, is in the insured’s possession.
·
(optionally) personal property that belongs to
guests, domestic workers, or other persons, but only when the property is in
the same residence as an insured
Clarification: Coverage for
damage to personal property owned by a domestic employee or a guest may be
covered at the option of the insured. Why is an insured given the option to
allow coverage? One situation that comes to mind is the availability of other
insurance and the seriousness of a given loss. If there were a very large loss,
the insured may wish to have all available coverage for his or her own
property. If there were no option, the loss to a guest or domestic employee
could be reimbursed and leave a shortfall in coverage for an insured. Of
course, the insured would likely consider whether the guest or employee had
their own coverage available before exercising this option.
Limitation On
Property At Residential Premises Other Than The Described Location
Under Coverage C, a maximum of 10% of the
policy’s Coverage A limit subject to a minimum of $1,000 is available
for losses involving an insured’s property that is typically located at a
residence that is NOT described on the policy (therefore is not at a described
location)
Example: The Grabum family’s home is insured under a Basic Form policy. The
Coverage C insurance limit for their residence is $48,000. The Grabums also own
a camping cabin on a lot near a state park. The cabin is completely furnished
and that property remains in the cabin. If there is no separate policy covering
the cabin, the policy that protects the Grabum’s full-time residence can
provide up to $4,800 to cover the personal property in the cabin.
Note: There are exceptions. This limitation doesn’t apply to property that is
being moved to a newly acquired, primary residence. Neither does it apply to
property that is moved to another location (either another residence or into
storage) because the described location is, temporarily, unfit for use (usually
due to repairs, renovation, etc.). The full Coverage C limit applies for 30
days from the date the named insured begins to move. After that, coverage for
personal property in a newly acquired principal place of residence is limited
to 10%, subject to a $1,000 minimum, of the Coverage C limit.
Coverage C—Personal
Property—Limitations
Certain types of property are subject to sub-limits. The special limits that apply do not increase the Coverage C limit. The indicated limit is the total limit per occurrence for all items in that class.
$250 limitation
· money
· bank notes
· bullion
· gold other than gold ware and gold-plated items
· silver other than silverware and silver-plated items
· platinum other than platinum ware and platinum-plated items
·
stored value cards (including magnetic strip scrip
and gift cards)
·
numismatic property (coins, currency, medals and
similar property)
Example: A small fire destroys some personal property in the Mizers’ home. The Mizers’ Basic policy has a Coverage C insurance limit of $40,000. Their claim to their insurance company includes the following losses:
|
Money (from mom’s purse) |
$195.00 |
|
Billy’s coin collection |
$215.00 |
|
Total |
$410.00 |
Since all of this property involves classes that are subject to the $250 limitation and since the loss under each type was less than $250, the total amount that the Mizers can recover from their policy is (take a guess) $250. Remember, the $250 limit is the total amount available for ALL of the types of property listed.
$1,500 limitation
· securities
· stamps
· letters of credit
· notes other than bank notes
· personal records
· tickets
· accounts
· deeds
· evidence of debt
· passports
· manuscripts
Note: This special limit applies regardless of the medium on which these items exist, and includes the cost of research or other expenses necessary to reproduce, replace, or restore the item.
$1,500 limitation
· electronic devices
· accessories including films, tapes, wires, discs, records, or other media for use with such devices
· antennas
Note: This limitation on electronic devices and accessories applies while the devices are in or on a motorized vehicle or watercraft but only if they can operate from the vehicle or watercraft’s electrical system and also from another source of power.
$1,500 limitation
· electronic devices
· accessories including films, tapes, wires, discs, records, or other media for use with such devices
· antennas
Note: This limitation on electronic devices, accessories and antennas applies only if the items:
1. are used away from the premises;
2. are used mainly
for business purposes; and
3. are not in or on a motorized vehicle or watercraft, if the devices can operate from the vehicle or watercraft’s electrical system and also from another source of power
The two electronic device limitations above were a single limitation previous to the changes introduced with AAIS’ 2006 edition. Splitting the limitation may result in greater clarity and additional coverage.
$1,500 limitation
This limitation applies to watercraft, including their trailers, furnishings, equipment, engines or motors and semi-trailers. This limitation does not apply to hovercrafts or to model watercraft as long as the models are not designed to carry cargo or people.
$1,500 limitation
Trailers and semi-trailers not mentioned above are subject to this limitation.
$2,500 limitation (WHEN the loss is due to THEFT)
· jewelry
· watches
· precious and semiprecious stones
· gems
· furs
$2,500 limitation (WHEN the loss is due to THEFT)
· silverware
· gold ware
· pewter ware
·
items plated with gold or silver
$2,500 limitation
(WHEN the loss is due to THEFT)
· applies to guns
Example: Let’s visit the Mizers again. This time a thief breaks into their home and steals some personal property. The Mizers’ policy still has a Coverage C insurance limit of $40,000. Their claim to their insurance company includes the following losses:
|
Jewelry |
$2,400 |
|
Watches |
$500 |
|
Three Rifles |
$2,800 |
|
Pewter Tea Service |
$1,900 |
|
Total |
$7,600 |
Since all of this property is of the type that is subject to the $2,500 theft limit, the total amount that the Mizers can recover from their policy is (take another guess) $2,500? No. Assuming that the Mizers are entitled to the full amounts provided by their policy, they should be able to recover $6,900. How did we get this figure? You must be careful about how the special limits apply. The jewelry and watches are both subject to the same limit, so only $2,500 of the $2,900 loss is covered. The rifles are subject to the gun limit, so only $2,500 is available for that portion of the loss. The tea service is also subject to a special limit, but since its value is less than the special limit, the total $1,900 is covered.
Personal property
used primarily for business purposes
Since the Basic Form policy is designed to cover personal, rather than business losses, the policy restricts the amount of coverage available to protect business property to the following:
· $2,500 on property while on the insured premises
·
$500 on property while away from the insured
premises.
However, this special limit does not apply to items that are subject to the electronic devices described in the electronic devices limitations.
These special limits include the cost of research or other expenses necessary to reproduce, replace, or restore business data.
Coverage C—Personal Property Not Covered
There is no coverage in this policy for any of the following:
· property covered by separate, including scheduled, insurance
The bar to
coverage is not affected by the amount of such coverage. If other coverage
exists, that coverage supplants any obligation for property coverage under the
basic form policy.
· animals, birds, fish, or insects
· motorized vehicles, including their parts, equipment, and accessories except for the items subject to the $1,500 limitation explained earlier. Electronic devices, accessories, or antennas that can be operated only from the electrical system of a motorized vehicle, including films, tapes, wires, discs, records, or other media for use with such devices while in or on a motorized vehicle are also not covered.
Note: There is coverage for motorized vehicles that are not required to be registered if they are designed and used to assist the handicapped (motorized wheel chair) or used only to service the insured premises or premises of another (riding lawn mower). These vehicles are covered only if not used for business purposes.
· aircraft is not a defined term so it includes any type of device that is supposed to fly. Parts and equipment are also not covered even if not attached to the aircraft. There is coverage for model aircraft provided it is not designed or used to carry people or cargo.
· hovercraft (Note: The hovercraft defined in the Definitions section is limited to liability coverage only, so this is not a defined term in this section). In this section, hovercraft refers to machines (including property called flarecraft) that are capable of traveling over the ground or water via the use of a compressed air cushion. Parts and equipment are also not covered, even if not attached to the hovercraft. There is coverage for model hovercraft provided it is not designed or used to carry people or cargo.
· property of roomers, boarders or tenants is not covered but the property of an insured’s relative who is considered a boarder or roomer is covered
Example: The Fairweathers have a nice home that is covered by a
Basic Form policy. They live in a beautiful
In this situation, the Basic Form policy would not cover property belonging to such boarders since they are not related to an insured.
· property that an insured makes available for rent to other persons but there exceptions. If the property is in space that is part of the described location occupied solely the named insured’s household that is only occasionally rented out and then only for residential purposes, there is coverage. If it is located in part of the described location that is occupied by the named insured’s household but also rented to one or two boarders, there is coverage. Finally, if the property is in an apartment at the described location that is rented out by an insured (doesn’t have to the named insured) there is coverage. However, any coverage for the rental property is subject to the Incidental Property Coverage.
Example:
A leather recliner located in a furnished
basement that is rented to a person who repairs laptops and PDAs is destroyed
in a fire. The recliner is NOT covered.
·
loss involving credit cards, debit cards, and fund
transfer cards (such as ATM cards)
except as provided under Incidental Property Coverages
Example:
Dottie, an avid volunteer for her children’s school, is held up after
leaving a sports booster meeting. The crook took an accordion folder that
contained several hundred dollars of Scrip cards. This loss may be eligible
since the property involved is store value cards.
·
Quasi-structural
property such as grave markers and mausoleums
Note: Limited coverage is available under
Incidental Property Coverage
·
land, including the land on which covered property
is located
·
underground or surface water
·
trees, plants, shrubs, or lawns
Note: Limited
coverage is available under Incidental Property Coverage.
Coverage D—Additional Living Costs and Loss of Rent
The insurance company is obligated to reimburse increased living costs
that are paid by an insured household to maintain its normal standard of
living. This situation has to be triggered by the described location becoming
unlivable (or, in some instances, inaccessible) because of a covered source of
loss (such as fire, windstorm, etc). The increased costs will be paid for the
time reasonably required to make the described location fit for use or until
the household is permanently relocated, whichever occurs earliest. This period
of time is not limited by the policy period.
There are many homeowners who rent out part of their residence to
others. The next feature of Coverage D, Loss of Rent, is to help persons whose
rental income is affected by a covered cause of loss.
The insurance company will pay for the rent or for the fair rental value
that is lost when part of the described location, which generates rental
income, can’t be used because of a covered loss. Expenses that do not continue
are deducted from the rental value in determining the loss payment. As it is
with Additional Living Costs, the lost rent will be paid for the time
reasonably required to make the rented part of the described location fit for
use. This period of time is not limited by the policy period.
The policy also pays for increased living expenses and lost rental
income for up to two weeks if a civil authority prohibits access to the
described location because it is endangered by a loss to a neighboring
premises. The damage to the neighboring property must be caused by a source of
loss that is covered by the Basic Form policy.
Example: The Karsuns’
home is insured by a Basic Form policy and, today, the tragedy suffered by
their neighbors, the Sunnybombs, has become their problem too. Lugnutz
Sunnybomb decided to save money by doing his own installation of a new gas
furnace in his home. An explosion later destroys the home because Sunnybomb did
not properly re-connect the gas lines. All that is left of the Sunnybomb
mansion is a single exterior wall that is next to the Karsun homestead. Just
before the Karsuns are about to go to bed, the local fire chief tells them that
he’s unsure about the safety of the remaining wall and he orders the family to
vacate their home.
The Karsuns’ policy would help with some expenses because the Sunnybomb
home was damaged by a peril covered by their policy.
There is no coverage under Part D if an insured loses rent because a
lease or an agreement has been canceled. Also, the insurance limit that is
shown for Coverage D is the maximum amount that may be recovered under all sections
of this coverage.
Example: The Additional
Living Costs and Loss of Rent Limit is $20,000. The family incurs $16,000 in
covered expenses to maintain their standard of living during the period of
loss. The family also loses $6,000 in rental value as the property is repaired
for the tenants. The total equals $22,000 but the family receives only the
coverage limit of $20,000.
The Basic Form homeowner policy includes a number of coverages that are in addition to the protection described under Coverages A, B, C and D. They are called incidental coverages since they are not part of the primary coverage parts. While the amount of insurance indicated for these incidental coverages is in addition to the limits of insurance shown for Coverages A, B, C and D, there are several instances where the amount of recovery is quite limited.
1. Association
Deductible
The basic form policy provides up to $1,500
per occurrence (unless increased on the declarations), for an insured’s share
of a deductible made by a residential association of homeowners, condominium
owners, or similar groups. Coverage applies only when the deductible:
Finally, the Policy Period condition does not
apply to this coverage.
Example: Melinda’s
home is located in Tres Great Landings. She had a basic form homeowner policy
from Big Sky Mutual that expired on October 10. She renewed her coverage with
Unspoken Calamity Property and Casualty. On October 7, a storm demolished the
gatehouse at the entrance to the development. On November 9, Melinda, along
with the rest of the homeowners, received a notice from the Tres Great Landings
Homeowners Association, charging her $469 as the portion of the deductible that
applies to the gatehouse. Although the deductible charge was made on November 9,
Unspoken Calamity Property and Casualty covered the deductible.
2. Credit Card;
Electronic Fund Transfer Card or Access Device; Forgery; And Counterfeit Money
This incidental coverage is triggered when an insured:
· is legally required to pay for the unauthorized use of credit or debit cards issued or registered in the name of an insured
· has a loss due to the unauthorized use of an electronic fund transfer card or any electronic devices used for withdrawal, deposits or transfers
· suffers a loss due to forged or altered checks, drafts, notes, or negotiable instruments, or
·
unintentionally accepts counterfeit
The limit is $1,500 per occurrence, unless a higher limit is shown on the declarations. An occurrence is not limited to a single event; it includes all acts perpetrated by a single person.
