(November, 2008)
This is an analysis of the ISO (Insurance Services Office) Homeowners Program’s Special Policy form, HO 2000 edition. For a discussion of the earlier (HO 91) edition, please refer to PF&M Section 460.9-5, Homeowners Coverage Archive.
Under this provision, the insurance carrier agrees to provide homeowners insurance (as described in the following policy pages) in exchange for the insured paying the policy premium AND complying with the required policy provisions.
Note: The insured has to meet BOTH conditions in order to qualify for coverage.
Example: Larry faithfully paid his HO insurance premiums for 12 years when he turned in a claim. His house was completely destroyed by a fire. The insurance company denied his claim. Their investigation revealed that Larry burned down his own home in order to pay off gambling debts with the insurance proceeds. Paid premium? Yes. Complied with policy? No. (No coverage).
Example: Mary sent in a HO insurance claims for some severe storm damage. She sent in a perfect proof of loss with supporting documents and a complete inventory of damaged personal property. Her insurer turned down the claim since she let the policy lapse for nonpayment several months earlier. Paid premium? No. Complied with policy? Yes (No Coverage).
This portion of the Special Form policy defines the terms that are critical to understanding how the policy responds to coverage situations. The following is a summary of the defined terms that, throughout the policy, appear in quotation marks:
"You" and "your"
These are used in the policy to refer to the "named insured" who appears on the policy’s declarations. “You” and “your” also extend to the named insured's spouse, but only if he/she lives in the same household.
Example: Joe and Tanya have an HO policy effective June 1, 2008 to June 1, 2009. The policy shows Joe on the policy as the named insured:
Scenario one: On July 15th, Joe and Tanya both live at the address that appears on the HO declarations. At this point, both Joe and Tanya are insureds.
Scenario two: On September 29th, Joe is still at the address that appears on the HO declarations. Tanya, fed-up with her marriage, now lives in an apartment on the opposite side of town. At this point, the term "you" and "your" no longer apply to Tanya since she doesn’t live at the described residence.
"Our," "us" and "we"
These three terms are used as references to the company providing the homeowner policy.
“Aircraft Liability,” “Hovercraft Liability,” “Motor Vehicle Liability”
and “Watercraft Liability”
This definition was introduced with the ISO HO 2000 Program. “Aircraft Liability,” “Hovercraft Liability,” “Motor Vehicle Liability” and “Watercraft Liability” refers to legal liability for “bodily injury” or “property damage” that is related to the use or ownership of these items. In other words, such liability would also encompass loss involving the following:
|
Unloading or loading a vehicle |
Vehicle or craft operation |
Maintaining (including repairing) a vehicle or craft |
|
Vehicles or crafts that belong to any person defined as an insured |
An insured's negligent supervision related to vehicle/craft |
An insured permitting another party to use a vehicle/ craft (entrustment) |
|
An insured's vicarious liability related to vehicle/craft |
|
|
The vehicle and craft definition goes further, describing the following:
Aircraft - refers to devices that are used or designed for flight. It does not include model or hobby aircraft that is not intended (designed) to carry people or cargo;
Hovercraft - refers to vehicles that are powered by force of cushioned air; naturally, such devices have motors. They must also be designed to travel over the ground, at ground level. This means a self-propelled motorized ground effect vehicle and includes, but is not limited to, Flarecraft (brand of air-cushion device) and other air-cushion vehicles; and
Watercraft - refers to devices that operate on or in water. Movement can be powered by wind, motors or engines.
For an illustration of one aspect of defining aircraft, please refer to PF&M section 469_C001, “Aircraft Definition Held Not to Include a Parachute” in Court Cases.
The earlier editions of the ISO Homeowner program concentrated any mention of vehicle or craft liability in the policy’s Exclusions sections. Addressing this source of loss in the definitions section appears to be an attempt to achieve better understanding of what is later excluded. Unfortunately, the attempt to clarify or simplify the policy’s approach to vehicle/craft liability is minimized by the following:
· the policy separately defines motor vehicle
· there are still complex exceptions to the motor vehicle exclusions
· the policy still contains complex exceptions to the watercraft exclusions
· a new term and class of excluded property are introduced, “hovercraft” and “hovercraft liability”
This definition does have one notable accomplishment: it defines all of the following as vehicle/craft related liability - ownership, use, maintenance, loading/unloading, entrustment of such property, supervision over another party’s use of such property, and vicarious responsibility concerning such property. In other words, the policy is attempting to identify all significant incidences involving an insured’s relationship with a vehicle or craft and then apply the coverage and exclusions accordingly.
Note: The goal is to restrict the property and liability coverage under this policy to handle the incidences of home ownership and not to handle exposures that should be provided under auto, aircraft, boat and miscellaneous vehicle policies.
"Bodily injury"
This term has not been changed in the HO 2000 edition of the Special Form Homeowner policy. It still refers to sickness, disease, or bodily harm, and includes any resultant death.
"Business"
In the previous edition of the homeowners policy, business meant any activity having the goal of generating personal income. The HO 2000 edition has redefined the term to apply to a variety of situations. The result is that business, rather than having a commonly understood meaning, now has a special meaning under the policy.
As before, “business” refers to a trade, occupation or profession. However, under the HO 2000 program, “business” also refers to such activity EVEN when it occurs only on a part-time or occasional basis. The policy’s definition does exclude the following instances from its business definition:
· Activities that only reimburse volunteers for expenses that are directly related to the activity
· An insured who provides home day care to his or her relatives
· Mutual exchanges of home day care services
Example: Josie McBakerie volunteered to run her church’s annual fish fry. The program runs for a month and it is very popular. Josie was sued by another church member whom Josie recruited to operate a hot oil fryer. The church member was injured when Josie fell against him and the person’s hand fell into the hot fryer. The insurance company adjuster told Josie that she was not covered by her homeowner policy after he discovered that Josie received over two thousand dollars from the church’s treasurer for her work on the fish fry. Later, Josie explained that she shops and pays for all of the food and supplies used in the fish fry herself and then gets reimbursed by the church’s treasurer. Josie’s total expenses were more than $2,600. The adjuster then says that, since the money was just for fish fry expenses, Josie would be covered for the loss.
The policy’s “business” definition also makes an exception for activities that involve modest amounts of income. Specifically, an activity is not considered to be a business if it generates no more than $2,000 in compensation during the 12-month period before the homeowner policy’s inception date.
Note: This refers to the value of compensation, NOT merely cash.
Two areas that may affect whether an activity qualifies as a business are the
records an insured has of his or her reported income and how the definition’s
language is interpreted. One part of the definition, 3. b. (1) “Business,”
should be examined more closely. It states that the term applies to any
situation where an insured is compensated more than $2,000 during the 12-month
period before the policy's inception date.
This wording raises questions:
1. Since the definition refers to inception date, does this rule apply only to an activity and the 12 month period before a homeowner policy initially takes effect and not to renewal dates?
Example: Scenario 1 - Jim Surepay has a regular job but he is a genius with a video camera and he often makes extra money videotaping weddings, birthday parties and similar events. Jim bought a Special Form homeowner policy on 10/1/2008. In the 12 months before the policy began, Jim made $1,950 taping events. The following year, Jim made well over $3,000. Since the $3,000 was made in the 12 months before the RENEWAL date of 10/1/2009, does it qualify as a “business”?
2. If an activity exceeds $2,000 in any 12 months before a policy period, does it retain its status as a business forever?
Example: Scenario 2 - Let’s revisit Jim Surepay. Remember that Jim makes extra money videotaping weddings, birthday parties and similar events and that Jim bought a Special Form homeowner policy on 10/1/2008. However, his earnings are different. In the 12 months before the policy began, Jim made $2,450 taping events. Earnings in the following year are very slim and Jim only makes $1,200. Since the $2,450 was made in the 12 months before the INCEPTION date of 10/1/2008, does it qualify as a “business” for renewal periods even when it generates less than $2,000 income in the period prior to the renewal dates?
3. Does the reference to total income include “non-monetary” compensation?
Example: Scenario 3 - This time, in the 12 months before his homeowner coverage began, Jim made $1,850 in cash for taping events. However, one client received two video cameras as wedding gifts so he “paid” Jim by giving him one. The camera had a retail value of $1,395. Does this combination of payments qualify his taping as a “business” for the following policy year?
4. Does the reference to total income mean gross or net receipts?
Example: Scenario 4 - Let’s look at Jim Surepay again. In this instance, in the 12 months before the policy began, Jim made $2,250 in cash for taping events. However, Jim’s regular job puts him in a high tax bracket and his net income for taping is only $1,790. Since his net income is less than $2,000 does it qualify as a “business” for the following policy year?
5. Is the reference to total income in the 12 months before the inception date affected by the basis of collecting income?
Example: Scenario 5 - Let’s look at Jim Surepay once again. In this instance, in the 12 months before the policy began, Jim earned $2,250 in fees for taping events. However, Jim gives his clients as long as 60 days to pay and, while he EARNS over $2,000 in the 12-month period before the policy, he receives less than $2,000 in cash (collecting another $500 in fees AFTER the policy inception date). Since his cash income is less than $2,000 does it qualify as a “business” for the following policy year?
These
issues are ones that will likely only be addressed when a loss occurs and then,
it is just as likely that an insurer may be as confused over what qualifies as
a business as the insured.
“Employee”
This term is newly defined in the HO 2000 edition of the Special Form policy. It refers to a person whose duties involve tasks that are NOT performed by a “residence employee” AND who either:
· works for an “insured” on a direct basis, or
· works for an “insured” through a leasing arrangement between an “insured” and a company that leases employees.
“Insureds”
The Special Form homeowner policy considers all of the following to be insureds (with notes on any exceptions):
· you
(refer to separate definition)
· your relatives if residents of "your" household
(meaning relatives who live at the insured location with the named insured)
· persons under the age of 21 residing in "your" household and in "your" care or in the care of "your" resident relatives
Note: Such persons must BOTH be younger than 21 AND have a named insured, his or her spouse or a relative of the named insured/spouse as their caregiver.
So far, the definition of insured is unchanged from ISO’s earlier program. However, the HO 2000 program’s version includes persons who are residents of the named insured’s household and who are full-time students. In order for a full-time student to qualify as an insured, he or she must either be younger than 24 years of age and be related to an insured OR be younger than 21 years of age and be in the care of someone in the named insured’s household.
While the first portion of this definition applies to the entire policy, the following applies only to section II, the liability portion of the homeowner policy:
· any party having legal responsibility for either animals or watercraft that are eligible for coverage under the homeowner policy.
Examples: Nancer Editbee’s home is insured by an ISO Special Form policy. Let’s look at whether the following are insureds under her policy:
· Nancer’s 12 year old neighbor who walks Nancer’s dog (yes, an insured)
· Frank, who rented Nancer’s RV for the weekend (no, not an insured)
· Jeri, a stranger who stole Nancer’s cat (no, not an insured)
· Paul, a friend from work who borrowed Nancer’s canoe (yes, an insured)
However, anyone in possession of an insured’s watercraft or animal is denied insured status if any business purpose is involved.
· any person working for an insured while operating a motor vehicle that qualifies for homeowner coverage, and
· any person who has the insured’s permission to use an eligible motor vehicle, but only while on the insured premises.
Examples: Tom Kinpushion’s large home (on four acres of land) is insured with a Special Form homeowner policy. Let’s look at whether the following are insureds under his policy:
· Tom’s visiting childhood friend who hits Tom’s neighbor while driving Tom’s car out of his garage (no, not an insured)
· Tom’s neighbor, Pete, while using Tom’s lawn tractor in his (Pete’s) lawn cutting service (no, not an insured)
· Tom’s other neighbor’s daughter Nikki whom Tom hired to cut Tom’s 4 acres (yes, an insured)
· Tom’s son while using his electric wheelchair at the nearby grocery store (yes, an insured)
For an illustration concerning what type of vehicle-related liability qualifies for homeowners coverage, please refer to PF&M section 469_C006 “Automobile Exclusion Held Not Applicable To Liability Arising From Vehicle In Dead Storage” in Court Cases.
The HO 2000 Program’s definition of insured includes a clarification. Whenever the word “insured” immediately follows the word “an,” the phrase refers to one or more “insureds.” In other words, an “insured” means one or more persons who have covered status under the policy.
“Insured location”
This term refers to a variety of circumstances that includes the following:
· the residence premises (please refer to the discussion of this defined term below).
· parts of other premises or structures that are used by an insured as long as these locations are shown on the policy declarations page OR have been acquired by the insured as a residence during the policy period.
Example: Annie’s home is covered by a Special Form policy. Annie also owns the lot that is next to her home. That adjacent lot contains a large garage. The garage was added to Annie’s homeowner policy by a separate endorsement. This garage is an insured location.
· any premises that is related to a property that is covered by a Special Form policy AND which is used by an insured.
· a premise that IS NOT owned by an insured but is an insured location while it’s used by an insured as a residence.
Example: A hotel room while reserved and used by an insured.
· vacant land that is owned by or rented to an insured EXCEPT farm land.
· land that contains a structure that will eventually be an insured’s (1 through 4) family residence.
Note: The building has to be for the insured’s residence. Land where an insured is building a residence that he plans to rent to another party would not be an insured location.
Other situations that qualify as an insured location include:
- an insured’s individual or family cemetery plots or burial vaults.
- part of a premises which is rented and used by an insured.
Example: Scenario 1 - Carson Prairie has a home insured by a Special Form policy. Carson is an alumnus of GardenView College. Every August, Carson rents his old dormitory room. He uses the time to recharge his batteries from his full-time job as an owner of a Pet Repo Service. The old dorm room is an insured location.
Example: Scenario 2 - Let’s change something in the above situation. Again, Carson Prairie, the GardenView College alum, rents his old dormitory room every August. However, instead of for vacation and relaxation, he uses the room as a location to publish a sports newsletter about GardenView which he sells to other sports-minded alumni. Besides the furniture from the college, Carson rents computers, copier and postal equipment to assist in his summer work. In this instance, his old dorm room is NOT an insured location.
“Motor vehicle”
This is a separate definition under ISO’s HO 2000 Program. A motor vehicle is a vehicle that is self-propelled, runs on land or on water and includes any trailer that is towed or carried by such a vehicle. All of the following would qualify as motor vehicles:
|
cars |
trucks |
vans |
recreational vehicles |
certain golf carts |
|
motorcycles |
mopeds |
all terrain cycles |
all terrain vehicles |
snowmobiles |
|
sports utility vehicles |
motorized carts |
self-propelled mowers |
lawn tractors |
motorized bikes, scooters and similar vehicles |
Any vehicle that is motorized and self-propelled is considered to be a motor vehicle. Both of these elements must be present. Items such as sleds, non-motorized carts, bikes and similar property do not qualify as motor vehicles.
“Occurrence”
This term refers to an accident that causes "bodily injury" or "property damage" during the policy period. A repeated exposure to similar conditions is also considered an “occurrence” IF it takes place within the policy period.
"Property damage"
This term refers to direct damage to tangible property (including its destruction) or the direct or indirect damage caused by the loss of use of tangible property.
"Residence Premises"
Refers to any of the following that are used mainly for family residential purposes:
· one-, two-, three- or four-family house,
· a townhouse,
· a row house, or
· a one- or two-family mobile home.
The term also applies to the part of ANY other building where an insured lives as well as any other structures and grounds that exist at that location. HOWEVER, any of the above must be listed on the policy declarations of the residence premises.
This simple policy section was introduced with the HO 2000 edition of the ISO Homeowner policy. The section merely says that the insurer will pay the portion of an eligible loss that exceeds the applicable deductible. The deductible may be shown on the policy's declarations page or elsewhere.