Example: Penny Goodgraces gets a bill from her favorite department store, which shows $1,200 in charges she never made. Penny discovers that her card was stolen and she reports her loss, expecting coverage. However, the insurance company’s claims department explains to her that, since her credit card agreement includes a provision to cover any losses connected with a card theft or unauthorized use; the credit card company must absorb the loss, not Penny’s insurance company.
Credit Card;
Electronic Fund Transfer Card or Access Device; Forgery; And Counterfeit Money
– Defense Expense
When an insured is sued due to the unauthorized use of credit cards, electronic fund transfer cards or similar devices, this policy will pay the defense expense. The insurance company will decide what investigations and settlements are necessary, without consulting with the insured. Once the insurance company pays the applicable limit, based on a settlement, it is no longer required to provide a defense.
The insurance company may or may not defend an insured or an insured’s bank if a suit is brought because of a refusal to honor a forged check, draft or negotiable instrument. If it decides to defend a suit, any related expense is paid by the insurance company and the insurance company also provides the counsel.
There are some exclusions under this coverage. No payment will be made in the following instances:
· an insured has not complied with the rules under which the credit or debit card was issued
· the unauthorized person is a resident of the named insured’s household
· the card or device is used with the consent of an insured
· the loss is caused by the dishonesty of an insured
· the loss results from the business of an insured
Note: Since these are not covered, there is no obligation for an insurer to provide a defense or handle related costs.
Examples: The following losses are not covered:
· An insured lets his friend borrow the card to charge a lunch, then the friend purchases a VCR, some clothes and costume jewelry before disappearing
· An insured is tricked into revealing his credit card account number to a party who makes unauthorized charges; however, the charge card is issued in the name of the insured’s company
· An insured discovers that his credit cards are missing, but doesn’t report the fact for several weeks. The credit card agreement has a provision that requires immediate notification of missing cards.
3. Debris Removal
There is coverage for the cost to remove the debris of covered property after a loss. The loss must be caused by a peril that applies to the damaged property. The coverage extends to handle the cost of removing volcanic ash, dust, or particulate matter that damages the covered property.
The most that the insurance company pays for the combination of debris removal and the physical loss of property is the limit applicable to the particular damaged property. If the limit is not sufficient to cover the debris removal, the insurance company will pay an additional 5% of the limit specifically for the debris removal.
Example: The
Heatermans live in
|
Coverage A |
$200,000 |
|
Coverage B |
$20,000 |
|
Coverage C |
$100,000 |
|
Policy Total |
$320,000 |
The Heatermans can use each entire limit to cover the ash removal for the specific property covered in ash. But they cannot use the Coverage A limit to pay for Coverage B damage or vice versa. However, if the debris removal expense exceeds the Coverage limit, an additional 5% is available. This means that $200,000 + $10,000 is available for Coverage A, $20,000 + $1,000 is available for Coverage B and $100,000 + $5,000 is available for Coverage C.
Important: This incidental coverage does not cover any expense associated with the effects of pollutants. This exclusion applies to all of the following:
· testing
· monitoring
· clean up costs
· removal
· containment
· treatment
· detoxification
· neutralizing
· respond to (occurrence involving pollutants) and
· assessment
Finally, there is limited coverage for the removal of fallen trees. Up to $500 per tree and $1,000 per occurrence is provided to remove trees from the described location under the following circumstances:
· the tree has damaged covered property
· the tree(s) obstructs access to a driveway on the described location
· the tree blocks access to a ramp used to make the described location accessible to handicapped persons.
HOWEVER, this coverage extension is available only IF the named insured’s tree is felled by windstorm or hail or a neighbor’s tree is felled by any of the perils covered by this policy.
4. Emergency Removal
There is coverage for direct physical loss to covered property for up to 30 days if the covered property is moved from premises to protect it from a loss by a peril that is covered by the policy. However, this coverage does not extend past the policy’s expiration date.
Note: This coverage does not increase the limits shown for the property being removed. The property coverage exclusions do not apply to this coverage, except regarding intentional acts. No coverage for any insured (even the innocent insured) is provided for any loss caused by any intentional act committed by or at the direction of any insured.
Example: Buzz Whirly’s home is protected by a Basic Form homeowner policy. Sadly, a fire has started on the upper floor and is spreading to the other parts of the house. With permission of the fire chief, Buzz and some friends remove his piano and furniture from his living and dining rooms. The furnishings are placed in a neighbor’s yard and are saved from fire and smoke damage. As the fire is being fought, there is a sudden rainstorm. While the heavy rain assists the fire fighters, it ruins nearly half of the furniture that was moved out of the house. In this case, the furniture damage is covered.
5. Fire Department
Service Charge
This incidental coverage provides a maximum of $500 per occurrence for paying charges under an agreement between the named insured and a fire department. The charges must be related to a fire department responding to the insured location that is endangered by a covered peril. As an option, an insured may purchase a higher limit for this expense.
Note: There is no
coverage if the property is located within the operating area of a governmental
authority that provides fire department services.
6. Glass or Safety
Glazing Material
Another incidental coverage is protection against breakage of glass that is part of a structure (such as a window). It includes any increased cost if the insured is legally required to replace the damaged glass with safety glazing materials. There is also coverage for direct physical loss to covered property damaged by the breakage of glass that was part of a structure.
Example: An insured comes home and a group of kids who were playing baseball near her home suddenly scatters. As she enters her house, she notices a baseball, a broken bay window and a set of shredded, custom drapes. The policy’s Glass or Safety Glazing Material coverage would cover the loss to both the window and the drapes.
The earth movement exclusion does not apply to this coverage.
There is no coverage for property damaged by glass, except as described above. There is also no coverage on the described location if the residence insured under Coverage A has been vacant for more than 60 days in a row. A residence being built is not considered to be vacant. (01/06 change)
Important: The maximum amount of coverage per occurrence is a modest $100 and does not increase the applicable limits.
7. Grave Markers
The insurer will pay up to $2,500 for direct physical loss to grave markers and mausoleums. To be eligible, the loss must be caused by a peril insured against. The grave markers or mausoleums can be on the described location or off.
Example: The Greevers visit their dearly departed every November 1st. When they arrive for their annual visit, they’re shocked to see remnants of large pumpkins among several broken headstones. This damage would be handled by their HO policy since vandalism is a covered peril.
8. Increased
Cost—Ordinance or Law
Another incidental coverage protects against the increased cost caused by the enforcement of a code, ordinance, or law that regulates the use, construction, repair, or demolition of property following a covered loss. It also covers the cost to remove the debris that results when the law is enforced.
Example: Daisy Flayme and her family lose their home in a fire. When they attempt to get a permit to rebuild it, a city inspector points out that the home was too near the street and has to be moved back ten feet. This will cause an additional expense since part of the foundation will have to be filled in, the rear foundation wall must be demolished and then re-dug to comply. This additional cost should be covered (subject to the applicable policy limits).
Note: If the insured chooses to repair or replace the damaged Coverage A or Coverage B property, up to 10% of the Coverage A limit is available to cover increased costs that are solely due to the enforcement of the building code.
Naturally, there are some exceptions to the protection provided by this incidental coverage. It excludes any:
· loss in value of property caused by the enforcement of a code, ordinance, or law
Example: Let’s use the previous example with a twist. The insured finds out that their home, destroyed in a fire, was too close to the street and an inspector orders the home to be set further back on its lot. While the insurance policy will pick up the costs of re-setting the foundation, there’s no coverage for the loss in value because the new back yard will be too small to attract buyers.
· loss, cost, or expense related to any legal requirement of an insured or others to test for, monitor, clean up, remove, contain, treat, detoxify, neutralize, or in any way respond to or assess the effects of pollutants
Example: Jess Unlucky’s home is totally destroyed during a severe windstorm, and a county inspector has looked at the damage. While the inspector gives Jess permission to rebuild according to his home’s original specifications, there’s a problem. The inspector discovers that the home used to be heated by oil and there is a large, underground tank that may be damaged. Jess is ordered to have the tank inspected for leaks, to repair any damages and to monitor it in the future (or remove it). None of the costs associated with the underground tank are covered by the policy.
9. Loss Assessment
In certain circumstances, there is coverage (up to $1500 per occurrence) for the named insured’s share of an assessment made by a homeowners, condominium, or similar residential association. Coverage applies only when the assessment:
· is made during the policy period,
· results from direct loss to the property owned collectively by all association members,
(as opposed to an assessment to replace worn hall carpeting or for landscaping)
· is caused by a peril covered by the policy (excluding earthquake or land shock waves or tremors before, during, or after a volcanic eruption, explosion, or effusion), and
· is charged against the named insured as an owner or tenant of the described location.
Note: There is no coverage for assessments charged against the association by any governmental body or authority or for assessments to cover the deductible on the association’s insurance policy.
It’s important to understand that $1,500 is the maximum amount available for a single, eligible loss that triggers an assessment, unless a higher limit is shown on the declarations.
Example:
The policy mentions that, under the Policy Conditions section, Policy Period does not apply to this coverage. This is added so there is no conflict when the loss occurs in one policy period but the assessment is made in a later period. The policy in effect when the assessment made, is the one that applies.
10. Property in
Rental Units
This provision pays a maximum of $2,500 for various classes of property that an insured owns that is located in premises the insured rents out to other parties. The location of the rental has to be described on the policy and a loss qualifies only when it is caused by a hazard (peril) listed under the policy’s Coverage C – but not theft.
Typical covered property includes stoves, carpeting, refrigerators, tables, couches and similar items. To fully understand this coverage, refer back to Coverage C – Property Not Covered and review the rental furnishings coverage.
11. Reasonable Repairs
This incidental coverage, (which neither adds to the policy’s property limit nor affects the separate property protection duties) reimburses expenses related to the prevention of additional damage to property that has experienced a loss. The coverage applies only for the type of loss and for the type of property that are eligible for protection under the policy.
Example:
Scenario one - Barbie arranges for a tarp to be delivered
to cover up a large hole in the roof of a shed that was caused by a violent
windstorm. The shed is used to store the electronic video players and sound
systems she sells from her home. The expense is not covered because the
property she is protecting is not eligible for coverage.
Scenario two - Barbie arranges for a tarp to be delivered
to cover up a large hole in the roof of her pole barn that was caused by a
violent windstorm. The barn is used to store her patio, playground and large
assortment of gardening and lawn equipment. The expense is covered because the
property she is protecting is eligible for coverage.
While the policy
provides coverage for certain repair-related costs, this does not affect the
policy’s applicable coverage. In other words, it does NOT increase the policy’s
total coverage; only expands it to another category.
12. Refrigerated
Property
Under certain circumstances, there is coverage (up to $500,
unless a higher limit is shown in the declarations) for a direct loss to
covered items that are in a freezer or refrigerated unit on the described
location. The loss must be caused by:
· disruption of electrical service from conditions out of the insured’s control (if caused by generating or transmission equipment)
· mechanical breakdown of the refrigeration equipment.
Note: The equipment must be working properly prior to the loss. Also, the power failure and the bacteria, fungi, wet rot or dry rot exclusions do not apply to this coverage.
Example: Carol Singer comes home, enters her kitchen, drops her briefcase to the floor and is startled to hear a splash. She then notices a large puddle and the stream feeding the body of water originates from her freezer. Her entire meat supply, worth more than $600, is ruined. She feels better when she reads her policy and finds that there’s coverage for the loss. She feels worse when, later, her husband tells her that he installed a new ceiling fan and he forgot to turn the home’s electrical breakers back on. The loss is not covered as no breakdown occurred.
13. Trees, Plants,
Shrubs, or Lawns
There is coverage for direct physical loss to trees, plants, shrubs, or lawns on the described location caused by:
· fire or lightning, explosion, riot or civil commotion, or aircraft,
· vehicles not owned or operated by an occupant of the described location, or
· vandalism or theft.
Note: Up to 5% of the Coverage A limit is available to cover trees, plants, shrubs, or lawns. No more than $500 will be paid for any one tree, plant, or shrub, including the cost to remove the debris of the covered item. There is NO coverage for trees, plants, shrubs, or lawns grown for business.
COVERAGES A, B, C AND
D
This section of the policy lists the perils, which are insured. The policy coverage applies only when a listed peril physically damages property described under Coverages A, B, or C. The coverage exceptions are explained under the Exclusions That Apply To Property Coverages section. Although not mentioned in the introduction to this section, the listed perils must also be the cause for any claim for indirect loss (Coverage D). Please refer to PF&M Section 420.6, Dwelling Policy Program Perils for a discussion on common property perils.
The eligible perils include:
Fire or Lightning
Windstorm or Hail
Please note: Under certain circumstances, there is no coverage for loss:
· to the interior or to the interior’s contents caused by dust, rain, sand, sleet, snow, or water, driven by wind or not, that enter through an opening in the structure not made by the direct force of wind or hail; or
· to watercraft or their trailers, furnishings, equipment, or engines or motors, unless inside a fully enclosed building. There is coverage for canoes and rowboats while on the insured premises.
Naturally, an insurer wants its insureds to use common sense and protect their property. If the first stipulation didn’t exist, then coverage would be available for losses that could be prevented by closing doors, windows and by moving personal property indoors.
For more information on this source of loss, please refer to PF&M Section 130.6-5, Windstorm Or Hail—A Discussion.