This coverage section protects the following types of property:
· the residence that appears on the declarations page
· any structures that are attached to the described residence
· any materials or supplies that are located either next to or on the residence premises.
However, any material or supplies have to be for the purpose of adding to, altering or repairing the residence or other structures described on the declarations.
Example: One of your insureds is building an addition onto a home that is covered by a Special Form policy. On the day that the insulation is delivered, there is a fire at the construction site. The insulation that is destroyed in the fire is insured under Coverage A. Even though it was not yet a part of the dwelling, the end use for the insulation was intended to be part of the house; therefore, it qualifies for coverage.
Example: Phil Buildwell just became unhappy with his insurer. The company adjuster said that, while Phil’s Special Form policy would cover the partial fire damage to his home and total loss to his garage, no coverage applies to the thousand dollars’ worth of building material that was in the garage. The material (fencing and lumber) was for making repairs and improvements to a local youth baseball league’s diamonds.
Remember that the residence should be a one- to four-family dwelling in order to qualify for homeowner coverage. Also be aware that land, even land on which covered property sits, is NOT covered by the Special Form policy.
Example: During a tornado, a tree is uprooted in an insured’s lawn. As the tree falls, it lands upon and seriously damages the insured's porch roof. While the roof is covered, the damage to the lawn (caused by the tree) is not.
Care should be taken when insuring a dwelling to determine the proper replacement cost of the dwelling itself (minus any land value). Sometimes the lot upon which the dwelling is built may be more valuable than the dwelling. In these circumstances, the home's market value is substantially influenced by its land value. The market value of such a home becomes a factor that should be discounted when determining the insurable value of the home.
Other structures on the "residence premises" are protected under this coverage part. What are “other structures”? An “other structure” is, literally, a structure that is other than the primary residence premises. Therefore, besides having some other use, an “other” structure must also exist separately from the primary residence. In other words, an “other” structure cannot be attached by any significant means to a primary residence. The policy states that, in order to qualify as an “other” structure, the structure has to clearly sit apart from the dwelling. If the structure is connected to the dwelling by anything more substantial than a utility line or a fence, it will be considered as part of the dwelling.
Example: Greta Cargo’s cottage home is covered by a Special Form policy with the following limits:
|
Coverage Part |
Insurance Limit |
|
A |
$180,000 |
|
B |
$18,000 |
|
C |
$90,000 |
|
D |
$36,000 |
Greta loves her cottage home (including a small, built-in garage) as well as her deluxe, lattice gazebo (worth nearly $18,000) that sits 25 feet behind her home. Greta enjoys having breakfast in the gazebo, but hates that she has to dress before walking between the gazebo and the house. Greta hires a local carpenter who builds two walls that are attached from her cottage’s back door to the front panel of the gazebo. Now Greta may travel back and forth between the structures in complete privacy. However, the gazebo is now part of the dwelling and not a separate structure. The financial consequence is that, instead of having the entire Coverage B limit available to cover the gazebo, the Coverage A limit has to cover the cottage and the gazebo together.
Besides gazebos, other examples of structures covered under Coverage B are:
· play sets
· storage or utility sheds
· detached garages
· pole barns
· unattached decks
· tree houses
· unattached car ports (though these are typically attached)
· play houses
· above ground pools.
As it is with Coverage A, the insurance does not apply to land, including the land upon which the other structure sits.
Situations that are NOT covered
The wording regarding uncovered situations is clarified in the HO 2000 edition of the Special Form policy. No coverage is available for other structures:
· that are used to conduct a business
· which an insured rents to any person who is not a tenant of the dwelling, or
· that is used to store business property.
Example: To earn extra money, Shyla Goldgild decides to take advantage of her love for older, valuable objects and dabble in the antique business. On the weekends, Shyla goes to antique shows with her collection and sells antiques. Since Shyla lives in a neighborhood that has heavy pedestrian traffic, she puts a little sign on her lawn that says "ANTIQUES." The sign also includes an arrow that points to the garage. People commonly stop by to look at her collection and to make purchases. One day, lightning strikes the garage and it burns to the ground. NO COVERAGE for the garage—it is used for a “business.” For more information, please refer to PF&M section 460.6-20, Covering The In-Home Business.
There are a couple of important exceptions to these exclusions. First, the policy will cover a rental to a person who is not an insured under the policy IF the structure is used only as a private garage.
Example: Shyla Goldgild has learned her lesson from having to rebuild her garage with her own money. However, she still needs to earn some extra income, so she rents out her detached garage as a private garage for her neighbor who needs the space for their teenager’s car. If a covered cause of loss destroys Shyla’s garage, it is covered because it is being used as a private garage.
Another exception is granted when the garage is used to store business property (EXCEPT FOR GAS OR FUEL) that is owned by an insured or by a tenant who lives on the residence premises. The prohibition for fuel does not apply to fuel that’s in a vehicle’s fuel tank.
The limit of insurance for Coverage B is restricted to no more than ten percent of the dwelling’s insurance Limit. The Coverage B limit is an additional amount of insurance protection. Payment under Coverage B DOES NOT affect the amount of Coverage available under Coverage A.
Personal property owned by or used by an “insured” is covered anywhere in the world. The insured has a further coverage option once a covered loss occurs and the loss involves personal property that belongs to other people. In such instances, the insured may have their insurance apply to personal property:
· which belongs to others when that property is on the part of the “residence premises” occupied by an insured, and
· which belongs to an insured’s guests or to a "residence employee," if the property is in any residence occupied by an “insured.”
Example: Clara Sweethart’s home suffers a kitchen fire during a weekend when her son has invited several of his college friends over. The friends’ luggage and clothing are ruined by soot and smoke. Clara’s claim for damages includes the loss of the luggage and clothing since she feels responsible to her guests.
There is a special limitation for personal property that is usually located away from the insured’s primary residence. Under this circumstance, either the greater of 10% of the Coverage C insurance limit or $1,000 applies.
Example: Tara Southland has a home in Dixietown, but she also owns a cabin in Magnoleum State Park. The cabin is completely furnished so that Tara never has to pack anything except food when she uses the cabin. Since Tara’s policy which insures her home has a Coverage C limit of $55,000 and since the cabin’s personal property is always kept at the cabin, a maximum of $5,500 (10% of the Coverage C limit) can be extended to that property. If Tara’s homeowners policy had a Coverage C limit of $9.000, instead of $900 (10% of the Coverage C limit) applying to the cabin’s furnishings, the minimum of $1,000 would be available.
Are there any exceptions to this special limitation for property that’s typically located away from the residence premises? Yes. The limitation DOES NOT apply:
· for the first 30 days after an insured acquires a new principal residence and starts to move their belongings to the new residence,
· to personal belongings that have been moved from a residence that is not fit to store the property because the residence is being renovated, repaired or rebuilt.
The latter exception was introduced with the HO 2000 edition of the Special Form policy. This limitation of 10% is not applicable for the first thirty days from the time an insured begins to actually move personal property to a new residence. These exceptions point out the purpose of this limitation. The limitation is meant to provide a modest amount of coverage to personal property that is never a part of the property that is kept at the insured dwelling. The coverage amount is kept at a minimum so that a single homeowner policy is not used to cover significant personal property exposures that exist for more than one location. The limitation encourages property owners to buy additional, separate insurance to cover such situations. However, the policy language also wants to preserve full coverage in certain instances such as when the personal property is moved to either a temporary location or to a new, permanent location. Neither instance significantly increases the overall exposure for which insurers initially accept and assign premiums.
The ISO HO 2000 Homeowners Program includes a number of classes of personal property that have specific monetary limitations. You should notice that the categories involve different properties that, due to their nature, are highly susceptible to loss or destruction. These limitations are sub-limits that do not increase the personal property insurance amount that appears on the policy declarations.
This sub-limit is unchanged in the HO 2000 edition of the ISO Homeowners Program. It applies to the following:
|
money |
bank notes |
bullion |
|
gold other than goldware |
silver other than silverware |
platinum other than platinumware |
|
coins and medals |
scrip |
phone, postage and smart cards |
Note: The inclusion of platinumware, smart cards and stored value cards (phone, postal, etc.) is new with the HO 2000 program.
This sub-limit was increased from $1,000 in the HO 2000 edition of the ISO Homeowners Program:
· securities
· accounts
· deeds
· evidences of debt
· letters of credit
· notes other than banknotes
· manuscripts
· personal records
· passports
· tickets and stamps.
Note: This limit applies to valuable papers no matter the medium in which they exist (i.e., paper or electronically). This modest limit includes the cost to research, replace or restore the information from the lost or damaged material.
This sub-limit is increased from $1,000 in the HO 2000 edition of the ISO Homeowners Program:
· watercraft of all types, including their trailers, furnishings, equipment, and outboard engines or motors
The HO 2000 edition of the Special Form policy modifies the reference to watercraft by adding “of all types.”
This sub-limit is increased from $1,000 in the HO 2000 edition of the ISO Homeowners Program:
· trailers or semi-trailers not used with watercraft of all types
The HO 2000 edition of the Special Form policy modifies this limitation by adding “of all types” after the word “watercraft.” It also adds a reference to semi-trailers. ISO may have missed a chance to really clarify this section by adding specific limitations that applied solely to trailers and semi-trailers, even those used with any type of watercraft. ISO’s latest change uses two awkward references to watercraft of all types. Further, because of their wording (placing “of all types” at the end of the limiting phrase), this limitation may not be applicable to semi-trailers which ARE used with watercraft. For an illustration of this limitation and its implications, please refer to PF&M section 469_C016, “Camp Trailer Held Subject to Special Limits for Trailers” in Court Cases.
This sub-limit is increased from $1,000 in the HO 2000 edition of the ISO Homeowners Program. The slightly higher amount of coverage applies to jewelry, watches, furs, precious stones and semi-precious stones that are stolen. Loss of such property caused by other eligible perils would not be subject to this limitation.
This sub-limit is increased from $2,000 in the HO 2000 edition of the ISO Homeowners Program:
· loss by theft of firearms and related equipment
The HO 2000 edition also adds a reference to equipment related to firearms. Now the limitation includes property such as:
· ammunition
· weapon loaders
· scopes
· gun locks
· gun safes
· miscellaneous firearm accessories including parts
This sub-limit is unchanged in the HO 2000 edition of the ISO Homeowners Program.
Loss by theft of:
· silverware
· silver-plated ware
· goldware
· gold-plated ware
· pewterware
· platinumware
Note: This includes flatware, hollow-ware, tea sets, trays, and trophies made of or including silver, gold, pewter or platinum. The limitation was expanded in the HO 2000 program by the inclusion of platinumware.
This sub-limit is unchanged in the HO 2000 edition of the ISO Homeowners Program:
· property, on the "residence premises," used primarily for "business" purposes
This is a change from the previous edition of the ISO Homeowner program that is a genuine benefit to the policyholder. It is also a fair and reasonable concession to modern home life. The earlier editions of the homeowner policy subjected property used at ANY TIME and in ANY MANNER for business to this limitation. The revised limitation only involves property that is used PRIMARILY for any business purpose.
Example: The Bizzyton family has a well-equipped office that gets a LOT of use and, since the family is in the room so often, they made it a priority to furnish it comfortably and expensively. The desks are made of fine hardwoods and the chairs are upholstered in leather. Although the room is used mostly for school, personal and volunteer activities (administrative work for their church and other groups), Mr. and Mrs. Bizzyton occasionally use the room to do paperwork and handle orders for their “on-line ancestors” family tree research service. One day a tornado sweeps through their neighborhood and breaches the exterior wall adjacent to the office. Wind and rain trashes the office’s furnishings. Under the HO 2000 Special Form policy, the Bizzyton’s full Coverage C insurance limit would be available to handle the loss. Under the earlier editions of the Special Form policy, the fact that the room and furnishings were sometimes used in their research service could have limited their total recovery to $2,500, a fraction of their loss.
This sub-limit is increased from $250 in the HO 2000 edition of the ISO Homeowners Program:
· property, away from the "residence premises," used primarily for "business" purposes
Other changes were made in the HO 2000 edition regarding this sub-limit. First, the “business” use has to be primary instead of the previous edition’s restriction that applied this limit to property that had ANY business use. Next, rather than the $500 sub-limit, if the property involves electronic apparatus, that property is subject to the limitations explained in items 10. and 11.
This sub-limit is increased from $1,000 in the HO 2000 edition of the ISO Homeowners Program:
· loss to electronic apparatus and accessories, while in or upon a “motor vehicle,” but only if the electronic apparatus is equipped to be powered from the vehicle’s electrical system while retaining its capability of being operated by other sources of power. Accessories include antennas, or tapes, wires, records, discs, or other media that can be used with any electronic apparatus.
This sub-limit is increased from $1,000 in the HO 2000 edition of the ISO Homeowners Program:
· loss to electronic apparatus and accessories which are:
- located away from the residence premises,
- used primarily for business purposes, and
- not in or upon a “motor vehicle.”
Further, the electronic apparatus has to be equipped to be powered by a vehicle’s electrical system while retaining its capability of being operated by other sources of power. Accessories include antennas; or tapes, wires, records, discs, or other media that can be used with any electronic apparatus.
Note: The wording under item 11. includes the same wording that created some ambiguity in the earlier editions. Specifically, the limitation applies to electronic apparatus while not in a motor vehicle but must be equipped to be operated by power from the motor vehicle. This would be clearer if the wording referred to a motor vehicle both times. Further, what is meant by being “equipped” to be operated from a motor vehicle electrical system?
Example: Carla Partydown has a CD and P.A. system that is the pride of her neighborhood. Anytime her friends and neighbors need music supplied during parties or activities in their neighborhood community center, it’s Carla’s system that’s carried down and pressed into service. The system and accessories are imported from Germany and are worth several thousand dollars. The system components are NEVER used in a vehicle nor, since they were delivered to Carla’s home from the stereo center, have they ever been transported by a motor vehicle. However, being leading edge components, they do have power jacks that make them capable of being powered by a motor vehicle. Carla is still waiting to hear from her insurance agent about whether the limitation would apply to her property if it’s damaged or destroyed while being used at the community center.
Note that the above sub-limits apply to the ENTIRE CLASS of property. While ISO did reduce the limitations on special property by nearly $4,000, the change is negligible when compared to the average increase in ownership of such personal property. The impact of the increase is further diluted by the following:
· there was NO change in the sub-limit on the theft of precious dinnerware
· the dinnerware theft limitation was expanded to include platinumware
· there was NO change in the sub-limit on money and similar property
· the money/similar property limitation was expanded to include scrip and cards with stored value.
For more information regarding insuring items of specific value or those that are unique, please refer to PF&M section 430.1, Personal Articles Floater.
Under Coverage C- Personal Property, there are eleven categories of property that are excluded from coverage. The excluded classes of property include:
1. Any property that is separately described and specifically insured in this or other insurance.
This exclusion is meant to prevent insureds from collecting twice for the same loss. The HO 2000 Program clarified this exclusion by stating that it applies regardless of the amount of coverage provided by any other source of insurance. Besides discouraging “double-dipping,” this should encourage insureds to insure property on a policy that is the most appropriate.
2. Animals, birds or fish
While homeowner programs offer liability for animals owned by insureds, they have not offered livestock or animal mortality coverage.
3. Motor vehicles including their equipment, accessories, parts and electronic apparatus and accessories that are designed to be powered solely by a motor vehicle’s electrical system. Accessories include:
· antennas, or
· tapes, wires, records, discs, or other media
that are used with any apparatus.