Explosion
For more information on this source of loss, please refer to PF&M Section 130.6-4, Explosion—A Discussion.
Riot or Civil Commotion
For more information on this source of loss, please refer to PF&M
Section 130.6-6, Riot Or Civil Commotion—A Discussion.
Aircraft
Vehicles
Note: Vehicle damage to fences, driveways, or walks that is caused by a vehicle that is owned or operated by an occupant of the described location is excluded.
Clarification: Even though such losses would likely be accidents, the point of the exclusion is to protect a company from unacceptable exposure. An insured property’s occupants are constantly driving to and from their home. Without the coverage exception, companies would have to pay for many nuisance losses when fences, curbs, etc., receive their dents and dinks from inattentive occupants, not to mention their exposure to a household’s new drivers.
Sudden and Accidental Damage from Smoke
There is coverage when boiler, furnace or related equipment release fumes, smoke, and soot or vapor causing sudden and accidental damage. However, there is no coverage for loss caused by smoke from agricultural smudging or industrial operations. Both of these sources of loss result from a home’s proximity to an operation or practice that is longer term and intentional in nature. Agricultural smudging is the practice of creating an oily smoke to cover fruit and fruit trees in order to protect them from frost.
Volcanic Eruption
This does not include any loss caused by earthquake or other shock waves or tremors.
Vandalism Or
Malicious Mischief
For
more information on how broadly this peril might be interpreted, please refer
to PF&M Section 470_C006, “Water Damage Exclusion Held Overcome By
Vandalism Proximate Cause” in Court Cases.
A coverage exception is made to exclude vandalism or malicious mischief loss to property on the described location if the residence is vacant for more than 60 days in a row just before the loss. However, a residence that is being built is not considered vacant.
Example: Principal Hardnose lives only a few blocks away from his job at Strictly Ruled High School. Principal Hardnose is not very popular, so no one was surprised when, one August night during the Hardnose family vacation, some unknown party bombarded his home with bottle rockets. The rockets severely scarred the home’s exterior woodwork and several windows were smashed. The rockets that crashed through the windows damaged some interior walls and floors:
Scenario One: The vandalism damage was covered because the Hardnoses were away on their annual two-week vacation.
Scenario Two: The vandalism damage was not covered as the Hardnose Family moved their furnishings out of the house and it lay vacant while the family was on a three month, out-of-state sabbatical and the loss occurred in the 3rd month of their absence.
The above exclusion of
vandalism coverage when the residence is vacant for 60 days or more also
extends to acts that follow (ensue) from a deliberate act related to the
vandalism and/or malicious activity. (2008 Change).
Theft
This peril expands the term to include attempted theft and loss of property from a known place so that it is likely that theft occurred.
Note: There is no coverage for the following:
· theft in or to a residence while it is being built. This includes the theft of materials or supplies that are intended to be used in the construction of the residence. This exception applies until the residence is occupied for its intended use
· theft by an insured
· loss of a precious or semiprecious stone from its setting
· loss as a result of the theft of a credit or debit card or other electronic transfer or access devices, except as provided under Incidental Property Coverages
· theft from a part of the described location while it is rented to others who are not considered insureds
· theft of trailers, semi trailers, campers, camper bodies, watercraft or their furnishings, equipment, or engines or motors when not at the described location.
· theft of property that occurs away from the described location insured premises while on the part of residential premises which an insured owns, rents, or occupies, except for the time while an insured temporarily resides there. (There is coverage for the property of an insured that is a full-time student, while the property is in the living quarters occupied by the student at school.)
Example: Diana Dearwoods owns a home that’s insured by a Basic Form homeowner policy and she files a theft loss for a 19-inch color TV. The insurance company denies the loss when Diana explains that she discovered the theft when she went to her hideaway cabin in the woods. The TV was in the cabin the last time she stayed there, but she noticed that someone broke in. Diana insured the cabin under a separate dwelling policy, but she felt that the cabin’s furnishings would be covered under Coverage C of her homeowner policy. The loss isn’t covered since it happened at a structure owned by Diana and it happened when she wasn’t staying there.
Sinkhole Collapse
In this policy, this term means direct physical loss caused by sudden settlement or collapse of earth that forms the support for covered property. The earth settlement or collapse must be due to subterranean voids created by the action of water on a limestone or similar rock formation. This source of loss is distinct from an event called Mine Subsidence, when earth settlement or collapse occurs due to active or abandoned mines.
Important: There is no coverage for the cost of filling sinkholes.
This section of the Basic Form policy lists the sources of property loss that ARE NOT covered by the policy. The current language strengthens the anti-concurrent causation intent by stating that if any of the following perils cause loss or damage directly or even indirectly, there is no coverage. The loss or damage continues to be excluded even if other events aggravate or contribute to the loss before, after or during the excluded peril. In addition, the exclusions apply no matter how large or small the damage area is.
Example: A gas line explosions destroys all buildings in the two-block downtown of Smallville. Half of the buildings do not meet the current building codes and the cost to bring them to current code is significant. The ordinance or law exclusions on those buildings continue to apply, even though the scope of damage is extensive.
Ordinance or Law
There is no coverage for any loss or increased cost caused by the enforcement of a code, ordinance, or law that regulates the use, construction, repair, or demolition of property or the removal of its debris, except as provided under Incidental Property Coverages. This exclusion extends to any loss in value of any damaged property that results from the enforcement of a code, ordinance, or law.
Example: Long Tymer’s home is the oldest home in New Mexicanaville. In fact, it existed long before the town changed its name and building codes to pander to out-of-state tourists who want to see an authentic Mexican town. Long’s home holds a code variance that has kept Mr. Tymer from having to add a stuccoed false front to his plain wood plank sided home. However, after a fire destroyed nearly two-thirds of his home, New Mexicanaville’s council advised Tymer of an important detail in his variance. The code variance remains in effect UNLESS 51% or more of his home is damaged and has to be repaired or re-built. If this happens, the home has to be re-built in conformance with the style of its surroundings. In this case, Mr. Tymer’s policy will not pay for the additional cost to conform to the building code.
This exclusion has another important limitation. No coverage is provided for damages or expenses that are related to legal requirements involving the existence or impact of pollutants.
Civil Authority
If the civil authorities confiscate, destroy or seize property that is covered under Coverages A, B or C, there is no coverage. (There is coverage under Coverage D). However, if the civil authority is destroying the property as a way to create a fire stop, the loss is covered, provided the fire would have been covered by the policy.
Example: Mary Farmer looked on in shock as the Sagebush County Fire Chief ordered the demolition of her vacation cabin. Mary’s cabin was on the outskirts of a small group of similar cabins that were being threatened by a forest fire. The County’s Fire Chief told her she was sorry, but her cabin had to be torn down as it was the last obstacle that had to be cleared in order to establish a fire break. Mary’s policy would cover this incident UNLESS the fire was caused by an excluded peril.
Nuclear Hazard
If nuclear reaction, radiation or radioactive contamination causes a loss, such loss is not covered no matter how the nuclear reaction, radiation or radioactive contamination is caused and whether it occurs in a controlled or uncontrolled circumstance. Any loss that is a consequence of the above is also not covered. Fire, explosion and smoke often are part of a nuclear incident, but even if these perils are covered under the policy, when they occur as part of a nuclear reaction, radiation or radioactive contamination loss, they are not covered.
There is one exception. If there is a direct loss by fire that is a result of the nuclear reaction, radiation or radioactive contamination, it is covered.
War and Military
Action
War is an absolute exclusion, including undeclared wars and civil wars.
Warlike action taken by a military force is not covered even if the action is
one of defense by a governmental authority and not offense. There is also no
coverage if a loss is caused by internal domestic disputes such as
insurrection, rebellion, revolution, and usurped power including the action the
government takes to curtail the event. The discharging of a nuclear weapon,
intentional or accidental, is defined as a warlike action
Note: The refinement concerning defense appears to broaden the application of the exclusion compared to earlier form (pre-2006) editions.
Neglect
Insurance policies are contracts that obligate an insurance company to help a customer whose property is damaged or destroyed under described conditions. Insurance contracts are meant to respond to accidental loss so, inherent in the agreement, is the assumption that the insured will act to preserve or protect their property. In case an insured doesn’t act in this manner, the insurer is relieved of any obligation to pay for any damages caused by the insured’s failure. Of course, an insured is not required to go through heroic efforts to save property.
Earth Movement
The policy excludes losses due to earth movement no matter how the earth movement is caused – animal, human or act of nature. There are five distinct items included in the definition of earth movement.
· Earthquakes
· Volcanic eruption shock waves or tremors no matter when they occur
· Mudslide or mudflow and landslide
· Erosion and subsidence
· Other – including but not limited to the earth sinking or rising, expanding or contracting and even just plain shifting.
There are three exceptions. Sinkhole, as described in the Incidental Property Coverages, direct fire or explosion loss that result from any type of earth movement, and theft, if theft is covered elsewhere in the policy.
Example: The Slackpaws fled their house as soon as the initial earth rumblings were heard. While no home in their part of the neighborhood was damaged by the moderate quake, a nearby explosion damaged the Slackpaws’ home. The quake ruptured a gas pipe and the gas ignited the localized explosion and a number of fires. The Slackpaws’ damages were eligible for insurance coverage under their policy.
Water
In the previous
edition, this was titled Water Damage. This exclusion was expanded and
reorganized into seven paragraphs in an attempt to clearly communicate the
scope of the exclusion. The change was made in response to claim expectations
and judicial rulings involving water-related losses that have occurred in recent
years. (2008 Change)
1) There is no coverage for damage that results from flood, surface
water, waves (including tidal wave and tsunami), tides, tidal water, overflow
of a body of water, or spray (which occurs from any of the sources mentioned
above), driven by wind or not. Further, coverage is excluded for loss if caused
by water surge due to storm, tides or a tide created by a storm (storm tide).
While these additions may appear to be mere semantics, recent,
high-profile claim awards hinged upon such parsing and shifting of language and
the change is meant to specifically address this reality.
2) There is no coverage if a loss is caused when
a) water backs up through sewers or drains or
b) water overflows (or is in anyway discharged) from within a sump pump,
sump pump well, or other type of system designed to remove subsurface water
that is drained from the foundation area.
Note: The reference to DISCHARGED water is intended to defeat attempts to gain coverage from, essentially, technicalities.
Example: Water being removed by a sump pump reenters a home due to a hole in the sump’s pipes.
3) If water below the surface of the ground causes the loss there is no
coverage. This term includes (but is NOT restricted just to) water that
exerts pressure on, or seeps or leaks through or into a building, sidewalk,
driveway, foundation, swimming pool, or other structure. It also applies to
such water that flows through or into such areas/structure.
Example: Underground water pops out a stone in a paved driveway and the water flows into and damages a home. This source of damage is excluded.
4) When a loss is caused by matter that is either contained in and/or
has been transported by sources described in paragraphs 1,2, there is no coverage. The matter is not
defined but examples could be sewage, waste or any other type of debris.
5) The losses caused by items discussed in 1) through 4) are not
covered regardless whether the item:
a) is an act of nature
b) involves water and/or matter that comes from (overtops, escapes from,
released from or otherwise is discharged) a containment or control system (such
as dikes, dams, levees, floodgates and similar devices).
6) While the above (and similar) events are excluded, an exception is
made for direct loss to covered property caused by a subsequent fire or explosion
7) Another exception is granted for theft that is related to such
occurrences mentioned above (as long as the applicable policy provides theft protection
elsewhere in the policy).
Example: The Desurtahs evacuate their home due to the warnings of imminent flash flooding. The family home is damaged by a flash flood that sweeps through with floodwater, entering the home and soaking both carpeted and wood floors. Later that night, some thieves ransack a number of homes, including the Desurtahs’. While their policy won’t cover the damaged carpeting and floors, they do qualify for coverage for the stolen property and the damage the thieves caused to their home.
Power Failure
In the previous edition, this was titled Power Disruption (2008 Change).
The policy does not respond to damage caused by a failure of utility service unless the cause occurs on the described location, but the policy will cover any direct damage due to a subsequent covered peril.
Example: A drunk driver is meandering home from a party when he falls asleep, runs off the road and slams into an electric transformer. The collision disables the transformer and knocks out electricity to over forty homes. The accident occurs at 2:30 a.m., so none of the households discover the problem until they wake up late (no alarm clocks worked). The Brideluvs are upset because an ice sculpture in their extra freezer completely melted. The water leaked out from their freezer and soaked into their wood parquet flooring. This loss would not be covered since the disruption in power occurred away from the insured premises.
Now let’s change a couple of facts and see what happens:
Example: Again a drunk driver is meandering home from a party. This time when he falls asleep, he runs off the road and hits a utility pole that sits on the corner of the Brideluvs’ front lawn. The pole is bent severely enough to snap the power line that’s connected to the Brideluvs’ home. Again, the accident occurs at 2:30 a.m. and there wasn’t a loud crash, so the Brideluvs continued their sleep. Again, the Brideluvs are upset because an ice sculpture in their extra freezer completely melted. The water leaked out from their freezer and soaked into their wood parquet flooring. This loss WOULD BE COVERED since the disruption in power occurred ON the insured premises.