Note: The exclusion of property described in 3 above applies only while the property is in or upon a motor vehicle. Why is this? The property is considered to be better covered elsewhere, such as under an auto policy which generally provides more complete coverage for permanently installed electronic apparatus.
However, this exclusion has another important exception. There is coverage for certain motor vehicles. The homeowner policy covers motor vehicles which are not subject to motor vehicle registration and:
· that have the single purpose of servicing an "insured's" residence. Examples: lawnmowers, snowblowers, lawn tractors, and
· attachments that are designed to assist the handicapped. Example: motorized wheelchair
For more information regarding personal autos, please refer to PF&M section 410.2, Eligibility Requirements for ISO Personal Auto Policy.
The HO 2000 edition of the Special Form policy has tried to clarify the above exceptions to the motor vehicle exclusion by insisting that vehicles used to service a residence premises may ONLY be used for that purpose, and that vehicles for handicapped persons be designed to assist rather than be designed for assisting the handicapped. However, it’s uncertain whether this language tweaking will have any practical effect. For instance, will this language prevent coverage for a loss to:
· a lawnmower which is occasionally used to take care of the elderly neighbor’s lawn?
· a snowblower which is occasionally used to clear a friend’s driveway?
· a motorized wheelchair that is sometimes played with by a healthy insured?
· a motor vehicle that has been MODIFIED to assist the handicapped?
This wording change may be an example of making the language too precise so that it starts to erode the policy’s coverage intent. Another instance to consider is whether coverage would apply to losses involving riding lawnmowers. In one jurisdiction, a court ruled that coverage was not due an insured because a riding lawnmower was subject to the HO policy's motor vehicle exclusion.
4. Aircraft and parts
The policy defines aircraft as any contrivance that is used or designed for flight. This property exclusion does not apply to hobby or model aircraft that is not designed or used to carry people or cargo.
Note: Even model or hobby aircraft that is capable of carrying persons or property is excluded from coverage.
5. Hovercraft and parts.
This exclusion is for any self-propelled motorized ground effect vehicle, and includes flarecraft, air cushioned and similar vehicles.
This property exclusion was introduced in the HO 2000 edition of the homeowner policy.
6. Property of roomers, boarders and other tenants, except property of roomers and boarders related to an "insured."
Note the exception for such property that belongs to an insured’s relatives. The purpose of this exclusion is to make sure that the homeowner policy is not used to cover persons who should buy their own tenant’s or homeowners insurance.
7. Property in an apartment regularly rented or held for rental to others by an "insured," except as provided in Additional Coverages.
In other words, the policy wants to restrict coverage to protect property that is used by the insured instead of giving full coverage to property that is used by other persons such as renters. This exclusion dovetails with the protection found under Additional Coverages, Landlord’s Furnishings.
8. Property rented or held for rental to others off the "residence premises."
9. "Business" data, including such data stored in:
· books of account, drawings or other paper records; or
· computers and related equipment.
The HO 2000 edition of the homeowners program refers to computers and related equipment instead of the obsolete reference to electronic data processing, tapes, wires, records, discs and other software media.
Example: You have an insured who takes home the accounting records from his business and stores them on his personal computer. When all the information on his computer is wiped out during an electrical storm, there is no coverage available for the restoration of his business data. For additional information on this issue, please refer to PF&M section 141.13, ISO Valuable Papers Coverage Form.
Note: The cost of blank recording or storage media, and of pre-recorded computer programs available on the retail market is covered.
10. Credit cards, electronic fund transfer cards or access devices used to withdraw, deposit or transfer funds. But the policy makes an exception for the coverage available under Additional Coverages. The HO 2000 edition of the Special Form policy clarifies this exclusion to refer to electronic funds transfer cards since the previous term just covered ATM cards. The exclusion was also made broader to apply to any item that can be used to handle personal banking.
11. Water or steam.
This exclusion was introduced with the HO 2000 edition of the Special Form policy.
Example: Lightning strikes the Riverat family’s above-ground pool, splitting it open and emptying it of water. The Special Form policy would pay for the damage to the pool, but not the cost of refilling it.
Example: The Paynes experience a kitchen fire that burns so intensely that it cracks the water supply pipes. The water spills out for over a day before their service is turned off, and it results in a $245 water bill. This added expense would not be covered by the Special Form policy.
The intent of this exclusion appears to exclude the expense of water utility service from the policy. However, it may also have an unintended application.
Example: The Flamersuns made extensive preparations in case a crisis occurred during the coming of the Year 2000. Although disappointed that nothing happened, the family became philosophical since most of their supplies, including one thousand gallons of premium bottled water, would eventually be used. However, the Flamersuns were ready to start their own revolution when, after a fire destroyed their bottled water, their insurer said that it was excluded from coverage.
This portion of the Special Form policy provides coverage for Additional Living Expenses, Fair Rental Value and Civil Authority. The HO 2000 edition clarifies that the insurance limit that appears for Coverage D is the total amount that applies to all three coverages. Specifically, Coverage D provides:
1. Additional Living Expenses
If a covered loss makes your insured premises unusable, this coverage pays an insured’s expenses which are beyond their normal living expenses.
Note: The extra expenses must involve the insured’s maintaining their normal way of life, such as the added cost of renting two hotel rooms (for a family of six) or eating out at modest restaurants, laundry services, etc. However, any cost that is generated by extravagance would have to be paid by the insured. For instance, the expense of eating out may be covered, but not the extra cost of eating steaks and lobsters regularly (or even occasionally). While regular laundry service may be covered, the extensive use of dry cleaning or buying new clothes when old clothes become dirty would not be covered.
There is a time limit that controls the payment of these expenses. Payment will last until the damaged home is repaired or replaced, or until the insured has found a new, permanent residence; whichever occurs first.
2. Fair Rental Value
This coverage pays an insured the fair rental value of the part of the "residence premises" which the insured rents out or holds for rental. Any payment is reduced by any expenses which cease while the residence can’t be used.
Example: During the rebuilding of the “residence premises,” “you” have the utilities turned off. “You” normally pay the utilities for “your” tenants. The insurance company is not going to reimburse “you” for the average cost of “your” utilities while they are turned off. In other words, “you” must incur an expense before being reimbursed.
Of course, the home must first be made unavailable or unlivable by a covered cause of loss.
Payment under additional living expenses or fair rental value will be for the shortest of the time required to repair or replace the damage; or, if “you” permanently relocate, the least amount of time necessary for “your” household to settle elsewhere.
3. Civil Authority
If a civil authority prohibits “you” from using the "residence premises" as a result of direct damage to neighboring premises by a covered cause of loss, “we” cover the additional living expense and fair rental value loss as provided under additional living expenses and fair rental value for a maximum of two weeks.
Example: “Your” neighbor’s home burns to the ground and an inspector decides that it would be best for “you” to live elsewhere while the neighboring property is made safe again. The most time that the policy will pay for is two weeks. After two weeks, the additional costs of temporary living arrangements become an out of pocket expense.
The coverage periods extended under additional living expenses, fair rental value, and civil authority are not limited by the expiration date of the policy.
There is no coverage available due to the cancellation of a lease or an agreement. In other words, “your” renter decides to break the lease and find another place to live. The Special Form policy will not pay for any loss of rental income in this instance.
Section I of the Special Form policy provides several coverages in addition to coverage parts A through D.
1. Debris Removal
Reasonable expenses will be paid for the removal of:
· Debris of covered property if an insured peril that applies to the damaged property causes the loss; or
· Ash, dust or particles from a volcanic eruption have caused direct loss to a building or to property that is within a building.
Example: Cliff Calmly goes out to get his morning paper and is shocked to see his yard is covered with debris from his neighbor’s house which was damaged by storm winds. However, since Cliff’s home is undamaged and the debris is from elsewhere, his policy’s Debris Removal coverage WOULD NOT be available to clear his property.
This coverage is included in the limit of insurance that applies to the damaged property. If the amount to be paid for the actual damage to the property plus the debris removal expense is more than the limit of liability for the damaged property, an additional 5% of that limit of liability is available for debris removal expense.
Example: The Burners’ home was severely damaged by the sudden eruption of a live volcano from the center of their town, Vesuviaville. The Burners’ Special Form policy has a Coverage A insurance limit of $120,000. Besides the fire and smoke damage to the home’s exterior, their home is also buried under volcanic ash. Their homeowner insurer, Vesuviaville Property and Calamity, sends an adjuster who estimates that the loss to the home and the expense to remove the ash would cost $128,000. After reviving Mr. Burners, the adjuster explains that, since the total cost is more than their Coverage A insurance limit, their additional coverage makes $6,000 available (5% of $120,000) just for debris removal.
Debris Removal coverage also pays up to $1,000 (increased from $500 in the HO 2000 edition of the Special Form Policy) for the removal of the following from the "residence premises":
· An insured’s trees which are destroyed by windstorm or hail
· An insured’s trees which are destroyed by weight of ice or snow
· Trees belonging to an insured’s neighbor which are blown over or around by an insured peril under Coverage C if: the trees:
- damage a covered structure,
- block a driveway enough to prevent the insured from using his registered motor vehicle,
- block a ramp or passage that eliminates a handicapped person’s access to the residence premises.
Note: The HO 2000 edition of the Special Form policy has significantly enhanced this additional coverage. In earlier editions, if a tree from another person’s property fell onto an insured’s property and damaged covered property, there would be NO coverage available to remove the tree debris. The change that provides coverage when a neighbor’s tree blocks vehicular or handicapped access, makes this a much more practical additional coverage.
Note: The limit for any one loss is $1,000 regardless of the number of trees. This may be an issue if a large storm system damages many trees in one storm. However, this limit has been increased from the $500 limit found in editions prior to the HO 2000 edition of the ISO Homeowner Program.
2. Reasonable Repairs
If covered property is damaged by a covered peril, this additional coverage will pay the reasonable cost an insured incurs for protecting the property from additional damage. Coverage includes reimbursement for repairing other damaged property. Remember, in order to qualify for this additional coverage, the expenses must involve covered property that is damaged by an eligible cause of loss. This coverage does NOT increase the limit of insurance that applies to the covered property AND the insured is still obligated to protect the property from further damage per other policy conditions.
Examples:
· buying plywood and materials to cover windows and openings created by a storm
· hiring persons to move personal belongs from an exposed area of a damaged home to storage in an enclosed area so that it is not damaged by weather or stolen
· buying plastic covering to shield damaged property that is out in the open.
3. Trees, Shrubs and
Other Plants
Specific perils are covered for trees, shrubs, plants, or lawns on the “residence premises.” These perils are:
· Fire or lightning
· Explosion
· Riot
· Civil commotion
· Aircraft
· Vehicles not owned or operated by a resident of the "residence premises"
· Vandalism
· Malicious mischief
· Theft
For all trees, shrubs, plants, or lawns, coverage is available for up to 5% of the limit of liability that applies to the dwelling.
Note: No more than $500 of this limit will be available for any one tree, shrub or plant. However, this is an ADDITIONAL amount of insurance. Payment under this additional coverage does not affect the insurance limits that apply to other covered property. Additionally, it is important to remember that there is NO coverage for property grown for "business" purposes.
4. Fire Department
Service Charge
This coverage pays up to a maximum of $500 for an insured who has a contract or agreement to pay a fire department a service charge when the fire department is called to save or protect covered property from a covered peril. However, the property MUST be located beyond the limits of the city, municipality or protection district furnishing the fire department response.
Note: This is considered to be additional insurance and no deductible applies to this coverage.
5. Property Removed
If covered property is being removed from a premises that is endangered by a covered peril, the property moved is covered for any direct damage for a maximum of thirty days. This additional coverage does not affect the insurance limit that applies to the covered property. However, it does provide temporary protection that is much broader than the normal policy coverage.
Note: Many sources of damage are excluded by the Special Form policy; however, during a maximum 30-day window during which endangered property has been removed, coverage applies to ANY source of DIRECT damage, such as transportation perils.
Example: One wall of Naomi Flud’s home collapsed in the middle of the night. Since it looks like the adjoining walls may also fall, she and her neighbors move most of her personal property to the basement of a friend’s house. Naomi’s belongings stay in her friend’s basement for a week before they discover that, during several days of torrential rain, the basement has flooded, ruining most of her property. This flood damage would be covered under the Property Removed coverage. In this case, rather than it being a flood loss, the circumstances make it the result of the property being removed from possible loss at the insured's home.
6. Credit Card,
Electronic Fund Transfer Card or Access Device, Forgery, and Counterfeit Money
In all of the following cases, an “insured” has coverage up to $500:
· If an “insured” has a legal obligation to pay, resulting from the theft or unauthorized use of credit cards issued to or registered in an “insured’s” name.
· If an “insured” has a loss which results from the theft or the unauthorized use of an electronic fund transfer card or access device which is issued to or registered in an "insured's" name and is used for deposit, withdrawal or transfer of funds.
Note: This is especially important when so much of our banking is done by ATMs and, increasingly, electronically. If an ATM card or access device to a banking device is stolen, someone might access the insured’s savings or checking account. If that happens, there is coverage under the policy for a maximum of $500.
· If an "insured" has a loss caused by forgery or alteration of any check or negotiable instrument.
Example: The forgery could be a check drawn on an insured’s own account where the amount of the check is changed or it could be for a check made out in the insured’s name and then fraudulently cashed by someone else:
· If an “insured” has a loss through the good faith acceptance of counterfeit U.S. or Canadian paper currency.
The instances when credit cards and electronic fund transfer cards are covered include some exclusions. There is no coverage under the following circumstances:
· Any loss involving a resident of the insured household.
· If the illegal act is committed by a person who has been entrusted with either type of card.
· If an "insured" has not complied with all terms and conditions under which the cards are issued.
Note: All losses that arise from a series of acts committed by any one person or in which any one person is concerned or implicated is considered to be one loss. This is an important distinction. If an “insured’s” checkbook is stolen and fraudulent checks start cropping up everywhere and the above limitation did not exist, the insurance company would be responsible up to the coverage limit for each and every check that is written. Assuming that the series of fraudulent checks are all written by one person, this would be considered a single loss, subject to the maximum coverage of $500. This limitation would also apply to a series of fraudulent ATM or electronic transactions:
· If the loss is related to the “insured’s” business
· If the loss is related to the “insured’s” own dishonesty.
Note: This is considered to be additional insurance and no deductible applies to this coverage.
Defense - under the Credit Card, Electronic Fund Transfer Card or Access Device, Forgery and Counterfeit Money - This coverage is unique among additional coverages since it has its own, separate defense cost provision. The insurer reserves its right to investigate and settle any claim or lawsuit as it judges to be appropriate. When the insurance company has paid out the limit of liability, its duty to defend ends.
With respect to coverage under the credit card, electronic fund transfer card or access device coverage, when a suit is brought against an "insured" for liability, the insurance company providing coverage will provide a defense at its expense and by a lawyer of its choice. When a suit is brought for the enforcement of payment under the forgery coverage, the insurer has an option to pay for the defense of an "insured" or an "insured's" bank against any suit.
This coverage has been modified under the HO 2000 edition of the Special Form policy. It now includes coverage for ELECTRONIC fund transfer cards AND ACCESS DEVICES. This additional coverage has been expanded to protect an insured against the unauthorized use of more than just ATM cards. It now covers cards that allow electronic access to an insured’s financial accounts as well as access devices such as free-standing bank kiosks or personal computer based computing.
Loss Assessment
The insurance company will pay up to $1000 for “your” share of a loss assessment charged during the policy period against you by a corporation or association of property owners. The assessment has to be due to a direct loss to property that is collectively owned by all condo members. Further, the loss has to be caused by a covered peril under Coverage A Dwelling.