Intentional Acts
The policy does not cover intentional acts of any insured that acts alone or in collusion with another that results in a loss. The exclusion extends to losses resulting from intentional acts committed by persons acting on the directions of any insured.
Note: Not only must the act be deliberate, but also the intent must be to cause a loss.
Example: Nut E. Dad keeps pleading with his kids to make sure to clear their driveway and garage of toys so he can pull in and park the family car. Every evening, Mr. Dad’s anger increases when he has to get out of his car and clear bikes, bats, balls and other toys away from the driveway and garage. After returning home after a HORRIBLE day at work and being delayed by snarling traffic, he approaches his house and is greeted by the sight of another cluttered driveway. Enraged, Mr. Dad revs up his car and pulls into the driveway so fast that he plows over toys and bikes and, unintentionally, drives halfway through his garage door. The policy will not pay for any of the damages since they resulted from operating his vehicle in a destructive manner. As an aside, all of the other dads in the neighborhood held a fund-raising barbecue for Mr. Dad, which handled the entire repair, costs.
When one insured intentionally damages property that is owned or co-owned by another insured, all insureds are barred from collecting payment of that loss. Innocent insureds are not eligible for coverage.
Example: Using our example above, Nut E. Dad’s wife – Pat – is an innocent party to Nut’s action and she is co-owner of the house. If she makes a claim for the garage door damage, she will be denied even though she bore no responsibility for her husband’s action.
Bacteria, Fungi, Wet
Rot, or Dry Rot
The policy does
not cover loss involving mold, bacteria and similar substances. Neither does it
respond to circumstances that
directly create rotted property. If, somehow, rotting or bacterial, mold and
similar events trigger a loss from an eligible hazard or peril (source of loss)
that damage is eligible for coverage.
Principal
Coverages—Liability And Medical Payments To Others
Unlike the first part of the policy, which concerns itself with damage to property belonging to the insured, this part provides protection for a person’s responsibility for injuring other people or their property. The liability portion of the policy has its own set of coverages, exclusions (with exceptions) and conditions.
Personal Liability—Coverage
L
The insurer is obligated, up to the limit shown on the declarations, to pay the amounts for which an insured is legally liable because of bodily injury or property damage to others. However, any payment under Coverage L—Personal Liability is subject to the following:
· any loss has to arise out of an eligible occurrence
· the loss has to occur within the policy period
· the bodily injury or property damage must not be excluded under this coverage.
Example: Joe Crazybat and his son, Splinter, are practicing baseball in their backyard. Joe throws a fastball that’s low and hard (but in the strike zone). Splinter, who has a great eye for the ball, swings his bat in a beautiful, looping arc, which smashes the pitch high over their house. As Joe goes to congratulate his son, they hear the following sounds:
Joe runs into his house to get his insurance policy information and Splinter runs to his room.
The insurer has the option of investigating and, IF the insurer decides it is appropriate, settling claims or suits. It is also the insurer’s choice regarding who, if anyone, handles the legal defense. In recent years, this insurer right has been causing some controversy as, in certain disputes, a lawyer selected by (or often working as an employee) the insurer is seen as being an advocate of the insurer and not the insured.
The insurer does not have to continue defending an insured after it has paid a judgment or made a settlement that is equal to the limit shown on the declarations.
Example: Let’s return to Joe Crazybat. Joe has his policy information and he goes outside. He sees what he expects, a guy holding his head and their baseball, while talking to a lady who was driving the car, which was hit by the first driver. Joe trades insurance information with everyone and everyone talks to a police officer that arrives on the scene. Later, when reporting the loss to his insurance carrier, Joe says that everything was their fault and that the company should get moving on paying for the injury to the driver whose windshield was broken and for the damage to both cars. Joe’s agent thanks Joe for the information and tells him to fill out a written loss report that will be sent from the agency.
A couple of weeks go by and Joe calls his agent about the claim. His agent surprises Joe when he says the company investigated the loss and ended up paying only the first driver and only for a new windshield and the medical bill for stitching up a cut on his forehead. The company’s investigation found that the first driver had been drinking and traveling through the neighborhood at least twice as fast as the posted limit. In the company’s opinion, the collision with the other vehicle was the fault of the first driver and not Splinter’s home run.
Medical Payments To
Others—Coverage M
Under this coverage, the insurer agrees to pay for necessary medical expenses, which are related to an eligible loss that involves bodily injury. Medical expenses refer to a reasonable (as determined by the insurer) amount for medical, surgical, x-ray, dental, ambulance, hospital, and professional nursing services. It also covers items such as funeral services; prosthetic devices; hearing aids; prescription drugs; and eyeglasses or contact lenses.
In order to qualify for coverage, the expense must be incurred or medically determined within three years from the date of an accident causing bodily injury covered by this policy.
Example: Jan and Teri have just moved into their dream home that’s in an adorable neighborhood. They’re eager to make friends, so they invite several neighboring families for a party. Teri is the conversationalist, so Jan is busy hustling back and forth for refreshments. She also has been carefully dodging several small children who are running around their home. As Jan briskly pushes open the swinging door from her kitchen (which is adjacent to the recreation room) she feels the door hit something and then she hears a hard thump against the wall. A neighbor’s child, Billy, was behind the door and Jan, inadvertently, knocked him into the wall with the kitchen door. Billy suffers a concussion and Jan and Teri’s policy takes care of the overnight stay at a hospital.
Four years pass and Jan and Teri get a surprise. Billy has been having problems in school and tests show that he has been affected by the injury he received four years ago. When Jan and Teri submit the claim, their insurer tells them that it’s been too long since the accident and that the policy won’t take care of any subsequent bills.
Medical payment coverage is provided for situations that occur either on, or away from, the insured premises. While on the premises, the injured party merely needs to be on the premises with an insured’s permission. In order to qualify for coverage while away from the premises, the bodily injury must:
1. result from a condition on an eligible location
2. result from an activity of an insured
3. be caused by a person who is performing duties as a domestic employee
4. be caused by an animal owned by or in the care of an insured
The above elements are independent of each other. Meeting any single element may qualify an injury for medical payment coverage.
Note: There is no coverage for medical payments for the named insured or for any regular resident of the named insured’s household. However, there is coverage for domestic employees.
The policy includes eight incidental liability coverages and they are subject to all of the terms which apply to principal coverages L—Personal Liability and M—Medical Payments to Others.
Note: These incidental liability coverages do not increase the limits of liability, except under the following:
· Damage to property of others
· Claims and defense costs
· First aid expense
· Loss assessment
Business
The Basic Form policy provides some very limited coverage for bodily
injury or property damage related to a business use of the insured premises.
Specifically, coverage is granted for such injuries or damage created by two
types of business activities:
a. The following types of rental activities are covered:
Examples:
1. Insured A owns all of a two-family
residence and he continuously rents out the upstairs unit to another family.
This situation is covered.
2. Insured B owns and insures his single
family residence. B’s family likes to get out of town during their town’s
famous, annual, Big Race. However, they make the most of things by renting
their home out to another family that comes to town to see the Big Race. This
situation is covered.
3. Insured C and his family belong to a
travel club and while they travel out of town, they always arrange for renters
to use their home. This typically occurs a dozen or more times a year. This
situation is not likely to be covered since it presents a source of steady
income.
4. Insured D owns a home with a spacious 2
and 1/2 car garage. However, D does not own a car since he lives very close to
his job and he merely rents a car when traveling. D rents out his garage to
Clarissa, who uses it to teach crafts to retirees. This situation would be
covered.
5. Insured D, discussed above, has to kick
Clarissa out of his garage because she is so far behind in her rental payments.
D signs an agreement with
b. The policy also covers business activities involving younger members
of an insured household. Businesses run by persons younger than 21 are eligible
for coverage as long as the activity does not include employees and that any
loss is related to the activity.
Example: The Browns’ home is covered by a Basic Form policy. Their daughter, Veri,
is out of school and she earns money by doing yard work throughout her
neighborhood. One day, Veri is hired to clear out a densely overgrown area of a
neighbor’s backyard. While swinging a sickle, she fills a hard, unexpected thud
on a backstroke; then she hears a scream. She didn’t see her neighbor approach
and she nearly severs the neighbor’s forearm. The Browns’ policy will respond
to the injury-related expenses.
Note: Exclusion g., under Exclusions that Apply to
Coverage L and Coverage M, does not apply to this Incidental Liability
Coverage. Also note that the business activity coverage is also subject to the
additional exclusions listed under Coverage L and the additional exclusions
listed under Coverage M.
Claims and Defense
Cost
In a defense action, the insurance company will pay:
· the costs that are taxed to an insured and the costs incurred by the insurance company
· the premiums on bonds but only for limits up to the limit in the policy
·
the necessary costs incurred by the insured at
the request of the insurance company including an insured’s lost earnings caused
via time spent away from work (subject to a
$250 daily maximum)
· the interest that accrues after the entry of a judgment up to the limit of the policy
· the portion of prejudgment interest levied against the insured. The amount of such interest paid is based upon the timing of any final payment or offer of payment made by the insurer
Example: Lightnin’ Pete Slosher was sued by his neighbor who lived across the street. One Saturday afternoon, Pete had unloaded a beer keg from his truck and placed it on the ground—on its side. The keg rolled out into the street. Pete’s driveway is very steep, so the keg was rolling very quickly. The speeding keg hit the opposite curb, bouncing up and into the neighbor’s legs. His neighbor suffered fractured shins and had to undergo surgery and months of rehabilitation. Lightnin’ Pete kept interfering with the settlement effort (cause his dumb neighbor shoulda gott’n outa tha way—he also dented my keg). His neighbor became too angry to accept an early settlement, so Pete’s company paid its limit of $100,000. Pete’s neighbor eventually won a $200,000 judgment, plus another $10,000 in interest. Since the insurer paid its limit paid its limit about half way though the trial, it paid half the interest amount. Lighnin’ Pete had to pay the remaining $105,000.
Contracts
There is coverage for damages for bodily injury or property damage under
a written contract if:
·
the
contract directly relates to the ownership, maintenance, or use of an insured premises, or
·
the contract where the liability of others is
assumed by an insured was made before
the loss.
Example: The Mudheads
were very late in getting their daughter, Tippi, registered for a volleyball
team. They signed an updated registration form from Tippi’s school, which
included a section in which the Mudheads agreed not to sue the school for any
injuries which may occur to Tippi. Further, they agreed to assume any legal
action on behalf of the school, the coaches and assistants.
One day, after an embarrassing volleyball loss to their rivals, Coach
Sludge let the girls into the school gym and, even before the lights were fully
lit, ordered them to run ten laps. Neither Coach Sludge nor the girls saw that
some gym equipment was left on the floor and one of the players tripped, her face
sliding a couple of feet across the rubberized gym floor. The girl’s parents
(who registered with an old form that did not have a waiver) sued the coach.
They sought to recover dental and emergency medical costs that included plastic
surgery and skin grafts. The Mudheads, being the only ones who signed the new
form, had to report the claim and their insurer bore the cost of the suit.
The loss causing the bodily injury or property damage must take place during the policy period. Exclusion c., under Additional Exclusions
that Apply to Coverage L does not apply to this Incidental Liability Coverage.
The other Coverage M and Coverage L and M exclusions still apply to contracts.
Damage to Property of
Others
This coverage is often called voluntary property damage. Its purpose is to handle smaller losses without being concerned about an insured’s legal liability. Under this provision, the insurer will pay replacement cost for property damaged by the insured without regard to legal liability.
Note: The limit for this coverage is $1,000 (per each, eligible incident).
Example: Jym Kickuh is a real sports enthusiast! If an event involves any sort of competition, Jym wants to see it. Jym has a cousin, Gluver, who is nearly as sports-crazed as Jym. Gluver comes to Jym’s house one Saturday for dinner and he has a big surprise! The previous weekend, Gluver went to a sports show and bought a baseball bat that actually belonged to Big ‘Sluggin’ Sam, a legend in the Majors. Jym examines the bat reverently, even using a magnifying glass to look at the sweat stains. Later, Jym’s boy, Kyle, comes across the bat and the magnifying glass. Kyle goes outside with both items and plays with them. When Gluver tells Jym that the smell of hickory smoke is making him ravenous, Jym replies that he hasn’t started the grill. They run outside in time to see how Kyle was able to reduce the bat to charcoal with only the sun and a magnifying glass. In this case, Jym’s policy would cover the loss of the special bat.
The exclusions that apply to coverages L and M do aren’t applicable to this coverage. However, there are certain circumstances under which the insurance company will not pay for damage to property:
a. if the property is covered under the property section of the policy. However, if the property section limit does not satisfy the loss, this coverage will pay the excess up to the limit of the coverage.
b. if the property is owned by an insured, or owned by, rented to, or leased to another resident of the named insured’s household or by a tenant of an insured.