Example: Dave and Laura Young own a
home in an exclusive development. There is 24-hour security, privacy walls and
gates surrounding the property, a well-appointed clubhouse, tennis courts,
health club, etc. The Youngs belong to the homeowners association that oversees
the management and the maintenance of the common property. On the Fourth of
July, a fire destroys the health club
and the clubhouse. Even though the association has a fire policy, it doesn’t
pay the entire loss. Dave and Laura, along with the other homeowners in the
development, are assessed $2,700 to pay for the remaining cost of rebuilding. The homeowner’s policy will
pay $1,000 toward this assessment assuming there is no arson or fraud involved.
This additional coverage excludes protection against loss due to earthquake, land shock waves or tremors that occur before, during or after a volcanic eruption. Further, no coverage is available for assessments made against an insured or a corporation or association of property owners by any governmental body.
Example: Let’s use the Dave and Laura
Young situation again. Again they own a home in an exclusive development and
they also belong to the homeowners association that oversees the management and
the maintenance of the development’s common property. On the Fourth of July, a fire
destroys the development’s maintenance building. Part of the damage involved
two barrels of cleaning solvent bursting and seeping into the ground
surrounding the building. The local government demands that the soil be removed
and the ground and nearby water sources be tested and monitored for
contamination. Dave and Laura, along with the other homeowners in the
development, are assessed $1,800 to pay for this expense. The homeowner’s
policy will NOT handle any part of this assessment.
This coverage applies only to loss assessments charged against “you” as owner or tenant of the "residence premises."
Note: Regardless of the number of assessments, $1,000 is the maximum amount that will be paid for a single occurrence. There is also a significant change for this coverage under the HO 2000 edition of the Special Form policy. This insurance is now subject to the policy deductible that appears on the declaration page. However, regardless of the number of eligible assessments in a single occurrence, the deductible only applies once.
Condition 1. Policy Period, under SECTIONS I AND II—CONDITIONS does not apply to this coverage.
8. Collapse
The HO 2000 edition of the ISO Homeowner policy has clarified this additional coverage by defining what is meant by “collapse.” It also makes the coverage narrower with its revised wording that applies to losses involving collapse caused by hidden decay or vermin.
Under parts (1), (2) (3) and (4) of this paragraph, collapse is explained as an abrupt falling down of an entire building or part of a building. The collapse has to be severe enough to make the building or part of the building unusable for residential purposes. However, neither a building or building part that is in danger of collapsing NOR a part of a building which remains standing is considered as being in a state of collapse. The nonexistence of a collapse condition applies even when the remaining structure shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinking or expanding.
This additional coverage protects against direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following:
(1) Perils insured against in personal property (Coverage C). These perils apply to covered buildings and personal property for loss insured by this additional coverage;
(2) Hidden decay;
(3) Hidden insect or vermin damage;
(4) Weight of contents, equipment, animals, or people;
(5) Weight of rain that collects on a roof: or,
(6) Use of defective material or methods in construction, remodeling or renovation if the collapse occurs during the course of the construction, remodeling or renovation.
Loss to an awning, fence, patio, deck, pavement, swimming pool, underground pipe, flue, drain, cesspool, septic tank, foundation, retaining wall, bulkhead, pier, wharf, or dock is not included under items (2) through (6) above unless the loss is a direct result of the collapse of a building.
Example: Corey Swingmeister is very happy with how his newly added deck has improved the look of his older, two story home. Two weeks later, he is crushed by the sight of the rear of his home laying on top of the deck. The rear wall collapsed because of the weight of the extensive book collection kept in Corey’s upper floor den. While the collapsed wall is covered, the deck damage is not since no part of the deck collapsed. All of the deck damage was caused by the wall debris that fell onto the deck.
The HO 2000 edition of the ISO Homeowner Program adds decks to the property that is excluded from collapse caused under item b (2) through (6) unless it is direct damage. Also, there is no coverage for collapse due to hidden vermin or hidden decay IF the insured knows that these conditions exist prior to any collapse loss.
What Collapse Does Not Include
Since collapse is a peril that often confuses insurers and their customers, the HO policy includes mention of various situations that do not qualify as a collapse loss. The ineligible situations include:
· settling
· cracking
· shrinking
· bulging
· expansion
Example: After being built, a house starts to settle and this causes cracks in the walls and foundation. Damage of this type would not be covered in the policy.
This coverage does NOT increase the limit of insurance that applies to the covered property.
For an illustration of how the courts interpret this coverage, please refer to PF&M section 469_C019, “Collapse Held Covered Only According to its Popular Meaning” in Court Cases.
9. Glass or Safety
Glazing Material
This additional coverage pays for:
· The breakage of glass or safety glazing material which is part of a covered building, storm door or storm window; and
· Damage to covered property by glass or safety glazing material that is part of a building, storm door or storm window.
This coverage does not include loss on the "residence premises" if the dwelling has been vacant for more than 60 consecutive days (an increase under the HO 2000 edition of the ISO Special Form policy from 30 days) immediately before the loss. A dwelling being constructed is not considered vacant.
Note: This coverage does not increase the limit of insurance that applies to the damaged property. Also, the HO 2000 edition of the ISO Special Form policy no longer has a reference to settling loss for damage to glass on the basis of replacement with safety glazing materials when required by ordinance or law. Therefore, such losses would constitute an increased cost that may have to be borne by an insured UNLESS the increased cost qualifies for coverage elsewhere. Please refer below to item 11, Ordinance or Law.
10. Landlord's
Furnishings
This coverage has undergone an editorial change under the HO 2000 edition of the Special Form Policy. Instead of naming the perils that apply to a landlord’s furnishings, this provision now refers to the perils shown under Coverage C - Personal Property.
As was the case in earlier editions, a maximum of $2,500 is available to protect the insured’s property that is located in the part of the residence premises that is rented to other persons. The additional coverage part states that the $2,500 limit is the maximum that can be recovered, regardless of the number of appliances, carpeting or household furnishings that are damaged or destroyed in a single loss. This wording appears to be unnecessary since it is not used elsewhere in the policy. In fact, as this part of the policy makes such a distinction, it might create ambiguity as an insured might argue that, since it appears in this one additional coverage, that the coverage under other Coverage parts may apply separately when more than one of the same types of property is involved in a loss.
Example: Beatrice Tottles is confounding her insurer’s claim adjuster. Beatrice’s home and its contents were destroyed in a violent windstorm. Beatrice is a teacher who read her policy thoroughly, giving special attention to the wording used under Landlord Furnishings. She noticed that one part stated:
“This limit is the most we will pay in any one loss regardless of the number of appliances, carpeting or other household furnishings involved in the loss.”
The adjuster has offered her the full $30,000 insurance limit for her loss of personal property (her full Coverage C limit) and this is too little to cover the loss. Beatrice argues that, per the above wording, more coverage is available. Beatrice claims that, since the basic portion of Coverage C does not include the quoted wording, the insurance limits can be applied separately when there is more than one of the same type of property. Beatrice insists that the limits be reapplied to consider the fact that she lost three televisions, two DVDs, two computers, two freezers, five tables, etc. Her adjuster tries to explain that her claim can’t be handled in that manner, but Beatrice states “Maybe a court will see things differently.”
11. Ordinance or Law
a. This coverage feature allows an insured to use a maximum of 10% of his Coverage A limit to pay for increased replacement or repair costs that are caused by a law or ordinance. The law or ordinance has to be the type that controls:
· covered property that is damaged by a covered cause of loss and which has to be constructed, demolished, remodeled, renovated or repaired; or
· destroying and rebuilding an undamaged part of covered property when a law or ordinance requires its demolition because another part of the covered property was damaged by a covered peril;
· renovating and removing or remodeling an undamaged part of covered property when a law or ordinance requires such action because similar work must be performed on another part of the covered property which was damaged by a covered peril.
In other words, if a covered residence is damaged or destroyed, the policy provides up to 10% of the Coverage A insurance limit which deals with the increased loss costs created by local laws to handle the manner in which damaged or destroyed real property is rebuilt or replaced.
Example: More than half of Laura Clubfounder’s house was destroyed by a lightning strike. Laura’s home is covered in wood siding and it has an exemption from Brickville’s local ordinance that requires all homes to be made of brick or to have a brick veneer on all four sides of the home. The severe loss eliminated the exemption, so Laura’s repairs are joined by the cost of adding brick veneer. Since Laura’s Coverage A insurance limit is $95,000, she has up to $9,500 to help pay for the additional cost mandated by Brickville’s law.
b. Part or all of this coverage may be used by an insured to pay for his increased cost to remove debris created while constructing, demolishing, renovating, remodeling, repairing or replacing property described in 11a.
c. This coverage does not include:
· any decreased value of covered property that is created by the ordinance or law
· any costs required of an insured for handling, testing and/or monitoring pollutants related to a loss to covered property or which occurs at the covered location.
This coverage is an additional amount of insurance, so payment under this provision does NOT affect the amount of coverage that appears under Coverage A - Dwelling.
12. Grave Markers
This coverage option is newly offered under the HO 2000 edition of the ISO Special Form policy. It permits an insured to use up to $5,000 to pay for a headstone or mausoleum that is damaged by any of the perils that qualify under Coverage C - Personal Property. The coverage applies to such property, whether it is on or away from the insured premises. However, any payment under this coverage part reduces the amount available under the Coverage A - Dwelling insurance limit.
Example: The Addamz Family founded Shroudytown and Gumper Addamz still lives in the family home which includes a family cemetery in their backyard. The Addamz’s home is insured for $190,000 and it is located on the corner of Brimstone and Scorch Avenues. One day, a local teenager is speeding around town in the new SUV he just got for his 16th Birthday. The teen loses control on the intersection of Brimstone and Scorch. His SUV plows into the Addamz home and stops when it smashes into Beauregard Addamz’s mausoleum, causing $3,500 in damage to the latter. The $3,500 needed to repair the mausoleum (Beauregard “slept” through the whole thing) reduces the amount of his Coverage A limit to $186,500 ($190,000 - $3,500) to respond to the damage to his home.
The
insurer’s obligation under these coverage parts is to protect eligible property
for any source of direct loss. This means that indirect loss does not qualify
for coverage under Coverages A and B. Moving on, this portion of the policy
goes on to list sources of loss that
are excluded. Specifically, no
coverage is provided for:
1. Causes of loss that are listed under Section I - Exclusions.
This item is newly added under the HO 2000 edition of the ISO Homeowner Program. FYI, the excluded sources are ordinance or law, earth movement, water damage, power failure, neglect, war, nuclear hazard and intentional loss.
2. Loss involving collapse
The latest edition of the ISO Special Form Policy continues the practice of including collapse as an excluded source of loss, EXCEPT for the detailed description of coverage for collapse that is found in the policy’s Additional Coverage Section. While this may be a method to handle any “loopholes” in an insurer’s intent to provide collapse coverage, it may be time to handle this coverage in a single part of the policy. Imagine how the policy would read if ALL TWELVE of the Additional Coverages were also listed as “excluded, other than as provided in Additional Coverage 1., 2., 3., etc.” As ISO continues its effort to make its policies easier to comprehend, such practices should be eliminated.
3 a. Loss caused by freezing of a plumbing, heating, air conditioning, or automatic fire protective sprinkler system or of a household appliance, or by discharge, leakage or overflow from within the system or appliance caused by freezing.
Prior to the HO 2000 edition of the Special Form Policy, this exclusion was triggered by an extended vacancy of the covered premises. The vacancy stipulation is no longer specifically mentioned. Now, regardless of the structure’s occupancy status, the insured must take the time to:
· keep the building heated or
· shut off the systems’ or appliances’ water supply and drain the system/appliance.
Further, the HO 2000 edition of the Special Form Policy states that, if the building has an automatic fire sprinkling system, the system has to remain active and the property must be heated so that it doesn’t interrupt the sprinkling system’s operation. This exclusion also specifies that sumps, sump pumps or related equipment, roof drain, gutter, downspout or similar fixtures or equipment are not considered to be plumbing systems or household appliances. Therefore, freezing losses related to such equipment or drainage systems do not qualify for coverage.
It is no longer necessary to address how such losses may be affected by a home being unoccupied or vacant since these conditions are implicit in the revised policy wording. In other words, the precautions that have to be met by an insured should only occur when an insured is planning or experiencing an extended absence.
3.b Loss caused by cold weather conditions such as freezing, thawing, pressure or weight of water or ice, whether driven by wind or not, to any:
(1) Fence, pavement, patio deck or swimming
pool,
(2) Footing, foundation, or any other
structure or device that supports all or part of a building or other structure
(3) Retaining wall, or bulkhead that does
not support all or part of a building or other structure;
(4) Pier, wharf or dock.
This exclusion was modified under the HO 2000 edition to include reference to a deck in part 3. b.1. The revised wording includes a reference to similar structures or devices that support a building or other covered structures.
This exclusion clarifies that such property types are constantly exposed and particularly vulnerable to loss from freezing, so they are not eligible for coverage. Providing protection to such property against freezing conditions and the pressures of wintry conditions would be akin to a maintenance contract rather than an insurance policy. Property such as patios, pools, wharves and fences are virtually certain to be worn down and damaged by cold weather conditions. The homeowners policy is intended to cover accidental events, not virtual certainties.
3.c. Theft in or to a dwelling under construction, or of materials and supplies for use in the construction until the dwelling is finished and occupied.
Note: Under part 2. of Coverage A, there is insurance for building materials; however, such coverage does not include THEFT protection.
Building materials and supplies are VERY attractive targets for theft. This exclusion forces other parties (insureds and building contractors) to:
· take precautions to safeguard such property,
· deliver and incorporate material as needed, or
· seek specific coverage for the exposure (such as endorsing additional coverage or buying a builder’s risk policy)
If either party decides to store such materials on the insured premises, they also have to handle the risk of it being stolen.
3.d. Vandalism and malicious mischief.
This exclusion has been changed in the HO 2000 Special Form Policy. Previously the exclusion took effect if the insured premises was vacant for 30 days before the loss. The allowed period of vacancy has been doubled to 60 days. Further, the exclusion now bars coverage for:
“any ensuing loss caused by the intentional and wrongful act committed in the course of the vandalism or malicious mischief.”
Example: The Warmkline family has a Special Form policy which runs from 1/1/05 to 1/1/06. On March 1, the family moves to Russia for 6 months, taking their furnishings and personal property. On June 5th, several neighborhood bad boys break into the house through a basement window. They trash the interior and, just as they are leaving, one of the miscreants empties a can of charcoal lighter fluid into the living room and lights a match. Since the home was vacant for more than 60 days AND since the fire loss was caused by the vandals, neither the vandalism nor the fire losses are covered.
As with earlier editions, a dwelling that is under construction is not considered vacant.
3.e. This exclusion has been added to the ISO Special Form Policy with the HO 2000 edition. There is no coverage for:
· mold,
· fungus, or
· wet rot
But the policy does make an important exception. The policy WILL provide coverage for mold, fungus or wet rot if the damage is hidden in the home’s walls, ceilings or floors. However, the hidden damage has to be due to the accidental discharge or overflow of water or steam from a plumbing or air conditioning system, a household appliance, or a fire sprinkler system. Coverage for hidden damage from accidental discharge and overflow also exists when caused by several sources located on the insured premises, such as storm drains, water pipes, steam pipes, or sewer lines.
Note: While this may have the appearance of a significant expansion of coverage, it is difficult to imagine a scenario that involves hidden damage to an insured home’s exterior that is caused by an accidental discharge from a source located away from the insured premises. This exclusion also specifies that sumps, sump pumps or related equipment, roof drain, gutter, downspout or similar fixtures or equipment are not considered to be plumbing systems or household appliances. Therefore, hidden rot or decay losses related to such equipment or drainage systems do not qualify for coverage.