Example: Judy Moviegoer loves spending nights at home, watching classic movies. She is particularly excited because, on her way home, she rented a state-of-the-art DVD from Flush Your Paycheck, Inc. Just as Judy is about to enter her apartment, she drops the box containing the DVD. She thinks it may be okay until she watches in tumble down a flight of stairs. The policy should cover this loss up to the $500 limit.
c.
when the loss is caused intentionally by an
insured that has reached the age of 13
Example: Joy & Pete Malignunt have a 12-year-old son, Chip, who just loves to play pranks. While most of them are harmless, he sometimes gets carried away. One night, Chip was at a friend’s (Tim) house for a sleepover. While Tim was asleep, Chip took a very thin balloon, put a little water in it and carefully slipped it into a slot in his friend’s personal computer. A couple of days later, he tells Tim, who becomes furious! When Tim’s father put a disk in the PC, the balloon popped. The water completely shorted out the PC and also gave Tim’s father a solid jolt. The policy would cover this loss up to $1,000. Chip, however, has to handle being grounded for a month as well as paying back his parents the additional money it cost to buy a new PC.
d. involving an insured’s business activities or a premises owned, rented, or controlled by an insured other than an insured premises;
e. arising from the ownership, operation, maintenance, use, occupancy, renting, loaning, entrusting, supervision, loading, or unloading of motorized vehicles, aircraft, hovercraft, or watercraft.
Note: There is coverage for property damage that arises from motorized vehicles not owned by the insured and meant for recreational off road use or handicap assistance. There is also coverage if the non owned vehicle is a service vehicle for the insured premises or another premises provided the service use is not part of a business. However, coverage only applies if the vehicles are not required to be registered by a governmental authority.
First Aid Expense
If the insured incurs first aid expenses caring for persons injured by bodily injury under the policy, the insurance company will pay for those expenses provided the persons are not insureds under the policy.
Loss Assessment
There is coverage for the named insured’s share of an assessment made by his or her homeowners, condominium, or similar residential association if the assessment:
· is a result of bodily injury or property damage eligible for insurance under coverages L and M of this policy
· is for damages or legal fees the association has a legal obligation to pay for the acts of a director, officer, or trustee but only if they result from the exercise of his or her duties performed on behalf of the association. These individuals must be elected by the association and serving without compensation.
There is no coverage if the assessments charged against the
named insured are due to a requirement by any governmental body or authority upon
the residential association.
Example: An insured lives in a condo called Felonious Acres. The Felonious Acres Condo Association levies an assessment of $1,200 per condo owner. The assessment is to cover a fine charged by the city zoning office because the Condo Association failed to secure and file some paperwork related to their land purchase. This instance would not be covered by the Basic Form homeowner policy.
Also, coverage is barred if the assessment involves property other than what appears as the described location.
Coverage applies if the assessment is made
during the policy period. This means that coverage is based not on the
occurrence of the loss that causes the assessment but instead is based on the
timing of the assessment charge. As a way to prevent confusion, the Policy
Period condition of the liability section does not apply to this coverage.
The limit for this coverage is $1,500 per occurrence. Regardless of the number of assessments, this limit is the most that will be paid for:
· any one accident, including repeated exposures to similar conditions, or
· an act of a director or trustee. (An act involving more than one director or trustee is considered a single act.)
Motorized Vehicles
This very long, complex provision concerns the policy’s limited-basis
coverage for bodily injury or property damage
that is a result of the ownership, maintenance, use, loading, or
unloading of:
·
a motorized vehicle that is in dead storage and is
at the insured premises
This exception is granted because such vehicles represent a premises
rather than an auto exposure. For a claim that illustrates this point, please
refer to PF&M Section 469_C126, “Homeowners Insurance Covers Injuries
Resulting From Auto Repair” in Court Cases.
·
a motorized vehicle that services the insured
premises provided any occurrence takes place on an insured premises but not
a connected premises to the insured
premises or a cemetery lot or burial vault
Example: Jim owns a
small tractor that is used for mowing and which has a small trailer that he
uses for hauling around mulch and wood. Jim lets his son, Paul, drive it
occasionally. One day Paul was driving the tractor and trailer and some friends
came over. Paul decided to let his friends jump into the trailer and he drove
them along the street near his house. Paul pulled into a neighbor’s driveway a
few homes away, the trailer caught the corner of the curb and it tipped over.
His friends suffered bruises and broken bones. The injuries would NOT be
covered since the accident occurred off the insured premises.
·
a motorized vehicle designed only for off public
roads use and is used to service the insured premises or premises of another
·
a motorized
vehicle that assists a handicapped person
·
a
motorized recreational off road vehicle that is not
owned by an insured but is used by an insured (not required to be on
premises)
·
a
motorized recreational off road vehicle that is owned
by an insured provided any occurrence
takes place on an insured premises but not a
connected premises to the insured premises or a cemetery lot or burial
vault
·
a battery operated, very low speed ( 15 m.p.h. or
less) motorized vehicle that is not a motor-driven bike, moped or golf cart
·
a motorized golf cart owned by the insured and not
designed to seat more than four persons, nor designed to exceed a speed of 25
m.p.h. but only when,
- at a golf club or similar establishment and the cart is being stored or parked or is being used by an insured in a manner appropriate for the golf club – on the marked paths and in accordance with club rules. There is coverage if the cart must travel across public roads but only if traveling where marked
- in a residential community where golf carts
are allowed on the public roads, the community has a property owners
association and the insured premises is located within the community.
This provision’s wording reiterates that any coverage is barred if, at the time of a loss, the applicable
vehicle is subject to registration because it is designed for public road use,
if any government authority requires registration of any vehicle in order for
it to be used at the described location, if the vehicle is part of a speed or
performance contest, if it used in business (exception exists for golfing), is
rented to others or if an insured is compensated for using the vehicle to
transport anyone or anything.
Exclusion c. and e. under Exclusions that
Apply to Coverages L and M do not apply to this Incidental Liability Coverage
and exclusion g. also does not apply but only for golf carts being used at
golfing establishments. The other exclusions applicable only to Coverage L
and that apply only to Coverage M still apply to motorized vehicles. (2008
Clarification)
Watercraft
There is coverage for bodily injury or property damage resulting from
the maintenance, use, loading, or unloading of watercraft in the following
circumstances:
·
if it is in storage
·
if it is less than 26 feet and a sailing vessel
·
If it is powered by outboard engines of 25
horsepower of less
When a watercraft is not owned by an insured, there is coverage if it is
powered by inboard or inboard/outboard engines or motors totaling 50 horsepower
or less.
When a watercraft is not owned or rented by an insured, there is
coverage:
·
if it is a sailing vessel with or without auxiliary
power over 26 feet
·
If it is powered by inboard or inboard/outboard
engines or motors totaling more than 50 horsepower
When a watercraft is powered by outboard engines or motors that total
more than 25 horsepower there is coverage if:
·
the engines or motors are acquired by an insured
prior to the policy period and they are listed on the declarations as insured for personal liability; or if a
request for liability coverage is made within 45 days after they are acquired
·
the engines or motors are acquired by an insured
during the policy period, or
·
the engines or motors are not owned by an insured.
In other words, coverage is restricted to loss situations involving
watercraft owned by an insured as long as it is not in active use or is low
risk (small, minimally powered craft), or loss situations involving slightly
more powerful craft, which is not owned by an insured.
This provision’s wording reiterates that any coverage is barred if, at the time of a loss, the applicable
craft is part of a speed or performance contest (exception for sailing vessels
participating in either a cruise or predicted log contest), if it is rented to
others or if an insured is compensated for using the vehicle to transport
anyone or anything.
Exclusions c. and e. under Exclusions that
Apply to Coverages L and M do not apply to this Incidental Liability Coverage. The
other exclusions applicable only to Coverage L and that apply only to Coverage
M still apply to motorized vehicles. (2008 Clarification)
Exclusions That Apply
To Coverages L (Personal Liability) and M (Medical Payments to Others)
This policy does not apply to:
· bodily injury or property damage caused by war or warlike situations including:
|
undeclared war |
civil war |
|
insurrection |
rebellion |
|
revolution |
warlike act by a military force or military personnel |
|
destruction, seizure, or use of property for a military
purpose, |
discharge of a nuclear weapon (even if accidental). |
|
defense or hindering of hostilities by a military force |
|
·
bodily injury or property damage resulting from
an insured owning or leasing an aircraft or hovercraft. There is also no
coverage for any person who operates, maintains, uses, occupies, loads, or
unloads an aircraft or hovercraft. In addition, if an insured entrusts or loans
a hovercraft or aircraft to a person, there is no coverage. Finally, there is
no coverage for the insured’s negligence or nonexistent supervision of a person
as respect to an aircraft or hovercraft. This exclusion does not apply to
bodily injury that may occur to a domestic employee of the insured if the injury
occurs in the course of that employee’s duties.
Remember that based on the
definition of aircraft and hovercraft, models are covered provided they are not
designed to carry cargo or people.
Example: Greg Airnut loves military aircraft and he loves building
and displaying models. One evening, while entertaining a young lady, Greg
points out his favorite model, an F14 fighter that is tethered to his living
room ceiling. It’s quite detailed and it is scaled to 1/20th the size of the
real model. As Greg’s guest, Lisa, runs her hand along the underside of the
model, a tether line snaps and the back end of the model swings down. It knocks
Lisa to the floor, knocking out a couple of front teeth and slicing a gash in
her forehead and her forearm (which she raised to try to ward off the model).
Greg’s policy would respond to these injuries.
·
bodily injury or property damage resulting from
an insured owning or leasing a motorized vehicle or watercraft. There is also
no coverage for any person who operates, maintains, uses, occupies, loads, or
unloads a motorized vehicle or watercraft. In addition, if an insured entrusts
or loans a motorized vehicle or watercraft to a person, there is no coverage.
Finally, there is no coverage for the insured’s negligence or nonexistent
supervision of a person as respect to a motorized vehicle or watercraft. This exclusion does not apply to
bodily injury that may occur to a domestic employee of the insured if the
injury occurs in the course of that employee’s duties. This exclusion also does
not apply in situations where the policy’s Incidental Liability Coverage provides
coverage for Motorized Vehicles or Incidental Liability Coverage for
Watercraft.
·
bodily injury or property damage that arises from
an aircraft or hovercraft even if the insured is considered vicariously liable
because the actions of a child or minor caused or led to the injury or
property. This exclusion holds whether or not law imposes the liability.
·
bodily injury or property damage that arises from a
motorized vehicle or watercraft even if the insured is considered vicariously
liable because the actions of a child or minor caused or led to the injury or
property. This exclusion holds whether or not law imposes the liability.
This exclusion also does not apply in situations where the policy’s Incidental
Liability Coverage provides coverage for Motorized Vehicles or Incidental
Liability Coverage for Watercraft.
· bodily injury or property damage resulting from rendering or failing to render a professional service
Example: Dr. Henry Skilcutter enjoys playing basketball on Sunday nights. He and a group of other dads play at their kids’ school gym. The guys call Henry Dr. Hoops. During one Sunday when only ten guys show up, one of the players falls and hurts his knee. He asks Dr. Hoops to look at it. Henry gives it a quick look and says, mindful that they need this guy in order to have a full court game, that he could walk around a little bit and then continue to play. The injured guy re-joins the game, goes up for a rebound and lands on the leg he previously injured. He crumples to the floor with a loud yell and he is in AGONY. It turns out that his knee injury was serious and he should have sought treatment. He ends up needing surgery and extended physical rehab. He sues Dr. Hoops for telling him it was okay to keep playing. This loss would not be covered by Henry’s policy since it involved professional medical advice.
·
bodily injury or property damage that are created
by any insured’s business activities whether on or away from the insured
premises and whether or not the business is owned or operated by an insured. An
exception exists for the limited circumstances insured under the form’s
incidental business coverage and when a golf cart is used at a golfing
establishment.
Example: Judy
Lightscreen is a network administrator who, at her home, does PC repairs and
other work such as adding memory, installing or uninstalling software and
miscellaneous tasks. She earns as much as $500 a month for this sideline. One
evening Judy is helping a customer take his PC and monitor to his car after she
has completed work on it. Judy trips and drops the monitor; the custom monitor
is worth $2,000. Judy’s policy WILL NOT provide coverage for this property
since the loss was directly connected to an excluded business activity.
Note:
This exclusion also applies to other forms of injury to others that may
be directly related to an insured’s business activity as well as loss involving
expectations related to such activity (i.e., activity related service, etc.).
·
bodily injury or property damage that is connected
to locations that, while not shown as a described location, an insured owns,
rents, or controls.
Note: There is
coverage for bodily injury to a person in the course of performing duties as a
domestic employee.
· bodily injury or property damage expected by, directed by, or intended by an insured, as a result of a criminal act of an insured, or the result of an intentional and malicious act by or at the direction of an insured
Note: This exclusion applies even if the bodily injury or property damage that occurs is different than what was expected by, directed by, or intended by the insured, or if someone suffers the bodily injury or property damage other than the person or persons expected by, directed by, or intended by the insured.
This exclusion makes an exception for bodily injury or property damage that is caused by an insured using reasonable force to protect people or property.