3.f. All of the following are also barred from coverage under the Special Form policy:
(1) Wear and tear, marring, deterioration;
Example: An insured turns in a claim for his garage door which, a day earlier, suddenly slammed down on the ground, damaging itself beyond repair. Investigation of the loss found that the 15 year old garage door spring had suddenly broke and the door fell since nothing was holding it up. The damage resulting from the aged steel spring breaking is not covered.
(2) Inherent vice, latent defect, mechanical breakdown; (this has been modified under the HO 2000 edition to include ANY quality found in property that causes it to damage or destroy itself).
Example: Eleanor Chug is horrified to wake up and find that her imported dining room set has turned into a black, powdery heap. Her insurer, Hearty Property and Casualty, denies her claim and points out that her set, made out of untreated rubber, was destined to dry out and deteriorate.
(3) Smog, rust or other corrosion, or dry rot; (the HO 2000 edition of this policy no longer includes a reference to mold or wet rot since it added a separate item for this source of loss).
(4) Smoke from agricultural smudging or industrial operations;
Example: Ned Frunderpump’s home is insured by a Special Form policy and is located near Sunslam Orchards. Ned turns in a claim when he discovers that his stucco home has been covered with a greasy, dirty substance. The knowledgeable claims person tells Ned that he’s out of luck. The area had experienced a severe cold snap and, in order to protect its citrus trees, Sunslam Orchard set out smudge pots. These pots cover the fruit with a smoky, greasy substance that protects the fruit from frost and cold. Winds blew the smudge over to Ned’s home and, therefore, there is no coverage.
(5) Discharge, dispersal, seepage, migration, release, or escape of pollutants. However, the pollution damage IS COVERED if it is caused by one of the eligible perils insured against under Coverage C - Personal Property. Pollutants are described as any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned or reclaimed;
This item is unchanged from previous editions of the ISO Special Form Policy. The difficulty with this exclusion is that it can be applied very liberally. An insured will find it hard to make a claim for a loss involving common substances found in homes that are classified as pollutants, if the loss was not triggered by the sources of loss named under Coverage C, such as fire, wind or explosion.
(6) Settling, shrinking, bulging, or expansion, including resultant cracking, of pavements, patios, foundations, walls, floors, roofs, or ceilings;
The HO 2000 edition of this policy adds footings (the part of the foundation that sits directly upon earth) and bulkheads (a retaining structure of wood, steel or reinforced concrete that protects a shore or harbor) to this list of items that aren’t covered.
(7) Birds, vermin, rodents, or insects; or
(8) Animals owned or kept by an "insured."
Note: Items (7) and (8) are unchanged in the HO 2000 edition of this policy.
The HO 2000 edition of the Special Form Policy does make a change to this section by reformatting the exceptions to this section.
Exception to 3.f.
This newly titled paragraph explains that both the dwelling and other structures are covered for damage caused by the accidental discharge or overflow of water or steam from the following:
· a storm drain, water pipe, steam pipe or sewer pipe that is located away from the residence premises
· a plumbing, heating, air conditioning or fire sprinkler system or household appliance on the residence premises.
Coverage includes the expense of tearing out and replacing any necessary part of the covered structure when the action is needed to repair the system or appliance.
It is IMPORTANT to note that coverage for demolishing and replacing property is available ONLY when water or steam has actually damaged the property.
Example: Craig Monkywrinch is startled out of his chair by a loud cracking sound followed by the sound of rushing water. He’s in the kitchen which shares a wall with his home’s attached garage. Craig goes into the garage and looks at the water heater. When he sees water seeping from under the drywall, he shuts off the water from the outside water main. Craig, a veteran homeowner, knows that the main hot water supply pipe that is inside the wall between the garage and the kitchen has burst. Craig is told that, because of the length of pipe that broke and the way the home’s builder ran the pipe through a series of extra wall studs, most of the wall will have to be torn down and replaced. Ironically, since Craig shut off the water so quickly, none of the studs or drywall was damaged by the burst pipe. Therefore, the entire cost of the repairs will have to come out of Craig’s pocket.
Again the HO 2000 edition of the Special Form Policy does not protect the source of the escaped water or steam. Further, under this provision, a sump, sump pump, roof drain, gutter, down spout or similar property is NOT considered to be a plumbing system or a household appliance. However, the policy does provide another exception. Simply stated (if that’s possible), the water related coverage provided by policy section 3.e. and 3.f. are NOT affected by Exclusion 1.c., sub-paragraphs (1) and (3).
Finally, earlier editions of the Special Form policy stated that it would cover ensuing losses that weren’t excluded or excepted. The latest edition states that it will cover ensuing losses to the residence and other structures that are not PRECLUDED by any other policy provision. While “preclude” has a common definition that makes it a synonym of “exclude” or “except,” it is not commonly used. Adding this term along with the many references to exclusions and exceptions may make it even more difficult for this statement to be easily understood by insureds. This is especially so considering that the term “preclude” is making its debut in the same paragraph that contains “ensuing,” another term that confuses insurance purchasers. For a discussion of situations involving more that one source of loss, please refer to PF&M section 130.6-7, Concurrent Causation - A Discussion.
This coverage part lists the perils (causes or sources of loss) that are protected against direct loss to the property described in Coverage C. Further, there is no coverage for any source of loss that appears in Section I.
EXCLUSIONS
1. Fire or lightning
This section has not changed under the HO 2000 edition of the Special Form policy. If you would like more information about the peril of fire, please refer to PF&M section 420.6, Dwelling Policy Program Perils.
2. Windstorm or hail
What Windstorm or Hail Does Not Include
Windstorm or hail does not include loss to property contained in a building when the loss is caused by rain, snow, sleet, sand, or dust. This is the case unless the direct force of wind or hail damages the building, causing an opening in a roof or wall and the rain, snow, sleet, sand, or dust enters through this opening. Note that a closed window or door is considered part of a structure’s wall. While blowing a door open is not “creating an opening,” blowing a door off its hinges would qualify as “creating an opening.”
Coverage Restriction for Windstorm or Hail
This peril includes loss to watercraft of all types and their trailers, furnishings, equipment, and outboard engines or motors, only while inside a fully enclosed building.
For further discussion on the peril of windstorm, please refer to PF&M section 420.6, Dwelling Policy Program Perils.
3. Explosion
This is unchanged from earlier editions of the ISO Special Form policy. Note that it still includes both internal and external explosions. For further discussion on the explosion peril, please refer to PF&M section 420.6, Dwelling Policy Program Perils.
4. Riot or civil commotion
In other words, this is basically vandalism coverage involving large crowds. Note that the reason for the riot or commotion is unimportant.
Example: Clyde Couchbound turns on the TV and sees a live newscast covering a local protest involving the Humane Treatment for Inhumane Persons Society. He is shocked to see that the protest is in front of a school just a few doors down from his home. Clyde opens his front door and looks outside at the crowd. Clyde then notices the bratty teenager from next door is standing on his front lawn, holding a microphone. The teen yells an INTENSELY INFLAMMATORY statement at the protesters. The teen shocks Clyde by pushing past him through Clyde’s home and then running out of Clyde’s backdoor and to his own home. Unfortunately, the crowd only saw the guy who insulted their ”cause” duck into Clyde’s house. Clyde is unable to save his home from being gutted by the angry mob. This loss would be covered by the Special Form Policy.
5. Aircraft, including self-propelled
missiles and spacecraft
With the increasing incidences of small aircraft crashing in towns and city neighborhoods, this coverage is becoming more likely and timely. This coverage has not been changed in the HO 2000 edition of the Special Form policy.
6. Vehicles
This coverage has not been changed in the HO 2000 edition of the Special Form policy.
7. Smoke
The policy only covers for smoke losses that are both accidental and sudden, but bars coverage for loss that is due to smoke from industrial operations as well as agricultural smudging.
A change was made in the HO 2000 edition of the Special Form policy. Eligible smoke damage includes a situation called “puffback.” Puffback is when a furnace, boiler or similar equipment releases soot, smoke, vapors or fumes onto the covered property and causes damage.
One question comes to mind. If eligible smoke damage does include “puffbacks.” Can such emissions be generated from sources away from the premises and, if yes, will this create ambiguity regarding this coverage?
8. Vandalism or malicious mischief
This coverage has not been changed in the HO 2000 edition of the Special Form policy.
9. Theft
The theft peril includes attempted theft and loss of property from a known place when it is likely that the property has been stolen. There are several instances that are excluded from coverage, such when the theft or loss:
· is committed by an “insured”
· occurs to or in a dwelling that is under construction
· involves materials and supplies used for the construction of a dwelling before the structure is completed and occupied (as a residence)
· occurs in a part of a “residence premises” which an “insured” rents out to someone other than another insured
Example: Ptarry Long has inherited her grandparents’ large home. Even after her family has settled into the home, there is still plenty of space. The home’s layout includes a large bedroom and bath that has a separate exit from their kitchen and its own outside door. Ptarry decides to rent the suite out to a young lady who is pursuing a masters degree from a nearby college. One day Ptarry’s home is broken into. The crook focused on electronics and cleared their home of TVs, VCRs, computers, etc.
Ptarry’s renter tells her that her suite is missing a laptop computer. Ptarry submits a claim that includes the laptop. However, her insurance company’s claims adjuster says that it isn’t eligible for coverage since it belongs to her renter. The adjuster informs Ptarry that the renter should have bought her own contents policy.
The policy has additional restrictions for theft losses that occur away from the “residence premises.” The following situations are restricted as follows:
· There is no coverage for property located at any other residence owned by, rented to, or occupied by an "insured," except while an "insured" is temporarily living there.
· Property of a student who is an "insured" is not covered while at a residence away from home unless the student has been at that residence at any time during the 60 days immediately preceding the loss. (Note: this restriction has been liberalized under the HO 2000 edition of the Special Form policy. Under previous editions, the insured must have been at the location at least once in the 45 days before the loss. The latest edition also clarifies that the location must be used for the purpose of attending school.)
· Watercraft, including their furnishings, equipment and outboard engines or motors are not covered when stolen.
Note: This restriction has been clarified under the HO 2000 edition of the Special Form policy. This exclusion applies to watercraft of ALL TYPES.
· Trailers and campers do not qualify for coverage against theft. In the HO 2000 edition of the Special Form policy, semi-trailers have been added to the type of property that isn’t covered for theft loss.
10. Falling Objects
The peril of falling objects does not include loss to property contained in a building unless the roof or an outside wall of the building is first damaged by a falling object. Any damage to the falling object itself is not included.
Example: Laura Technochile hired “Satellite Sadists” to install the SignalStarz Satellite, which will allow her to pick up TV signals from every station in the world. The day after the SignalStarz is installed at the top of her home’s chimney, Laura asks her neighbor to adjust the satellite since she is only getting three stations. Laura’s neighbor jiggles the satellite around and, just as he yells out “I think I’ve fixed it,” the Signalstarz falls through the roof’s skylight and lands on Laura’s new home entertainment system. While the damage to the Signalstarz is not covered, the Special Form policy will cover the damage to Laura’s contents.
11. Weight of ice, snow or sleet that
causes damage to property contained in a building.
Note that this coverage is for personal property, not to building damage. If a heavy accumulation of snow caused a section of a roof to fall in and, miraculously didn’t damage any personal property, no coverage is granted for the loss.
12. Accidental discharge or overflow of
water or steam from within a plumbing, heating, air conditioning, or automatic
fire protective sprinkler system or from within a household appliance.
This long-winded peril does not include loss to the system or appliance from which the water or steam escaped. There is no coverage when the discharge or overflow is caused by or results from freezing except as provided by the Special Form policy’s freezing peril. No coverage is available for damage on the "residence premises" caused by accidental discharge or overflow which occurs off the "residence premises." Finally, this peril excludes damage from mold, wet rot or fungus UNLESS such damage is hidden by walls, floors or ceilings of a covered structure.
The reference to mold, fungus and wet rot is a clarification that appears in the HO 2000 edition of the Special Form policy. This peril is clarified further with the notation that none of the following is considered to be a plumbing system or a household appliance:
· sumps,
· sump pump or related equipment,
· roof drains,
· gutters,
· downspouts or similar fixtures or equipment.
Finally, to prevent confusion over coverage, the policy also clarifies that the water damage exclusion found in Section I concerning surface and below surface water does not apply to this additional coverage.
13. Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire protective sprinkler system, or an appliance for heating water.
As with the accidental discharge or overflow of water or steam peril, there is no coverage for loss due to freezing. For instance, if a home’s steam heating system burst and no longer provided heat throughout the home, an additional, independent loss could be created by other parts of the covered property becoming subject to freezing temperatures. This peril merely excludes coverage from this event.
14. Freezing of a plumbing, heating, air
conditioning, or automatic fire protective sprinkler system or of a household
appliance.
In earlier editions of the Special Form policy, this peril barred coverage when the home was unoccupied. Now the peril, rather than discussing whether the home is occupied, requires that an insured takes care to maintain heat in the building, shut-off the water supply and drain applicable appliances of water. However, the water supply and adequate heat MUST be available if the home has a protective sprinkling system. Ironically, the requirement to maintain water supply and heat for a sprinkler system would prevent an insurer from denying a loss to an appliance that freezes up and causes personal property damage.
15. Sudden and accidental damage from
artificially generated electrical current.
Note: There is no coverage under this peril for loss to a tube, transistor or similar electronic component. ISO realized that the above terminology has lost a lot of its relevancy due to current technology. Therefore, the HO 2000 Special Form policy also excludes loss to electronic components or circuitry that comprise:
· appliances,
· fixtures,
· computers,
· home entertainment units, or
· other types of apparatus.
Example: The Viewclone family came home from a nice restaurant dinner to find the inside of their home filled with smoke. The cause was a computer monitor in their daughter’s room that overheated and sparking circuits melted the monitor’s plastic casing. The monitor overheated because its air vents were covered by stuffed dolls. While their Special Form policy paid for the cost of cleaning and repairing the smoke damage, the computer monitor was not covered.
16. Volcanic eruption other than loss caused by earthquake, land shock waves or tremors.
This section is of extreme importance in answering the question often posed by insureds: “Is this covered by my policy?” The first place an agent often looks is in the Exclusions section of the policy. There is no insurance protection for either direct or indirect loss that is due to any of the sources of loss that appear in this policy section. The loss is excluded:
· regardless of any other cause or event contributing concurrently or in any sequence to the loss, and
· regardless of whether the damage is localized or widespread.
Note: The reference to the scope of any damage was a clarification included in the latest edition of the Special Form policy. Another feature meant to clarify the exclusions is the mention that several sources of loss are excluded regardless of whether it is connected to human, animal or natural (force of nature) activity. This addition appears to be the type that, rather than make a point more clear, may result in creating new angles of attack for parties seeking coverage loopholes. For instance, would a loss that occurred because of some mechanical or computer-related error be interpreted as a human cause or loss or something distinct?
1. Under this part, the exclusions apply to all parts of the Special Form policy. Specifically, there is no coverage for:
a. Ordinance or Law
This exclusion refers to any loss or expense created by the enforcement of any ordinance or law regulating the construction, repair, or demolition of a building or other structure. However, this exclusion does not apply to the coverage granted under Additional Coverage 11. Ordinance or Law. Besides construction-related costs, the exclusion also extends to any loss in property value or to any pollution-related loss.
b. Earth Movement
Earth movement is defined as an earthquake, and includes land shock waves or tremors that occur before, during or after a volcanic eruption; landslide; mine subsidence; mudflow; earth sinking, rising or shifting, unless direct loss by fire or explosion. This source of loss is excluded regardless of whether it is connected to human, animal or natural (force of nature) activity.
There is an important element of this exclusion. IF a fire or explosion occurs after any earth movement, the policy will pay for the damage caused by the subsequent loss. However, any damage resulting from earth movement would be excluded from any payment made to care for explosion or fire damage. Note that such events are often referred to as ensuing losses.
Note: This exclusion does not apply to loss by theft.
c. Water Damage
The Special Form policy does not cover a loss caused by flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind; water which backs up through sewers or drains or which overflows from a sump; or water below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool, or other structure. This source of loss is excluded regardless of whether it is connected to human, animal or natural (force of nature) activity.
The excluded situations mentioned under water damage also extend to damage caused by water borne material. So a distinction may possibly be made among damage caused by water and damage caused by items borne (carried) by water. The reference, allegedly, is intended make the exclusion definitive in barring coverage for damage caused by debris-laden water or sewage. However, the latter item may beg the question of how such distinctions should be made. Is sewage synonymous with waterborne material? If not, the added wording, rather than clarifying the exclusion, creates unintended coverage.
Note: Direct loss by fire, explosion or theft resulting from water damage is covered.
Example: Heavy rains cause a neighborhood’s sewer drains to fill and water runs into an insured’s garage. The water erodes the drywall on a side wall, the missing and damp drywall causes support for a shelf to disappear and two full gas cans fall down, bursting open. The built-up fumes are ignited by the furnace’s pilot light and the explosion destroys the garage and parts of the home. The fire and explosion damage would be covered by the Special Form policy. Any damage attributed solely to water (such as a portion of collapsed, soaked drywall) would not be covered.
Note: Insurance Services Office recently created a new endorsement that must be attached to all of its special form homeowners policies. Form, HO 16 01 09, Water Exclusion Endorsement replaces the base policy form’s water damage exclusion. It operates in the same manner as explained above. However, there is one significant difference. Besides excluding damage from water and waterborne material, it attempts to make its intent clearer by stating that it also bars coverage from water (and material carried by water) that escapes or overflows from any containment system. The systems referenced in the form include:
·
Dams
·
Levees
·
Seawalls
·
Other
boundaries
·
Other
containment systems
This change stems from ISO’s evaluation of claims litigation stemming
from flooding during Hurricane Katrina in 2005.
d. Power Failure
This exclusion involves losses caused by a failure of power or other utility service. However, the failure has to take place off the "residence premises." If a covered cause of loss (such as fire) occurs on the "residence premises," after the excluded power failure, the policy will pay only for that ensuing loss.
e. Neglect
This exclusion is unchanged with the HO 2000 edition of the Special Form policy. This is a reference to any failure on the "insured’s" part to use all reasonable means to save and preserve property at and after the time of a loss. This exclusion fits perfectly with the intent of insurance to cover losses that are accidents or, in other words, which are beyond the control of the policyholder. It is logical to exclude payment for losses that could have been prevented by an insured taking care to protect his or her property. Remember, though, that the exclusion is for failure to take ordinary, rather than heroic, measures.
f. War
This exclusion is also unchanged with the HO 2000 edition of the Special Form policy. War is considered to include any of the following and any consequence of any of the following:
|
war |
undeclared war |
civil war |
warlike act by military force or personnel |
|
rebellion |
revolution |
insurrection |
destruction, seizure or use for a military purpose |
Even if a nuclear event is completely accidental, discharge of a nuclear weapon will be deemed a warlike act.
g. Nuclear Hazard
This exclusion consists of the event as defined and to the degree explained in the nuclear hazard clause of SECTION I—CONDITIONS.
h. Intentional Loss
This exclusion refers to any loss that is due to any intentional act of any insured covered by the Special Form policy. An intentional act includes any act that is meant to create a loss. Any conspiracy to commit such an act also qualifies as an intentional act. The HO 2000 edition of the Special Form policy attempts to make this exclusion clearer by stating that the exclusion applies even to innocent insureds (insureds who do not participate in an intentional act, including its planning). Adding the reference to innocent insureds is a response to decisions in various jurisdictions that obligated insurers to settle certain intentional losses.
Example: Certunstate's Supreme Court recently ruled that Inurt Property Insurors could deny coverage for a $200,000 fire loss experienced by Flamer and Blamer Jones. The Joneses were insured under an Inurt HO policy that covered their home with a $215,000 limit. During the 2003 policy period, there was a huge fire that destroyed their home and they filed a loss. Inurt's investigation determined that the loss was due to arson and that Flamer started the blaze (as it turns out, to collect money to pay for some gambling debts). Flamer was convicted and jailed for his crime. However, the Joneses sued Inurt for coverage. Blamer was able to prove that she had no knowledge of Flamer's plans or the actual act and her insurable interest in the home qualified for coverage. Certunstate's high court agreed, stating that, as an innocent insured, Blamer was entitled to the policy's protection, separately from Flamer.
For two court cases which focus on whether losses were intentional, refer to PF&M section 469_C035, “Intentional Act Exclusion Held Not Applicable When Severe Injury Was Not Intended,” and refer to PF&M section 469_C036, “Intentional Damage Exclusion Held Applicable Although Damage Was More Severe Than Expected.”
i. Governmental Action
This exclusion was introduced as a separate bar to recovery with the HO 2000 edition of the homeowner policy. The policy does not allow coverage for property that is described in Coverage parts A—Dwelling, B—Other Structures and C- Personal Property, which is destroyed or seized under the orders of any government unit or public authority. There is a very important exception connected to this exclusion. If the government action or order is related to a fire or the prevention of the spread of fire, any loss caused by the fire IS eligible for coverage.
2. Under this part of Section I, Exclusions, the barriers to coverage apply to the property described under Coverage A - Dwelling and Coverage B - Other Structures. Damage from covered causes of loss that happen before an excluded source of loss are covered IF the resulting loss isn’t excluded in any other part of the policy. Actually, the HO 2000 edition of the Special Form policy states that ensuing losses may be covered if they are not PRECLUDED by any other policy provision. According to Webster’s Encyclopedic Unabridged Dictionary, preclude is defined as something to prevent the presence, existence, or occurrence of; make impossible or to exclude or debar from something
This term appears to have the intent to deny coverage for both items that are specifically referenced as not being eligible for coverage (excluded) as well as to deny coverage because of other elements or parts of the policy acting or existing in a way that implicitly bars coverage.
The Special Form policy does not provide coverage for:
a. Weather conditions
This exclusion only applies if weather conditions contribute in any way with a cause or event excluded under Section I—Exclusions, Paragraph 1: “Both direct and indirect loss by any of the following is not covered. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.”
b. Acts or decisions
The acts or decisions exclusion includes the failure to act or decide on the part of any person, group, organization, or governmental body.
c. Faulty, inadequate or defective
This includes planning, zoning, development, surveying, siting, design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction materials used in repair, construction, renovation or remodeling, or maintenance of part or all of any property whether on or off the "residence premises.”
1. Insurable Interest and Limit of
Liability
Regardless of the number of people who have an insurable interest in the property covered, “we” will not be liable in any one loss:
· To an "insured" for more than the amount of such "insured's" interest at the time of loss; or
·
For more than the applicable limit of liability.
This condition was slightly tweaked under the HO 2000 edition of the Special Form policy to better define the nature of the person (insured) to which the policy is obligated to pay. Specifically, the Special Form policy is only obligated to pay the policy limit that applies to a covered person who has suffered a loss to covered property.
2. “Your” Duties After Loss
The HO 2000 edition of the Special Form Policy includes stronger wording in this provision. The result is that it reinforces an insured’s prime obligation to strictly comply with its requirements. It mentions that if an insured fails to do his duty, and if that failure adversely affects the insurer, the insurer is no longer obligated to provide coverage. An insured's cooperation is critical to an insurance company's ability to perform under the insurance contract. Although it does not involve an HO policy, readers may find it useful to refer to PF&M Section 131_C087 "Uncooperative Insured Can’t Seek Arbitration" (Classic) in Court Cases.
In case of a loss to covered property, the “insured” is responsible for:
a. Giving prompt notice to the insurance company or the insurance company’s agent.
For an illustration of how the courts view this obligation, please refer to PF&M Section 389_C032, Notice To Broker Was Not Notice To Insurance Company and also please refer to PF&M Section 389_C040, Notice To Independent Agent Or Broker Held Not To Be Notice To Insurer, in Court Cases.
b. Notifying the proper authorities in case of loss by theft.
c. Notifying the credit card or electronic fund transfer card or access device company in case of loss under credit card, electronic fund transfer card or access device, forgery and Counterfeit Money Coverage.
Please see this analysis’s discussion of this coverage in item 6. Additional Coverages.
d. Protecting the property from further
damage.
If repairs to the property are necessary, the insured is required to:
(1) Make reasonable and necessary repairs to protect the property; and
(2) Keep an accurate record of repair expenses.
There is one item that appears odd about this coverage. While the Special Form policy reimburses an insured for expenses involved with protecting or preserving property, this philosophy is inconsistent. If a homeowner kept materials or supplies on hand to help protect the covered property from loss, the policy would exclude such property from coverage if it were stolen or destroyed by a listed or eligible cause of loss. The policy only covers such materials or supplies if they are for rebuilding, renovating, repairing, remodeling, or a similar purpose; but not for preserving or protecting the covered property to mitigate or avoid the need to repair or replace the property.
e. Cooperate with us in the investigation
of a claim.
This item was added in the HO 2000 edition of the Special Form policy and acts as a reminder that the insured must be an active and willing participant in the claims process.
Example: The Stonewall Family submitted a claim for $22,000 of damaged property because of a smoke loss. The Stonewalls sent in a detailed list of very expensive electronic equipment and leather furniture. Most of the equipment and furniture was bought in the last year. However, the Stonewalls had no store receipts, or warranty information. Further, the Stonewalls said that the debris was cleared immediately and unavailable for display. Nay Eve Property and Casualty Insurance’s adjuster denied the claim because they were unable to view the damaged property or substantiate the loss.
f. Prepare an inventory of damaged personal
property.
The inventory must show the quantity, description, actual cash value and amount of loss. The “insured” should also attach any bills, receipts and related documents that will justify the figures reported in the inventory. This condition is unchanged from earlier editions of the Special Form policy.
For more a more detailed discussion on the valuation of personal property, please refer to PF&M Section 401.3 Actual Cash Value Guide.
g. As often as is required by the insurance
company, the insured must:
(1) Show the damaged property;
(2) Provide the insurance company with the records and documents that they request and allow them to make copies; and
(3) Submit to and sign an examination while under oath and without being in the presence of any other "insured.”
This condition may appear to be heavy-handed, but the insurer is in the vulnerable position of having to rely on the insured concerning the scope of the loss. The insurer is merely asserting its chances of getting accurate information for investigating a claim. Unfortunately, this condition often becomes a battleground between insurers and claimants. The interests of insureds may have been better served if this condition contained some wording that obligated an insurer to exercise courtesy and reasonableness when enforcing this provision.
h. Sending to us, within 60 days after “our” request, “your” signed, sworn proof of loss which describes, to the best of “your” knowledge and belief:
(1) The time and cause of loss;
(2) The interest of all "insureds" and all others in the property involved, including the existence of all property liens;
(3) Other insurance which may cover the loss;
(4) The details of any changes in title or occupancy of the property during the term of the policy;
(5) Any specifications of damaged buildings and detailed repair estimates;
(6) The inventory of damaged personal property described in an earlier part of this section;
(7) Receipts for additional living expenses incurred and records that support the fair rental value loss; and
(8) Any evidence or affidavit that supports a claim under the credit card, electronic fund transfer card, or access device, forgery and counterfeit money coverage, which verifies the amount and the cause of loss.
This item of the HO 2000 edition of the Special Form policy is virtually the same as in earlier editions. The only changes are asking that the insurable interest of “all” insureds be identified (instead of just the named insured) and the expansion discussed earlier concerning “electronic” fund transfer cards and “access devices.” For all of the tweaking, conditional phrases and details used in this condition, what is actually required is this: shortly after the insurer makes its request: the insured must provide all pertinent details about the loss, the information must be supported by any available documentation and the information must be truthful. Inadequate or dishonest information can relieve the insurer from having to settle the claim.
3. Loss Settlement
In the HO 2000 edition of the Special Form policy, the loss settlement condition was revised to explain that any mention of replacement or repair cost does NOT include any expense created by any ordinance or law. The only exception is the coverage described under Additional Coverage 11. Ordinance or Law. In light of this clarification, covered property losses are settled in the following manner:
a. The following types of property are paid
at actual cash value at the time of loss but not more than the amount required
to repair or replace:
(1) Personal property;
(2) Awnings, carpeting, household appliances, outdoor antennas, and outdoor equipment, whether or not attached to buildings;
(3) Structures that are not buildings; and
(4) Grave markers and mausoleums.
Note: Grave markers and mausoleums are newly added items to this condition.
Actual cash value is generally considered to be the replacement cost of the item minus depreciation.
Example: Vanisha Clayman has a ten year old sofa that is destroyed in a fire. The insurance company considers the fact that the sofa originally cost $4,560, but offers to settle the loss at $372. When Vanisha complains that the settlement is so much less than the original price, the company explains that she did not lose a new sofa, but a piece of furniture she had been able to use for its entire product life. The insurer explained that its offer reflected the loss of value due to age, wear and tear, etc.
b. Dwellings and other structures are
covered at replacement cost without deduction for depreciation. However, any
payment would be conditional upon the following:
(1) At the time of loss, if the amount of insurance in this policy on the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, the insurance company will pay the cost to repair or replace, after application of deductible and without deduction for depreciation. In no case will the insurance company pay more than:
(a) The limit of liability under this policy that applies to the building;
(b) The replacement cost of that part of the building damaged for like construction and use; or
(c) The necessary amount actually spent to repair or replace the damaged building.
The HO 2000 edition of the Special Form policy clarifies that it does not matter if the covered property is rebuilt at a new location. Such a move would be considered inconsequential to the operation of the policy settlement. The payment under the policy would be limited to the maximum eligible cost that would exist if damaged property were rebuilt at its original location. The additional cost would belong to the policyholder.
(2) At the time of loss, if the insurance applicable to the damaged building is less than 80% of the building’s full replacement cost (before the loss), the insurance company isn’t obligated to pay more than the limit of insurance under the policy; further, the insurer is limited to paying the greater of:
(a) The actual cash value of that part of the building damaged; or
(b) That proportion of the cost to repair or replace, after application of deductible and without deduction for depreciation of the part of the building damaged, which the total amount of insurance in this policy on the damaged building bears to 80% of the replacement cost of the building.
(3) To determine the amount of insurance required to equal 80% of the full replacement cost of the building immediately before the loss, do not include the value of:
(a) Excavations, foundations, piers, or any supports which are below the undersurface of the lowest basement floor;
(Note that the HO 2000 edition of the Special Form policy adds footings and similar building supports to items that must be subtracted from any consideration of a covered property’s replacement cost.)
(b) Those supports in the above which are below the surface of the ground inside the foundation walls, if there is no basement; and
(c) Underground flues, pipes, wiring, and drains.
The
insurance company will pay no more than the actual cash value of the damage
until actual repair or replacement is complete. Once actual repair or
replacement is complete, the insurance company will settle the loss according
to the provisions discussed above. If, however, the cost to repair or replace
the damage is less than 5% of the amount of insurance in this policy on the
building and less than $2,500, the
loss will be settled according to the provisions listed above, regardless of
whether actual repair or replacement is complete.