Example: Let’s revisit an earlier example. A drunk driver is meandering home from a party. This time when he falls asleep, he runs off the road and hits a utility pole that sits on the corner of the Brideluvs’ front lawn. The pole is bent severely enough to snap the power line that’s connected to the Brideluvs’ home. Again, the accident occurs at 2:30 a.m. and there isn’t a loud crash, so the Brideluvs continue their sleep Again, the Brideluvs are upset because an ice sculpture in their extra freezer has completely melted. The water has leaked out from their freezer and soaked into their wood parquet flooring. The Brideluvs wake up and discover the disaster and they decide to postpone the wedding. The bride-to-be, Whiplash Brideluv, is furious! She notices that the drunk driver is outside, leaning against his car. She runs out, yelling at him. She reaches out and jabs her finger to his chest. Whiplash continues to poke him and the driver backs away from her. As she pokes him again, the driver loses his balance, spins around and falls, sprawling, face first into his car bumper. Even though Whiplash only meant to give the driver a tongue-lashing, the policy will not provide coverage for the injuries. They were connected with her verbal attack and jabbing.
Example: Max D. Mentid had enough of his neighbor, Chuck. Their township has strict rules on how many bags of leaves can be put out for trash pick-up and, for three straight weeks, Chuck has sneaked several bags onto Max’s pile. Tired of being ignored, Max decides on a prank. Since Chuck leaves his car in his driveway, Max lets the air out of one of the front tires. The next morning, Chuck pulls out into their busy street but since the car doesn’t respond normally (due to the flat tire), Chuck moves too slowly and causes a crash. Max apologizes because he only meant to inconvenience Chuck, not to injure Chuck or to cause damage to the car and driver that crash into Chuck’s hobbled car. The policy will not pay for the damages to the cars or any injured drivers.
· bodily injury or property damage because a communicable disease is transmitted by an insured.
This is a broad exclusion with no
limitation.
· bodily injury or property damage due to sexual molestation.
The term insured is not used in this exclusion and there is no further explanation. Since there are no explanations or limitation, this means that if an insured is named in any suit involving sexual molestation there is no coverage even if the insured is not alleged to have perpetrated the molestation.
· bodily injury or property damage that is a result of physical or mental abuse.
There is no requirement that this
be a direct result of the abuse, the amount of time that can be between the
abuse and the bodily injury and the property damage. It doesn’t even say who
must cause the physical or mental abuse. It is a very open ended exclusion.
Example: Mary was abused as a toddler and removed from her parent’s home and adopted by the Smiths, a loving family. The Smiths are alarmed when Mary starts setting small fires around the neighborhood and brings in a therapist. The therapist states that Mary’s fire setting is a direct response to the abuse she suffered as a toddler. When the Smiths present claims from neighbors for property damage caused by Mary’s fires, would this exclusion be used to deny coverage?
· bodily injury or property damage that arises out of corporal punishment.
This exclusion is as equally open ended as the physical or mental abuse exclusion.
Example: If a child retaliates against the teacher for administering corporal punishment by trashing the teacher’s home, is that property damage excluded?
· bodily injury or property damage arising from any aspect of the illegal drug trade. This includes manufacturing, selling, using, delivering, transferring or possessing of a controlled substance such as cocaine, LSD, marijuana along with other narcotic and hallucinogenic drugs by a person (does not have to be an insured).
This very broad exclusion should make homeowners wary of activities in or around their home since they would have no coverage even if they had no knowledge of the activity on their premises. This exclusion does not apply to prescription drug use provided the person to whom it was prescribed uses the drugs.
Example: The Farming Folks home is on a five acre wooded lot. A neighbor asked for permission to walk through their woods to look for mushrooms. While she is looking, she walks into a booby trap that had been set by individuals who were growing hallucinogenic illegal mushrooms on the property. If the neighbor sues the Farming Folks, would this exclusion prevent the policy from responding?
Additional Exclusions That Apply Only to
Coverage L (Personal Liability)
Coverage L (Personal Liability) does not apply to:
· bodily injury to any of the persons defined as insureds under definition 13. a.-e. in the definition portion of this policy. This would include the named insured, residents of the named insured’s household, the named insured’s relatives and more. It also means that persons defined as insureds under definition 13.f. are covered for bodily injury. The 13.f. insured definition includes real estate managers, persons accountable for animals and watercraft, etc.
Example: The Pitscrapple Clan is having their annual reunion and picnic. They rotate the location among the elder relatives and, this year, it’s at Emily Pitscrapple’s wide open home that is on a three acre wooded lot, which also has a small creek running through the property. Since there are so many younger Pitscrapples, Emily asks her college-aged niece, April, to entertain them. April gets the ten younger kids together for a critter hunt. April borrows several of her younger cousin’s stuffed animals and hides them around the grounds. While running around and searching, Penny and Jeff Pitscrapple both get tangled up and tumble down the small ravine next to the creek. The others hear their yelling and come to their aid within minutes. Both have to receive emergency room treatment and x-rays for their cuts and sprains. Penny is Emily’s daughter, so none of her injuries are covered. However, since Jeff and his folks live elsewhere, Emily’s policy may cover his injuries.
· any claim made or suit that is brought against an insured that is seeking contribution to or reimbursement of damages for which another person may be liable because of bodily injury to an insured.
This exclusion is trying to eliminate coverage that might be gained when one insured may have assisted another in the injury of another insured.
Example: One snowy day Paul, Fred, and Molly are using the Paul’s golf mobile to pull Paul’s wife Cindy on a sled. While Fred is driving, the sled tips over and Cindy is severely injured. The medical claims are exorbitant and Cindy’s income loss is a significant drag on the family fortune. Paul sues Fred. Fred’s homeowners carrier then makes a claim against Paul’s homeowners policy because the injury was on Paul and Cindy’s premises. This exclusion would prevent coverage from being provided.
· liability assumed under a contract or an agreement, except as provided by the Incidental Liability Coverage for Contracts.
Example: Pete D. Lapidated hires a small painting company to paint the interior and exterior of his home. The company, called Perilous Painters, belongs to an old college pal, Jesse. While in a hurry to get the front of the home painted, a couple of Jesse’s employees unload an extension ladder from their van and rush to get it set up. Unfortunately they run into a young mother and her preschooler, who were passing by on the sidewalk. The young mother sues Perilous Painters and its owner, Jesse. Jesse talks to Pete and tells him that his business is close to failure and that he doesn’t have any insurance. Pete, the ol’ softie, agrees to sign an agreement to handle any losses related to the painting job. In this case, since the agreement was made after the loss, Pete’s policy will not respond.
· damage to property owned by an insured
· costs and expenses made on owned property to prevent injuries to and damage to property belonging to others.
Although the insurance company appreciates the efforts, an insured should take such measures without expecting payment from the insurance carrier.
· damage to property that is rented to, occupied by, used by, or in the care of an insured, except for property damage caused by fire, smoke, or explosion
Note: This coverage exception concerning property in the control of an insured is often referred to as Fire Legal Liability.
· sickness, disease, or death of a domestic employee, unless a written notice is received by the insurance company within 36 months after the end of the policy period in which the injury occurred
· bodily injury to a person, including a domestic employee, if the insured has a workers compensation policy covering the injury, or if benefits are payable or are required to be provided by the insured under a workers compensation, non-occupational disability, occupational disease, or like law.. This exclusion places the coverage onto the workers compensation carrier and prevents double dipping.
· liability for any assessment made by a homeowners, condominium, mobile homeowners, or similar residential association, except as provided by the Incidental Coverage for Loss Assessment.
· bodily injury or property damage that results from an occurrence for which an insured is also an insured under a nuclear energy liability policy or would be an insured but for the exhaustion of its limits. A nuclear energy liability policy is a policy issued by American Nuclear Insurers, Mutual Atomic Energy Liability Underwriters, Nuclear Insurance Association of Canada, or their successors.
Additional Exclusions That Apply Only to
Coverage M (Medical Payments to Others)
Coverage M (Medical Payments to Others) does not apply to bodily injury to:
· an insured or other person who resides on the insured premises, except a domestic employee
· a person, including a domestic employee, if a workers compensation policy covers the injury or if benefits are provided under a workers compensation, non-occupational disability, occupational disease, or like law
· a domestic employee if the injury occurs off of the premises and does not arise out of the employment of an insured
· that results from and all consequences of nuclear reaction, nuclear radiation or radioactive contamination, however caused.
This section of the policy discusses a very important part of the
policy, the promise of the insurer, under described circumstances, to pay for a
loss (including defending a lawsuit). Since the policy is a contract, both the
insurer AND the insured have responsibilities. The manner in which an incident
is handled by an insured is a critical matter. It increases the policy’s
ability to function as intended. The policy lists the responsibilities
separately, under the major coverages and it also makes references to parties
that represent an insured.
PROPERTY
COVERAGES
Notice
When a loss occurs, the insured is obligated to do the following:
· promptly notify the insurance company or the insurance company’s agent
Note: The company
providing coverage has a right to ask that the notification be in writing.
· IF the act that causes the loss is a crime, the insured must promptly notify the police, and
· notify the credit, debit or similar funds-handling card company if the loss involves a credit, debit or similar card.
The above actions serve important functions. First, they permit the
company to begin the loss investigation process, including any action to
protect its rights and to determine if an insured is actually liable for
payment under the policy. Quick notification to the police and any credit or
debit card companies help to minimize a potential loss by initiating any
criminal investigation and terminating a thief’s ability to make continued use
of stolen cards. The reporting duty also minimizes fraud on the part of an
insured. Persons tempted to make phony claims may be stopped by the requirement
of a police report.
Protecting
Property
The Basic Form policy recognizes the importance of preserving property.
An insured is required to extend a good faith effort to protect covered property
at and after an insured loss to avoid additional loss. The company agrees to
reimburse the insured’s REASONABLE costs incurred for necessary repairs or
emergency measures performed solely to protect covered property from further
damage. However, the preservation effort must involve covered property that is
endangered by a covered peril or a covered peril that has already caused
damaged. The insured must keep an accurate record of such costs. However, the
insurer will not pay for such repairs or emergency measures performed on
undamaged property. This provision does not increase the insurer’s policy
limit.
Cooperation
The insured must cooperate with the insurer in performing all acts
required by this policy. The policy requires that an insured work with, rather
than against, the insurer in order to investigate and process a possible claim.
Inventory of
Damage Personal Property
This is the quantity, description, cost, amount of loss, and actual cash
value of the personal property involved in the loss. The insured must give the
insurance company copies of all bills, receipts, and related documents to
confirm these.
Showing
Damaged Property
The insured must show the damaged property and allow the insurer to take
samples of damaged property for
inspection, testing, and analysis. Such requests can be made at the
insurer’s discretion and the number of requests should be kept reasonable. Of
course, what is considered reasonable is subjective.
Records and
Documents
The insured must show records, including tax returns and bank records of
all canceled checks that relate to the value, loss, and costs, and permit
copies to be made of them as often as the insurance company reasonably
requests.
Examination
Under Oath
The insured must agree to be questioned by the insurer with regards to a
claim and the questioning can include answering questions under oath. When more
than one insured is questioned, the sessions can be taken separately and
without any other insureds witnessing the separate sessions.
This duty helps to protect a company against attempts to conspire to
file false claims. On the positive side, it may also assist in getting the most
details concerning a valid loss.
Note: Insurer
Requests - While an insurance company has the right to make requests concerning gathering
insured statements, seeing the damaged property and securing related records,
the emphasis is on the insurer making REASONABLE demands. The request must be
for the purpose of moving along their claims investigation and a formal
decision on accepting or denying the claim.
Proof of Loss
If the insurance company requests it, the insured is required to provide
the insurer with a signed, sworn proof of loss. The proof of loss must be
submitted within 60 days from the date of the insurer’s request and it must
show the following:
·
the time, place, and the details of the loss
·
the
(insurable) interest of the insured and the (insurable) interest of all others,
such as mortgagees and lien holders, in the property. If a party cannot
demonstrate an insurable interest in the damaged property, the insurer is not
obligated to make payment to an insured.
·
other policies that may cover the loss, since other
policies may have to also provide coverage for an eligible loss
·
changes in title or use
·
available plans and specifications of buildings
·
detailed repair estimates
·
an inventory of lost items (the inventory must meet
the requirements stated separately in this section)
Further, an insured must document any claim that includes any request
for reimbursement for a credit card, debit card or other, similar
funds-handling card. Finally, any requests that involve additional living
expenses have to be supported by proof of the property’s current market rental
value and actual additional living expenses incurred.
Assistance
With Enforcing Right Of Recovery
This duty requires an insured to help the carrier with any reasonable
recovery effort. In many instances where insurers make payments to their
clients, other parties are responsible for the damage or injury. When possible,
insurers take action to recover payments from these other parties and they
often need the insured’s help. This is also known as right of subrogation.
Once there has been an occurrence, the following duties must be
performed. It is important to notice the word occurrence is used and not claim.
This means that an obligation exists even before a claim is presented. The
named insured can choose to have another insured perform the duties but the
ultimate responsibility of getting the duties completed remains with the named
insured.
Notice
While speed in reporting a loss is important, quick notification is
useless if it doesn’t include enough information with which to make decisions.
Therefore, the notification has some content requirements. Specifically, the
notice should include:
·
the name of the named insured
·
the policy number
·
the time, place, and the details of the occurrence,
and
·
the names and addresses of all known potential
claimants and witnesses.
Further, any notification has to be done in writing and, if not
performed by an insured, must be completed by an insured’s legitimate
representative (a person with proper authority to work with the insurer on
behalf of the insured AND to be held accountable for actions or errors).