An insured has the option not to worry about replacement cost loss settlement provisions and ask that his or her loss or damage to buildings be settled on an actual cash value basis. However, if the “insured” changes their mind, they have up to 180 days from the date of the loss to ask for any additional amount due according to a settlement based on the replacement cost. If the insured misses this 180 day window, the actual cash value settlement basis is their only reimbursement.
This condition emphasizes the point that it is very
important to accurately document the replacement cost of the covered property.
Property that doesn’t comply with the Special Form policy’s replacement costs
provisions is subject to a tedious and complicated settlement process.
4. Loss to a Pair or Set
When property that is part of a pair or set suffers a covered loss, the insurer may choose to:
(a) Repair or replace any part of the pair or set which will restore the pair or set to its value before the loss; or
(b) Pay the difference between actual cash value of the property before and after the loss.
Note: This condition DOES NOT say whether the insurer has the option of paying the least or most expensive of the two options. However, it would be consistent with other settlement provisions of the policy that an insurer is likely to select the least expensive option.
5. Appraisal
If the “insured” and the insurer disagree on the amount of loss, either party can demand that the loss be appraised. In this process:
· each party chooses a competent, impartial appraiser no later than 20 days after getting the other party’s request for an appraisal,
· the two appraisers will choose an umpire, and
· each party has to share the cost of the judge and pay the entire expense for their own appraiser.
If the appraisers cannot agree upon an umpire within 15 days, either the insurer or the “insured” can ask that a judge be selected by a court of record in the state where the "residence premises" is located.
The appraisers have to submit separate opinions on the loss amount and an agreement between any two persons (among the appraisers and the judge) becomes binding on both the insurer and the policyholder.
Note on Condition 5. This was the Glass Replacement condition in earlier editions of the Special Form policy. This condition was eliminated since the HO 2000 edition of the Special Form policy handles glass replacement under the policy’s Additional Coverages section.
6. Other Insurance and Service Agreement
This represents a broader intent than the traditional other insurance provision since it addresses other sources of protection:
(a) If a covered loss is also protected by other insurance, the insurer’s payment obligation is shared with the other coverage source. Specifically, the insurer becomes obligated to pay only its share of the loss. The share is determined by taking the total amount of available insurance and determining the insurer’s percentage of coverage.
(b) this part of the Other Insurance condition is new under the HO 2000 edition of the Special Form policy. If any valid service agreement applies to the covered property, this insurance is triggered once the amount available under the service agreement is paid. Service agreement refers to the following:
· service plan
· property restoration plan
· home warranty
· other warranties.
This condition applies even if, rather than being called a warranty or plan, the other source of coverage calls itself insurance.
Example: Dave Glaringloss makes a claim for his home entertainment system which was destroyed when a vehicle slammed into his home, broke through the wall next to the entertainment system, and toppled the property and shelving onto the Italian marble tile floor. Dave’s receipts show that the various components had a total value of $5,269. Lowfair Ltd. Insurance’s adjuster had no problem with the claim amount but, while looking through Dave’s receipts, he noticed that the TV and DVD players were covered by the Plastik Elektro-Palace’s Consumptive Protektiv Plan. The plan guaranteed to replace the TV and DVDs if lost or destroyed within 18 months of their purchase date. Since Dave just bought the equipment 11 months earlier, Lowfair paid the $1,800 left after the Protektiv Plan paid $3,269. However, Lowfair depreciated the claim by $200.
Note: This condition only refers to other coverage, but does not specify whether the other source has to be valid and collectible. Therefore, a dispute could arise depending upon how this condition is exercised.
Example: Fran Weekwill’s newly purchased home is covered by an HO 00 08 policy. Fran is moving into her home with the help of the moving company she hired, Olde Paradigm Movers. Fran’s porch and porch roof are destroyed when the Olde Paradigm truck driver backs up too fast and slams into the front of her home. Olde Paradigm has a general liability policy with limits of $50,000. Fran’s policy has a limit of $50,000 on her dwelling. The damage to her property is estimated at $6,000. Fran’s insurance company pays Fran $3,000 for the loss and tells her to collect the rest from Olde Paradigm, even after the insurer discovers that Olde Paradigm’s insurer is bankrupt and is unable to honor their policy. While Fran argues that no other collectible coverage applies to her loss, her insurer says that another source of coverage did, technically, apply to the loss and it doesn’t matter if the coverage lapsed.
7. Suit Against Us
This condition is also clarified under the HO 2000 edition of the Special Form policy. An insured can’t sue his insurer without fully complying with the terms and conditions under Section I of the policy. Further, any suit has to be filed no later than two years after the loss date. In earlier editions, the insured only had one year after the loss date to file legal action against his insurer.
The intent of this provision is to make certain that an insured takes every course of action that is available and to use a lawsuit only as a last resort. It should be to everyone’s advantage if conflicts can be resolved without having to go to court. However, suits happen and if this alternative is chosen, the insured must file the action within two years of the loss date.
8. “Our” Option
“Our” refers to the insurance company. This condition obligates the insurer to either repair or replace the damaged property within 30 days after receiving the “insured’s” signed, sworn proof of loss. The insurer also has the option to use material that is similar in type or quality to repair or replace the damaged property. In other words, the insurance company is not obligated to pay a loss with cash. The insurance company can actually replace the damaged property with new or like property.
9. Loss Payment
The insurance company will adjust all losses with the “insured.” The insurance company will pay the “insured” unless some other person is named in the policy or has a legal right to receive payment. All losses will be payable 60 days after the insurance company receives the “insured’s” proof of loss and after:
a. The insurance company reaches an agreement with the “insured”;
"Insured" means “you” and residents of “your” household who are your relatives or other persons under the age of 21 and in the care of any person who meets the definition of “insured.”
b. An entry of final judgment is entered; and
c. The insurance company receives filing of an appraisal award.
This condition explains to the insured that the insurance company is only obligated to deal with persons who have a valid interest in the loss and not with disinterested third parties such as lawyers or independent brokers or specialists.
10. Abandonment of Property
The insurance company is not required to accept any property which is abandoned by the “insured.” In other words, an insurance company is not automatically responsible for taking care of or disposing damaged property.
Example: Raymun Veramyte’s vinyl ping pong table was reduced to a melted, useless lump during a fire. Raymun’s insurer sends him a check for $275 for the table, which he bought nearly two years earlier. The table cost $420 new, so the $275 reflected two years’ depreciation. Because it was a minor loss, the settlement was handled over the phone. Raymun asks his company to come and get rid of the ruined ping pong table which he has moved into his garage. His company claims specialist tells him that he’ll have to take care of disposing of the table...their claim file is closed.
11. Mortgage Clause
The HO 2000 edition of the Special Form policy eliminates the reference to “trustees” in this condition.
When the policy’s declarations page includes a mortgagee, that mortgagee will be paid along with the insured for any eligible loss involving property covered under dwelling coverage (Coverage A) or other structures coverage (Coverage B). The payment will be made according to the mortgagee’s insurable interest and, if there is more than one mortgagee, will reflect any order of precedence.
If the insurance company denies the “insured’s” claim, that mortgagee may preserve their right to a loss payment under the following circumstances:
(a) The mortgagee notifies the insurer of any change in ownership, occupancy or substantial change in risk of which it is aware;
(b) The mortgagee pays any premium due when the insured has failed to make the premium payment, AND
(c) The mortgagee provides the insurer with a signed, sworn statement of loss within 60 days of being told that this has NOT been done by the “insured.” In other words, when a mortgagee exists, an insured’s failure to comply with the policy conditions does NOT endanger the mortgagee’s recovery for a covered loss IF the mortgagee agrees to fulfill the policy conditions in place of the insured. Further, if there are disputes involving a claim, the mortgagee assumes the ability to exercise the rights to appraisal or legal action against the insurer. However, the mortgagee is also obligated to the same terms: specifically, to comply with ALL policy provisions and to be subject to the same two year time frame for filing a lawsuit.
If the insurer cancels or does not renew the policy, the mortgagee will be notified at least 10 days before the date cancellation or nonrenewal takes effect. IMPORTANT: While this is the time frame appearing in the policy, the time limit and notification requirements are determined by laws of the state in which the policy is issued.
If the insurance company pays the mortgagee for any loss and denies payment to the “insured,” the insurance company receives the mortgagee’s subrogation rights. However, any subrogation won’t affect the mortgagee’s full claim.
The insurer reserves the option of paying the mortgagee the entire principal balance on the mortgage along with any accrued interest. If the principal and interest are paid, the insurer acquires a full assignment and transfer of the mortgage. The transfer includes all securities that are held as collateral for the mortgage.
Example: Millie Strainfunds, the chief loan officer for Highflown Finance Co., gets a call from a claims adjuster from Hapless & Harried Fire and Casualty Insurance. He tells Millie that the Tramplongs’ home, on which Highflown is shown as a mortgagee, suffered a fire loss three months ago and, after repeated requests, the insured’s haven’t sent a proof of loss statement, nor cooperated in any loss settlement. Hapless has decided to clue Highflown in on the situation. Millie, seeing that they are owed nearly $89,000 on a loan, asks the adjuster to send her the necessary paperwork and she will file a proof of loss.
12. No Benefit to Bailee
Through this policy provision, an insurer denies any policy benefit to entities (personal or commercial) that charge or receive a fee for:
· holding,
· storing, or
· moving property
no matter what appears in any other provision of the Special Form policy.
13. Nuclear Hazard Clause
This clause is unchanged in the HO 2000 edition of the Special Form policy. "Nuclear hazard" refers to the following:
· nuclear reaction,
· radiation, or
· radioactive contamination,
regardless of the incident being controlled and no matter how the event is caused. Any consequence of a nuclear hazard is also considered a nuclear hazard.
Losses created or involving a nuclear hazard are not considered to be a fire, explosion, or smoke loss, even when these three perils are included within Section I of the Special Form policy.
This policy does not apply under Section I to loss caused directly or indirectly by nuclear hazard. The one exception is that direct loss by fire resulting from the nuclear hazard is covered.
14. Recovered Property
The insured and the insurer are obligated to tell each other when, after a loss has been paid, property involved in the claim has been recovered. What happens next is up to the insured. The insured may allow the company to have or keep the property or the property may be kept by (or returned to) the insured. If the property is returned to the insured, any payment has to be adjusted to reflect the condition or value of the property. In other words, the insured may have to return part or all of any loss payment.
15. Volcanic Eruption Period
Within a 72-hour period, all volcanic eruptions that occur will be treated as one eruption.
16. Concealment or Fraud
Under
the HO 2000 edition of the Special Form policy, this condition has been changed
from:
With respect to all “insureds” covered under this policy we provide no coverage for loss if, whether before or after a loss, one or more “insureds” have:
a. intentionally concealed or misrepresented any material facto or circumstance;
b. engaged in fraudulent conduct; or
c. made false statements:
relating to this insurance.
To the following:
We provide coverage to no “insureds” (emphasis added) under this policy if, whether before or after a loss, an “insured” has:
a. intentionally concealed or misrepresented any material fact or circumstance;
b. engaged in fraudulent conduct; or
c. made false statements:
relating to this insurance.
With all due respect to ISO, this revision should provide clarification to no person (sarcasm added) if, whether before or after reading this revised wording, a person has:
a. intentionally attempted interpreting any language,
b. sought an English/InsuranceSpeak Dictionary, or
c. read the wording while holding a Special Form policy in front of a mirror,
in an attempt to comprehend this revised condition.
The revised wording, rather than making the coverage intent clear, appears to add confusion. It may have been more prudent to develop a better revision or to have left the previous wording in place. Considering the alternatives available for wording this condition, it is likely that the selected passage will eventually be challenged in various courts where the form is used.
For an illustration of how an insurer’s obligation to provide coverage may be affected by concealment or fraud, please refer to PF&M section 469_C004 Application Information About Previous Cancellation Held To Render Policy Void in Court Cases.
17. Loss Payable Clause
In earlier editions of the ISO Homeowners Program, a clause concerning a loss payee had to be added to the policy by an endorsement. The HO 2000 edition of the Special Form policy adds this condition. Its purpose is to change the way the policy operates when a loss payee appears on the policy declarations. When a loss payee appears, the loss payee is included in the definition of “insured” in regards to the covered property. Further, the loss payee is entitled to written notification if the policy is cancelled or not renewed.
This coverage part has been slightly modified with the HO 2000 edition of the Special Form policy. As it has for years, the policy obligates itself to provide coverage for bodily injury or property damage caused by an occurrence. Of course, what is meant by property damage, bodily injury and occurrence is defined by the Special Form policy. If the loss does qualify for coverage, the policy (through the insurer writing the coverage) will:
1. Pay up to the policy’s insurance limits for the damages for which an "insured" is legally liable. Eligible damages include prejudgment interest levied against an "insured." As with other parts of the policy, the HO 2000 edition has slightly modified the wording to refer to ‘an’ rather than ‘the’ “insured.” Only the closest higher level court knows what effect this small change will have on various, disputed claims.
2. The Special Form policy also will, at the insurer’s expense, defend an insured. The defense is provided even when there are no grounds for the lawsuit or even when the suit was falsely or fraudulently filed. The insurer has the right to choose their legal representative.
Along with its obligation to defend and, if necessary, pay a lawsuit, the insurer has complete power in investigating and settling claims as it decides is appropriate. Once the insurance policy’s liability limit has been used up by either a settlement or a judgment, the insurer has no further obligation to provide a legal defense to the insured. The HO 2000 edition of the Special Form policy refers to the defense obligation ceasing when a judgment or settlement exhausts the policy’s applicable insurance limit. This terminology is more precise than the wording in previous editions. In earlier versions, the policy wording stated that an insurance company's defense or settlement duty was terminated when the amount paid in damages equaled the policy's limit of insurance.
Coverage F - Medical Payments to Others
Within three years from the date of an accident that causes “bodily injury,” the insurance company will pay the necessary medical expenses that are incurred or medically ascertained (determined). Medical expenses include reasonable charges for:
|
medical |
surgical |
x-ray; |
|
dental |
ambulance |
hospital |
|
professional nursing |
prosthetic devices |
funeral services |
This coverage part refers to necessary medical expenses and, in defining medical expenses, refers to reasonable charges. Therefore, in order for a charge to be paid under Medical Payments To Others, the charge has to be the result of accidental “bodily injury” covered by the policy and the charge has to be for a reasonable amount. There is no coverage for either UNNECESSARY charges, even when they’re reasonable, or for NECESSARY treatment that is performed for exorbitant fees.
Example: Jim Frailnode is hosting a party in his home when one of his neighbors is severely scalded by Jim’s wife spilling grease from a fondue pot onto his legs. The neighbor sends in a laundry list of treatments, including several chest x-rays and an MRI. The x-rays and MRI charges are the cheapest in the state. Although these charges are the least expensive available, the expenses are not eligible for reimbursement because the treatments are not connected to the burn accident; so, though they’re reasonable, they’re unnecessary.
The policy’s Medical Payments To Others coverage does not apply to “you” or regular residents of “your” household except "residence employees." With regard to others, this coverage applies only:
· To a person on the "insured location" with the permission of an "insured"; or
· To a person off the "insured location," if the "bodily injury" arises out of:
1. a condition on the "insured location" or the ways immediately adjoining;
2. circumstances caused by the activities of an “insured”;
3. circumstances caused by a "residence employee" in the course of the "residence employee's" employment by an “insured,” or
4. circumstances caused by an animal owned by or in the care of an "insured."