Volunteer
Payments
An insured must not make payments, pay or offer rewards, or assume
obligations or other costs, except at the insured's own cost. This stipulation
does not apply to costs that are allowed by this policy, such as minor payments
(i.e., first aid) that are permitted under the policy’s incidental coverage
section.
The policy allows an insured some leeway to make payments in order to
respond to emergencies or to help mitigate problems. However, an insured has to
take great care in making payments that fall outside of the parameters
permitted by the company. EVEN when an insured agrees to make payments out of
his or her own pocket, he or she needs to be aware of the ramifications of such
payments. Certain actions may be interpreted as an admission of guilt or responsibility
for a loss, when that interpretation may be wrong. It is important that an
insured not put his company on the hook for a loss when the facts don’t support
liability on the insured’s part.
Cooperation
The insured must cooperate with the insurer in performing all acts
required by this policy. The policy requires that an insured work with, rather
than against, the insurer in order to investigate and process a possible claim.
Notice,
Demands, And Legal Papers
Insureds are required to provide rapid notification to the insurer of
any communications, especially paperwork that is related to an occurrence.
Specifically the insured must send copies of such paperwork to the insurer as
quickly as possible. Failure or significant delays can compromise the insurance
company’s ability to properly investigate and handle a claim.
Assistance
With Claim And Suits
At the request of the insurance company, an insured must help the
company:
·
to settle a claim
·
to participate with lawsuits, such as appearing at
trials and hearings
·
with their efforts to recover payments or take
other action against separate parties who may be legally responsible for
applicable injury or damage
·
with efforts to obtain and provide evidence, and
·
to ensure attendance of all witnesses.
Note: This provision
actually appears redundant as it is an expansion of the “Cooperation” duty.
Other
Duties—Damage to Property of Others
In case of a loss, the insured must give a signed, sworn statement of loss within 60 days after the loss and must exhibit the damaged property if it is within the insured’s control.
In this portion of the policy, the company’s obligation to provide insurance protection to the insured is described, including explanations of limits, deductibles, losses to pairs, set and parts and loss settlement terms.
Property Coverages
Our Limit
Subject to the deductible or any other limitation that may apply, the insurance company providing coverage has the option to pay either the policy’s applicable limit or the amount that is developed according to the policy’s loss settlement terms. The amount that is paid will be the LEAST EXPENSIVE option. The option will be exercise without being affected by the total number of insureds, claimants or financial interests involved with a given occurrence. However, the amount paid will also be subject to the actual insurable interest that exists.
Example: Fern Causloss submitted a claim for a large fire loss in which the adjuster estimated that the damages to the contents totaled $47,000. Fern’s policy had a Coverage C limit of $45,000. Fern owned 50% of the contents since they were being purchased on a rent-to-own basis. The rental store values the contents at $56,000 and the rental store is listed as an additional interest on the policy declarations. Fern’s policy would provide a total of $45,000 since this is the smallest value among the settlement options. Fern and the rent-to-own store must divide the proceeds based on their interest.
Deductible
The deductible that appears in the policies applies to all
of the principal and incidental property coverages, except for Refrigerated
Property, Fire Department Service Charge and Credit Card; Electronic Fund
Transfer Card or Access Device; Forgery, Counterfeit Money losses.
Unless a specific exception is made, the deductible that appears on the policy declarations page applies to losses caused by all covered perils. The insurance company providing coverage will pay the part of the loss that exceeds the deductible.
Important Factors to Remember About the Deductible
If there is a loss to an item that is part of a pair or set, the insurer has the option of just paying to replace or repair the item, or to pay the difference in the actual cash value of the pair or set just before the loss and the actual cash value just after the loss. In other words, the insurer does not become obligated to compensate such losses by providing the value of a full pair or set.
Loss to Parts
When an occurrence involves a loss to a part of an item that consists of several components, the insurer’s obligation is only according to the value of the lost or damaged part or the cost to repair or replace it.
Both the Loss to a Pair or Set and the Loss to Parts provisions are meant to control the insurer’s exposure. In this case, the insurer makes it clear that it is not automatically obligated to treat a partial loss as, for all intents, a total loss. Of course, the loss circumstances and the type of property involved have a great deal to say about the values involved and what is considered to be fair.
Example: Bessie James and Ron Dillinger were on a date at an amusement park and both wore their favorite earrings. Both Bessie and Ron were upset to find an earring was missing after they got off the Belly Mangler roller coaster ride. Both Bessie and Ron submitted claims to their respective insurers and, while Ron was happy with the amount he received for the loss of his one earring, Bessie was not. In Ron’s mind, each piece of his earring set had single value since he only had one ear pierced. As far as Bessie was concerned, getting a settlement that was somehow based on a single earring was ludicrous. She wasn’t able to find a single earring that matched the one she still had, so the remaining earring was worthless.
Loss Settlement Terms
Depending upon the policy’s applicable settlement terms, eligible losses are handled according to either the replacement cost terms or according to the actual cash value term.
Regardless of the terms used to handle an eligible loss, increased costs or expenses that are created by a law, code or ordinance will not affect the payment. However, there is an exception for the limited coverage that exists under the policy’s incidental property section.
Replacement Cost Terms
These terms are for losses involving structural property (with foundations and roofs) that is protected under Coverages A and B. They do not apply to:
· window air conditioners
· awnings and canopies
· appliances
· carpets, and
· antennas
These exceptions have much to do with the fact that such property is either protected under another coverage part or is too vulnerable to depreciation, or both.
When attempting to determine the replacement cost for property that is covered under Coverages A and B, do not include the cost of:
· excavations; brick, stone, or concrete foundations; piers; and other supports that are below the undersurface of the lowest basement floor; or below the surface of the ground inside the foundation walls, if there is no basement; and
· underground flues, pipes, wiring, and drains.
The policy makes these exceptions in the replacement cost computation because this property often survives even total losses and, therefore, shouldn’t be included in determining a building or structure’s full replacement value.
Most carriers have a goal to preserve the property that they insure. Therefore, it is in their interest to encourage that damaged or destroyed property be repaired or replaced. For larger losses, the insurer has the option to make incremental settlements. Specifically, when the cost to repair or replace damaged or destroyed property exceeds the lesser of $2,500 or 5% of the limit on the damaged building, the insurance company will not pay for more than the actual cash value of the loss until repair or replacement is completed.
The insured also has options. He or she may make a claim for the actual cash value of the loss before repairs are made and then make a further claim for the replacement cost provided a notification has been provided to the insurance company within six months of the loss, of the intent to claim replacement cost.
If the limit on the damaged building is less than 80% of its replacement cost at the time of loss, the larger of the following amounts is used in applying the terms under the Our Limit terms:
1. the actual cash value at the time of the loss, or
2. that part of the replacement cost of the damaged part which the policy limit on the building bears to 80% of the full current replacement cost of the building.
If the limit on the damaged building is at least 80% of its replacement cost at the time of loss, the smaller of the following amounts is used in applying the terms under the Our Limit terms:
1. the cost to repair or replace the damage on the same premises for the same use and utilizing materials of like kind and quality, to the extent practical, or
2. the amount spent to repair or replace the damage.
Note: The named insured
may decide to rebuild at a different location. This is acceptable under the
policy but the replacement cost is limited to the costs that would have been
incurred had the rebuilding took place at the original site.
Actual Cash Value
Terms
Actual cash value includes a deduction for depreciation.
The actual cash value terms are used to settle losses in all instances where items are not eligible for replacement cost settlement. In those instances, the least expensive option among the following is used:
1. to the extent practical, the cost to repair or replace the property with materials of likes kind and quality
2. the actual cash value of the property at the time of loss
Coverage
L—Personal Liability
The policy’s Coverage L limit appears on the declarations and it acts as
the maximum possible amount that the insurer is obligated to pay for a single
occurrence. This maximum obligation is
not affected by the number of persons who are insureds, the number of parties who
sustained injury or damage, or the number of legal actions (claims or
lawsuits). Further, the above limit also acts as the maximum when more than one
policy period is involved and it applies regardless of the number of claims.
Repeated exposure to similar conditions is considered one occurrence as are all
bodily injury and property damage from any one accident.
Coverage
M—Medical Payments To Others
The coverage limit that appears for Coverage M is the maximum amount of
protection available for medical expenses paid to a given third party for a
single accident.
The payment of a claim under Coverage M does not imply liability under
Coverage L. In other words, the policy may cover the medical expenses of an
injured person without giving up the right to investigate and decide upon the
merits of any related liability claim.
Example: Agnes
Lowfault loves to garden. One day Agnes returned home with supplies from Green
Menace, her favorite home and garden center. Since she planned to immediately
work on her garden, Agnes quickly unloaded her car and piled the supplies on
her lawn. Agnes rushed outside when she heard a crash and some loud groaning.
Perry Sumklutz tripped and fell over a couple of bags of fertilizer that
protruded onto the sidewalk in front of Agnes’ home. Agnes helped Perry to a
nearby medical center where he was cleaned up and received several stitches.
Agnes’ policy paid for the medical treatment.
A few weeks later, Agnes received notice that Perry was suing her
because she left the bags in a place that caused the accident. He also stated
that the fact she paid for treatment indicated that she was guilty. Agnes’
insurer, No Guff Ins. Co., investigated the claim and offered Perry nothing.
The insurer discovered from several witnesses that, at the time of the loss,
Perry was skating very fast and doing so backwards, zigzagging as he actually
ran onto Agnes’ lawn first, then hitting the bags and falling down. Perry
decided to be happy that his medical expenses were taken care of and he dropped
the lawsuit.
Severability
Each insured under the policy is treated individually under the policy
with one exception—the limit of insurance applies per occurrence not per
insured.
Example: All five members of the Johnson family are sued by
Snake Taters for a life-altering injury that occurs at a party at the Johnson
home. While all five members are each covered by the policy’s $300,000 Coverage
L limit, that limit is the maximum, total amount available for the Taters’
lawsuit.
|
Johnson vs.
Taters HO Loss Settlement |
||
|
Insured |
Amount
Awarded |
Applicable Several Limit |
|
J. Johnson |
$85,000 |
$85,000 |
|
P. Johnson |
$120,000 |
$120,000 |
|
A. Johnson |
$215,000 |
$215,000 |
|
O. Johnson |
$15,000 |
$15,000 |
|
R. Johnson |
$45,000 |
$45,000 |
|
Total Awarded |
$480,000 |
|
|
Total Paid Under Policy |
$300,000 |
|
Insurance
Under More Than One Coverage
If more than one coverage of this policy applies to a loss, no more than
the actual loss itself will be paid. This condition assures that a person is
not allowed to benefit from the fact that coverage under the policy exists from
more than one area.
Insurance
Under More Than One Policy—Property Coverage
Depending upon the source of coverage that is available (in addition to
this policy), the policy may respond to the loss on either a proportional or an
excess basis.
When there is other insurance that applies to the loss, the insurance
company providing coverage under this form is only obligated to pay its share
of the loss. This policy’s share is based upon the portion of coverage it
provides in relationship to the total amount of coverage available from all
sources of coverage, which apply to the loss.
Example: Frank just
moved into a single family home two weeks ago and the home is protected by a
Basic Form policy from Wriggle Wrangle Insurers. The Wriggle Wrangle policy has
a $30,000 limit on Coverage C—Contents. Frank lost a one-month-old couch when a
friend left a smoldering cigarette between its cushions. The couch had a
purchase price of $1,800. When speaking to Frank about a settlement, the claims
adjuster discovered that Frank had a previous policy from another insurer. It
was for Frank’s apartment. That policy had a limit of $10,000 for contents and
it had overlapping coverage that applied to the lost couch. In light of this
information, the claims adjuster paid Frank $1,275 for his company’s portion of
the loss. That figure was developed per the following:
|
Amount of loss (replacement cost of couch) |
$1,800 |
|
|
Amount of 1 month’s depreciation |
$100 |
|
|
Adjusted amount of loss (current value of couch) |
$1,700 |
|
|
Total amount of coverage applicable to loss |
$40,000 |
[$30,000 from Wriggle + $10,000 from apt. policy] |
|
Percent of coverage supplied by Wriggle |
75% |
[$40,000 divided by $30,000] |
|
Amount of loss paid by Wriggle |
$1,275 |
|
Loss, cost or expenses that are covered under a government fund or a
home warranty type plan are not considered insurance under this provision.
When a loss also is covered by the master policy of an association or
corporation of property owners, this insurance responds on an excess basis. In
other words, this policy would provide coverage ONLY AFTER any available
protection from the master policy is exhausted. While this is an important
provision, it is likely to be a rare occurrence since master policies are
unlikely to provide coverage for property owned individually by a condo
unit-owner.
Insurance
Under More Than One Policy —Coverage L - Personal Liability
This insurance is excess over other valid and collectible insurance that
applies to the loss or claim. However, this condition does not apply to
insurance written specifically to act as a second or additional tier of
coverage above this policy's limits.
If the other insurance is also considered excess, this policy will pay
only its share of the loss. The part of the loss that will be paid is that part
of the loss that the applicable limit under this policy bears to the total
amount of insurance covering the loss.
This condition attempts to make any liability protection provided by
this policy act only after another source of coverage responds to a loss. It
adds an option of responding on a proportional basis when the other source of
coverage provides its protection on an excess basis. Unfortunately, not all
circumstances can be foreseen by policy conditions so there are times that
insureds and insurers will dispute how coverage is to apply.
Although it involves a professional liability loss, we suggest that you
please refer to PF&M Section 399_C020, “Other Insurance Clauses In
Consecutive Policies Determined Obligation Of Each Insurer” in Court Cases for
an example of how insurers argue other coverage and subrogation issues.
Warranties And
Service Or Maintenance Plans Or Agreements
The policy’s available coverage is directly affected when a warranty,
service plan or similar agreement applies to an occurrence. In such instances,
the policy responds on an excess basis. This provision applies even if such
agreements or plans are structured to operate similarly to insurance.
Regardless, the policy’s coverage would apply as excess (as opposed to the proportional
basis that applies when other sources of insurance are available).
Government
Funds
The policy’s available coverage is directly affected when a government
fund also applies to an occurrence. In such instances, the policy responds on a
proportional basis. Specifically, this policy would apply coverage based on the share of total protection
that its limit represents.
Property Coverages
Losses are adjusted between the named insured (including resident spouse) and the insurance company. The insurance company is obligated to pay an insured loss within 60 days after receiving an acceptable proof of loss and coming to a written agreement on amount of the loss.
If there is a dispute between the insured and the insurer and the appraisal condition is exercised, the insurer has to make payment within 30 days after the filing of an appraisal award. Unless there is a loss payee, payment is made to the named insured.
If a covered loss makes the described location unfit for use for more than one month, additional eligible expenses will be paid on a monthly basis. The insured must submit proof of the extra living expenses.
The insurance company has some flexibility in paying for an eligible loss. The settlement may be paid in money; or the insurer may choose to rebuild, repair, or replace the property. The insurance company is obligated to give the insured notice of its intent within 30 days after the insurance company receives an acceptable proof of loss.
The insurance company has a right to take all or part of the damaged property at the agreed or appraised value. If the insurance company pays for or replaces property, it then belongs to them. This last option is another way to make certain that an insured is indemnified for, rather than enriched by, a loss. Insurers also salvage property as one way to help recoup their loss payments.
Liability Coverages
Once a person has been granted a judgment against an insured or insurance company, the insured and the claimant have reached an agreement, that person can recover under the policy based on the extent of coverage the policy provides. Note: That extent is based on the limits section of the policy.
Damage to Personal Property of Others - At the option of the insurance company, a loss may be handled and paid either with an insured or with the actual owner of the damaged or destroyed property. These handling options are mutually exclusive.
Note: If it is not clear, the above reference to owner is to the owner of the damaged or destroyed property (not the owner of the policy paying the coverage). This insurer option could help to mitigate adverse feeling between the insured and the property owner.
Assignment
No insured or other party can sign this policy and its coverages over for use by any other party unless, first, getting the insurance company’s permission (in writing).
Cancellation and
Nonrenewal
This policy may be canceled by the insured by returning the policy to the insurance company or by giving the insurance company written notice that states at what future date coverage is to stop.
The insurance company providing coverage may cancel or not renew this policy by written notice to the insured at the address shown on the declarations. Proof of delivery or mailing is sufficient proof of notice.
If it is during the first 59 days, the insurance company may cancel for any reason with at least 10 days’ notice before the cancellation is effective.
After this policy has been in effect 60 days or more, or if it is at the policy’s annual renewal, the insurance company may cancel only at the anniversary date unless:
· the premium has not been paid when due
· the policy was obtained through fraud, material misrepresentation, or omission of fact, which, if known by the insurance company, would have changed the decision to accept the risk, or
· a material change or an increase in the hazard of the risk has occurred.
This condition goes on to say that, if the policy is canceled for nonpayment of premium, the company providing insurance will give the named insured at least 10 days’ notice before the cancellation is effective. If the policy is to be canceled for any other reason after it has been effective for 60 days or more, the insurance company is obligated to provide at least 30 days’ notice before cancellation. If the company providing coverage elects to non-renew the policy, it is obligated to provide at least a 30-day notice.
Important: Generally this provision is pre-empted by state law regarding cancel or nonrenewal reasons, amount of notice and proof of delivery. It is critical that state law is followed concerning any decision to cancel or non-renew a homeowner policy.
If any return premium is owed, it will be refunded at the time of the cancellation or as soon as is practical. Payment of the unearned premium has no bearing on cancellation.
Change, Modification,
or Waiver of Policy Terms
Only the insurance company has the option of waiving or changing this policy’s terms and such waiver or change must be in writing. If the insurance company providing coverage under this policy adopts a revision that broadens coverage without additional premium, the broadened coverage will apply to this policy as of the date the insurance company adopts the revision in the state in which the described location is located. This condition applies only to revisions adopted 60 days prior to or during the policy period shown on the declarations. This condition does not apply to changes in a policy that both broaden and restrict coverage whether in an edition change or an endorsement.
Conformity With
Statute
Terms in conflict with the laws of the state in which the premises shown on the declarations is located, are changed to conform to such laws. This provision is rarely relied upon since amendments or endorsements are added to policies to match the state where the policy is used. However, there are instances where the condition is relied upon.
Example: Joe Realty has a primary residence in State A and vacation homes in States B and C. The company that insures his home in State A agrees to issue policies for his other homes, but using the same policy that is used for State A. The Conformity With Statute condition makes the policies issued for the State B and State C residences operate as though they were WRITTEN for State B and State C.
Death
If the named insured or the named insured’s in-resident spouse dies the legal representative of the person who died becomes an insured as respect to the deceased insured’s premises and property but only for the coverage provided by the policy at the time of that person’s death.
Recognizing that the
status of the residents in the household change in the policy once the named
insured or spouse die, the definition of insured is changed for the time of
transition following the death. The definition of insured is expanded to
include members of the deceased person’s household who were members at the time
of death but only while residing at the described premises. In addition, if a
person is granted temporary custody of the covered property belonging to the
deceased, that person is an insured but only for that property and only under a
legal representative is appointed.
Inspections
The insurer reserves the right to inspect the property it insures and it can do so with its own personnel or it can have another organization make an inspection on its behalf. The condition also warns the insured that, while an inspection and related information about the results of the inspection may imply a type of warranty or guarantee about the fitness of the insured location; that is not an assumption that should be made.
What purpose does this serve? This is a warning and a notice to an insured that a company inspection cannot be used as evidence of the worthiness of the property. A company has their own underwriting rules and philosophy for providing coverage and will not permit its actions to be used to the benefit of other parties. This also prevents the company from being held liable to other areas of authority concerning the property.
Misrepresentation,
Concealment, or Fraud
Any intentional concealment or misrepresentation on the part of any insured can void the policy for ALL insureds. If an insured lies or hides a material fact or any circumstance that relates to the insurance that is granted by this policy will cause the insurance to bar coverage for any insured. Therefore, such instances or acts will bar coverage even for innocent insureds. This negative consequence may take place due to incidents that occur either before or after any loss.
Simply put, the company should be able to rely on the statements made by the insured in making its decision to insure a person or property. If the statements are seriously in error, the insurance contract has no right to exist and the company has no obligation to honor it.
Subrogation
When an insurer pays damages, it may ask the insured to transfer his or
her right to attempt to recover damages from another party. The insured must
agree, in writing, to do so and to fully cooperate with the insured in pursuing
the recovery. This act of seeking payment from a party responsible for a loss
is called subrogation. This right is very valuable to an insurer. In fact, if
an insured damages this right to recover payment after a loss has occurred, the
insurer may no longer be obligated to pay for the loss.
The insured may waive all rights to recover before a loss occurs—but
this waiver must be in writing. Signing this waiver BEFORE a loss does not
affect coverage under the policy.
Subrogation problems do arise under homeowner policies. Many insurers
aggressively assert and protect their rights to subrogate against other
parties. In some instances, insurers are taking legal action against their
clients who harm this right.
Note: Subrogation does not apply to losses involving medical payments made to
other parties or to the Damage To Property Of Others, Incidental Liability
Coverage.
Abandonment of Property
An insured may not abandon property to the insurer without the insurer’s permission.
Of course, if the insurer agrees to accept the damaged property, the act is NOT abandonment.
Appraisal
If the insurer and the named insured do not agree over the value of the covered property or the amount of the loss, each party has 20 days (after receiving a written request from the other party) to select an appraiser. The two appraisers will select an umpire.
If, within 15 days, they do not agree on an umpire, the two appraisers may ask a judge of a court of record of the state where the described location is located to make the selection. If the two appraisers agree in writing, that sets the amount of the loss. However, if they do not agree, the differences are submitted to the umpire and then the written agreement of any two of the parties sets the amount of loss. Each party will pay its appraiser and the two parties will share the cast of the umpire and related expenses equally. Remember – the appraisal is about the amount of the loss not whether or not coverage applies.
Loss Payable
Clause
If the form includes a loss payee with an insurable interest in any
covered contents, that loss payee (appearing in the declarations) is granted
status as an insured. However, any coverage is only to the extent of the amount
and nature of their interest in any personal property that is protected by this
policy. A copy of any termination notice or non-renewal sent to the insured
will also be sent to the applicable loss payee.
Mortgage
Clause
When a mortgage interest appears on the declarations, loss settlements
under Coverages A or B will be arranged with both that interest and the
policy’s named insured. The payments will be made with proper consideration of
each party’s financial interest. Similar payment procedures will take place in
the event that a policy includes more than one mortgage (including trustee)
interest.
A mortgage interest, which is listed on the declarations, has rights and
obligations under the policy, which, as far as loss payment goes, are
comparable to an insured’s rights. Any payments involving property losses under
Coverage A (dwelling) and Coverage B (related structures) will be made to each
party according to their share of the claim.
If an insured’s claim is denied, coverage may still apply for the
mortgagee. However, in order to secure coverage for its legitimate claim, the
mortgagee has to notify the insurer regarding any changes in the risk, such as
different ownership or occupancy. The mortgagee must pay the policy premium
once it becomes aware of the insured’s failure to pay and, again if the insured
fails, the mortgagee can preserve possible coverage if it sends a valid, timely
proof of loss statement.
If a mortgagee is paid for a claim that involves a denial to the named
insured, it is likely that the insurer will secure the mortgagee’s subrogation
rights and, in turn, go after the named insured for reimbursement. Further,
when payment is made to a mortgagee, the insurer may decide to buyout the
mortgagee’s complete financial interest and, if applicable; secure rights to
the mortgage debt and/or collateral.
The insurer has the obligation to give any mortgagee 10-day advance
notice of a decision to cancel of non-renew the applicable policy.
No Benefit To Bailee
This policy is not intended to provide protection for the direct or indirect benefit to parties who are paid to assume custody of the covered property. In other words, such persons or organizations should secure their own insurance instead of piggybacking onto an insured’s coverage.
Policy Period
The policy period sets the time frame in which a loss must occur in order for it to be covered under the policy.
Recoveries
There are instances when the insurer pays for a loss and then the property is recovered. Similarly, after the insurer’s payment, damage payments are received from those responsible for the loss. When this happens, the named insured and the insurer are obligated to inform each other. The costs of the recovery efforts are paid first. (The policy isn’t clear as to who is paying the cost – does the cost come out of recovery prior to the dispersal or does the party who secured the recovery pay the cost?)
The named insured can decide to keep the property or give it to the insurer. If the recovery is not wanted, then nothing changes but if the named insured wants the property, claim payments received from the insurer, or some lesser agreed upon amount, must be returned to the insurer. If the named insurer did not receive a complete payment for the claim, due to a deductible or a coverage limitation, the recovery is prorated based on the interest of each party in the loss.
What is important about recoveries is that they are resolved in a manner that is fair to the insurer and the insured. One party should not significantly benefit from the recovery of property or money if it comes at the expense of the other party.
Suit Against
Us
A suit against the insurer cannot be filed without Property Coverage’s
terms being complied with. Further, the suit must be filed within two years
after the loss.
Note: If applicable
state law makes this time period invalid, the suit must be filed according to
that state’s mandated time frame.
Volcanic Eruption
All volcanic eruption action that occurs within a 72-hour (3-day) period is considered a single occurrence.
Bankruptcy of
an Insured
Bankruptcy or insolvency of an insured does not relieve the insurance
company of its obligations under this policy.
Duties Of An
Injured Person—Medical Payments to Others Coverage
When there is a loss, the injured person or his or her representative
must provide the insurance company with a written proof of claim as soon as it
is practical. The insurer has the right to request the statement be made under
oath. The insurer must also receive permission or authorization to receive
copies of medical records.
In addition, the person who was injured must agree to allow the insurers
chosen doctors to conduct medical exams on a reasonable schedule.
Note: Although all
of this may sound reasonable – the injured party is not a part of the insurance
contract so this may be difficult to enforce.
Policy Period
This policy’s protection only extends to occurrences (BI and/or PD)
falling within the applicable policy period.
Suit Against
Us
The insured is not permitted to file suit against the insurer without,
first, complying with all of the policy’s terms. Further, the amount of the insured’s
liability has been determined by:
Note: No person has a right under this policy to join the insurance company or to speak for the insurance company in actions related to determine the amount of an insured’s liability.