This section of the policy has undergone the biggest change in the HO 2000 edition of the Special Form Policy. In an attempt to more clearly identify the exposures which ARE NOT covered by the homeowner policy’s liability coverage part, ISO has reformatted and added new wording and terms to the Section II exclusions. The first four exclusions are self-contained and feature vehicles or crafts. Because of trends in the personal, recreational vehicle market, ISO has expanded the exclusion section.
1. “Motor Vehicle Liability”
a. The Special Form coverage parts Coverage E - Personal Liability and Coverage F - Medical Payments to Others do not protect an insured against an “occurrence” related to “motor vehicle liability” when the loss involves:
(1) a government agency issuing a law or regulation that mandates a “motor vehicle” to be registered due to it being used on public roads or property.
Note that this first excluded situation is not limited to vehicles that are licensed and registered for use on public roads or highways, but to any situation where a vehicle is required to be registered.
Example: Adam Appo lives in Resortville which is located in a very hilly area that is a haven for recreational vehicles, especially snowmobiles. Because of problems with snowmobile operators, Resortville passed an ordinance requiring snowmobile owners to register the vehicles and place a special, oversized license plate on their snowmobile to make them easier to identify. Although the snowmobile is used off public roads, this registration requirement would exclude the snowmobile from coverage.
(2) Coverage is also excluded when the “motor vehicle” (as defined by the Special Form policy’s definition section) is:
(a) used in an organized or prearranged race, speed contest or other competition, including or preparing for the race
Note: Since this exclusion refers to prearranged or organized events, it would appear that a spontaneous event, such as a drag race, might be covered. Of course such a race would have to involve vehicles that aren’t excluded by other parts of the policy.
(b) rented to other persons;
(c) a vehicle whose owner charges a fee to carry persons or property;
(d) a vehicle that is used in a “business,” with the exception of a motorized golf cart while it is being used on a golfing facility.
Example: Bev and Lou Indelabow don’t golf, but they love spending time at their retirement community’s golf course. Since they have so many friends who golf and who get thirsty or hungry on the course, they bought a golf cart that they load up with snacks and drinks and sell to the golfers. But before proposing this idea to the nearest senior citizen, read the additional vehicle exclusions.
b. If a vehicle fails to fall under exclusion 1.a., a motor vehicle is still not covered EXCEPT when the vehicle is:
(1) on an “insured location” in dead storage;
Example: Craig clicks off his TV when he hears a loud crash and a child’s scream coming from his garage. He is upset to find that his daughter’s best friend, Cissy, has seriously hurt herself while playing on his “fixer-uppermobile.” Specifically, it’s a ‘99 ACORD with no doors and its battery removed. Cissy tripped while getting out of the car and ended up cutting her arms and breaking a leg (compound fracture). As she cries, she promises she’ll never play “Car Trek” again. This loss would qualify for coverage under Craig’s homeowner policy since the car was not capable of operation.
(2) ONLY used in connection with maintaining an “insured’s” residence;
(3) made for use by handicapped persons and:
(a) the loss occurs while it is being used by a handicapped person, or is
(b) parked on an “insured location”;
(Note that even if a vehicle such as a motorized wheelchair is involved in a loss, the loss is not eligible for coverage UNLESS the wheelchair is being USED by a handicapped person.)
(4) a recreational vehicle that is MADE as a recreational vehicle to be used off public roads AND
(a) is NOT owned by an insured, or
(b) IS owned by an insured, but the loss occurs on an insured location. Note that the insured location must qualify as such under the policy’s definition;
Examples:
· an insured hits a hiker with his all-terrain vehicle while riding through a city park - not covered, owned vehicle
· an insured borrows his neighbor’s lawn tractor and smashes it into a car parked in another neighbor’s driveway - not covered, not a recreational vehicle
· an insured hits a neighbor’s child who was crossing his yard at the same time the insured was driving a trailbike from his driveway to a trailer located in the street in front of his home - covered, owned RV and the accident is on an insured location.
(5) a motorized golf cart which is owned by an insured and which is built for carrying 4 or fewer persons and is not capable of travelling faster than 25 mph on level ground. Further, the golf cart MUST be operated within the legal boundaries of the following:
(a) a golfing facility at which the golf cart is either kept or is being used by an insured to:
(i) play golf or some other activity sanctioned at the facility (interesting, what if the facility sanctioned golf cart races?)
(ii) ride between the areas where golf carts or motor vehicles are parked or stored
(iii) cross public streets in order to get to other areas of the golfing facility
(b) A private community which, with the consent of the community’s property-owner association, allows golf carts to travel upon its roads. However, the person operating the cart must have a residence located within that private community.
Obviously the HO 2000 edition of the Special Form policy has built upon the philosophy of its predecessors to tightly control the exposure to any imaginable liability related to motor vehicles.
Example: Sara Loftylife and Xena, her daughter, await the start of Joustville’s 41st Annual Cart Race. The ladies spent a lot of time over the last two months building the cart, practicing and preparing for the event. Sara came in third place in the 21st Annual Cart Race and they both hope that Xena can do even better. They quickly have other concerns as, halfway through the downhill course, one of their cart’s front wheels falls off and Xena and the cart violently crash into several cart race spectators. The crash hurts a half dozen people ranging from broken bones to serious lacerations. Luckily, since the injuries are the result of a gravity-propelled vehicle, the liability for the injuries is covered by the homeowner policy.
Example: Let’s look at a different scenario. Sara Loftylife and her daughter Xena are waiting for the start of Joustville’s Third Annual Motorized Cart Challenge. Sara is thrilled as Xena is leading the race with only one more lap to go. Suddenly Xena loses control of the motorized cart and she slams into several spectators. Again the crash hurts a half dozen people ranging from broken bones to serious lacerations. Unfortunately for the Loftylifes, since the injuries are the result of a motorized vehicle, all liability for the injuries is excluded by the homeowner policy.
However, even with the latest wording, it is not always clear that a vehicle's involvement with a loss will result in it being ineligible for HO coverage. As an example, please refer to PF&M Section 469_C043, "Motor Vehicle Exclusion Did Not Apply To Injury By Forced Removal From Parked Vehicle" in Court Cases.
2. “Watercraft Liability”
a. The Special Form coverage parts Coverage E - Personal Liability and Coverage F - Medical Payments to Others do not protect an insured against an “occurrence” related to “watercraft liability” when the loss involves watercraft that is:
(1) used in an organized or prearranged race, speed contest or other competition, including practicing or preparing for the race;
Note: Since this exclusion refers to prearranged or organized events, it would appear that a spontaneous race might be covered. Regardless, there is a racing exception. The exclusion does not apply to races involving sailing vessels or predicted log cruises (where specified locations or spots are predetermined and the single or multiple participants compete to see how quickly they can arrive at each destination.
(2) rented to other persons;
(3) available to carry persons or property if a fee is paid to its owner;
Example: Flint Ragswood is having a mega-party at his summer place on Barfie’s Vineplace. He rented a ferry to transport his guests, but, as it delivered the first hoard of partygoers, it ran aground. Hearing of his plight, Joe Beachdock says that, for $400, he’ll make about a dozen trips to get the rest of the folks invited to the party to Flint’s home. Flint tells Joe to “make it so.” On the last trip, Joe rams his boat into some choppy water and several of Flint’s guests smash into each other before falling overboard. Any expenses or lawsuits that take place because of Joe’s deal with Flint are ineligible for coverage.
(4) used in a “business.”
b. If a situation involving watercraft fails to fall under exclusion 1.a., a watercraft liability loss is still not covered EXCEPT when the watercraft is:
(1) Stored;
(2) A sailing vessel. The exception is not affected by the vessel having auxiliary power, but the sailboat must be:
(a) shorter than 26 feet, or
(b) longer than 26 feet as long as it is neither owned or rented to an insured.
In other words, a loss involving a short sailing boat which an insured borrows (or may just be temporarily operating at the time of loss) may be covered under the Special Form policy;
(3) Not a sailing vessel. However, if powered, the power must be from:
(a) either an inboard or inboard-outdrive engine or motor. The power source includes a water jet pump of:
(i) no more than 50 horsepower which is NOT owned by an insured, or
(ii) greater than 50 horsepower and NOT owned by or rented to an “insured”, or
(b) an outboard engine or motor that:
(i) has 25 or less horsepower,
(ii) has greater than 25 horsepower when an insured does NOT own the engine/motor,
(iii) has greater than 25 horsepower when an insured gets the engine/motor during the policy period,
(iv) has greater than 25 horsepower when an insured gets the engine/motor before the policy period,
but only if:
(a) the insured declared them at the policy’s inception date or
(b) the insured insures them within 45 days of buying the boat.
Items (iii) or (iv) apply for the entire policy period.
When horsepower is referenced in the policy, the term means the maximum power rating which the manufacturer has assigned to the engine or motor.
For an illustration of how coverage applies in situations involving watercraft, please refer to PF&M Section 469_C077, ”Boat Owner's Liability Insurance Held Primary Over Permissive Operator's Homeowners Insurance” in Court Cases.
3. “Aircraft Liability”
This exclusion could not be simpler since, unlike the motor vehicle and watercraft exclusions, there are no exceptions. The size, wingspan, aircraft type, does not matter. Losses related to aircraft are not covered by the Special Form Policy.
Example: Ski-lug Pharmingway’s home is insured under a Special Form policy that has a liability insurance limit of $500,000. Ski-lug has had a pilot’s license for two years. He is being sued for $175,000 by two guests on his plane. While they enjoyed the flight, they were seriously hurt when they fell while trying to leave the plane. Ski-lug is glad that he decided to buy high insurance limits. Ski-lug is grounded when he hears that the loss is not covered by his homeowners policy.
For a separate analysis of aircraft insurance, please refer to PF&M section 330.4-2, Aviation Insurance. For an example of a court case determining aircraft liability, please refer to PF&M section 469_C001, “Aircraft Definition Held Not to Include a Parachute” in Court Cases.
4. “Hovercraft Liability”
This exclusion is a twin of the exclusion for aircraft liability. The Special Form policy, without exception, does not provide an insured protection from their liability related to hovercraft. Note that hovercraft liability is a term that is found in the Special Form policy’s definition section. While the decision to specifically exclude hovercraft clarifies the coverage philosophy of the policy (as opposed to assuming that such property may be excluded as a type of either air or watercraft), there is now the possibility that coverage may exist for unusual craft or vehicles that are not included in any current category. Of course, keeping things in perspective, the exposure to such craft or vehicle is likely to be rare.
5. Personal liability (Coverage E) and
Medical Payments (Coverage F) do not apply to “bodily injury” or “property
damage”:
a. that an “insured” expects or intends
Example: Scenario A: Your client’s 18 year old son (who meets the definition of an “insured”) and the next door neighbor’s son have been fighting for some time now. One night, while the neighbors are away, your client’s son sneaks over to the neighbor’s house and breaks all of the windows. Upon finding out, you are in a hurry to make amends to the neighbor and give him/her the number of your insurance company. Unfortunately, since your son intended the damage, there is no coverage under your homeowner’s policy.
This exclusion has been modified under the HO 2000 edition of the Special Form policy. The latest edition adds more wording to be certain an insured understands that intentional acts are excluded EVEN if the property damage or bodily injury is different in the kind or degree than what an insured hoped or expected would occur; or it is suffered by a different party or property than what an insured either expected or hoped.
Example: Scenario B: Your client’s 18 year old son (an “insured”) and the next door neighbor’s son have been fighting. Again, during the night, your client’s son sneaks over to the neighbor’s house and breaks all of the windows. The son is shocked when he later finds out that one of the rocks he used to break a window also broke a person’s skull. Your client files a claim since your son NEVER intended to hurt ANYONE. Unfortunately, although the son testifies that he did not mean to harm any person, there is no coverage since the loss originated from an intentional action.
There is an important exception to this exclusion. When injury results from an insured acting to protect persons or property, the loss is covered IF it only involved use of reasonable force.
Example: Scenario C: Your client’s 18 year old son (an “insured”) comes home in time to see some stranger climb out of the next door neighbor’s window with a large bag. The son tackles the person who, in the fall, suffers a broken arm and a severely bruised forehead. It turns out that the "stranger" was the owner of the home. He was coming out the window because he lost his key to his home's double-door deadbolt security locks. The enraged neighbor sues your client for his injuries. Although the client’s son FULLY INTENDED to stop a person he thought was a thief, the claim was a result of an attempt to protect property; so the insurance policy would respond to the loss.
b. that is related to “business" activity that takes place at an insured location or in which an “insured” is engaged. This exclusion applies even if the business is neither owned by or employs an insured. Further, the bar to coverage even extends to an insured’s omissions. An omission is WITHOUT consideration of whether it is related to the nature or duties of the insured’s business or service. This exclusion appears to be clearer in the HO 2000 edition of the Special Form policy. Previously, the business exclusion implied what is now explicitly barred from coverage. However, there are a couple of exceptions to the business exclusion. The exclusion is not applied to:
(1)
an insured location that is either rented or available for rental:
(a)
only on occasion IF it the rental is for use as a residence,
(b)
a partial rental of an insured location. In other words, even steady rental is
covered if it only involves a portion of the insured location. HOWEVER, this
exception is lost if it involves a single family unit that is occupied by an
insured who rents part of it out to more than two roomer/boarders,
(c)
a partial rental of an insured location if the purpose of the rental is for a
school, studio, office or private garage.
(2)
A second exception is made for insureds who are age 20 or younger and are
involved in a part-time or occasional business which he or she owns. However,
their business cannot have any employees.
Note
that the exception makes no mention of partners.
Example: Granlessa and Winderpul
Varflower’s home is insured by a Special Form policy. Their 14 year old son
runs a summer lawn care service where he mows lawns, trims bushes, weeds
gardens and cleans debris from clients in his neighborhood. Their son has a
partner in his business, his 12 year old neighbor. If the Varflower’s son
injures a neighbor while mowing their lawn, he would be covered. What is not
clear is whether the Varflower policy would cover the neighbor’s son who injured
a person under the same circumstance. FYI, if both kids had parents whose homes
were covered by a Special Form policy, then each could cover the children under
their respective policies. HOWEVER, there is also the possibility that both
kids would be eligible for coverage under BOTH policies as they are partners
rather than employees.
c. There’s no coverage for property
damage or bodily injury related to an insured performing or failing to perform
a professional service (medicine, law, accounting, financial consulting, etc.)
d. There is also no coverage for
liability stemming from a premises THAT IS NOT an insured location and which:
(1)
is owned by an insured
(2)
another party rents to an insured or,
(3)
an insured rents to other persons
It is important to note this exclusion to customers who may have a business in the home. As an illustration, refer to PF&M section 469_C010, “Baby-sitting on a Regular Basis for Compensation Held Not Covered,” or refer to PF&M section 469_C014, Business Pursuits Exclusion Held Applicable to Wedding Reception Services” in Court Cases.
Example: Pietra Trulyskilled is a full-time teacher. In the summer, she does some coaching and administrative duties for her neighbor who runs an elite summer sports program which includes clinics. In exchange for her work, Pietra’s teenaged children are allowed to participate in all of the program activities. The cost of enrolling in all of the activities that her children participate in is well over $4,000. Pietra is sued by the parents of a girl who is paralyzed while performing a basketball drill run during one of Pietra’s classes. Her insurer says that her homeowner policy excludes coverage for her “business,” but Pietra argues that she receives no cash for her involvement. Sorry, Pietra; per your policy, your sports clinic activity is compensated to the point that it DOES qualify as a “business.”
e. No coverage exists for a loss that is due either directly of indirectly by war and any consequences of the following:
(1) undeclared war, civil war, insurrection, rebellion, or revolution;
(2) a warlike act by a military force or military personnel; and,
(3) destruction, seizure or use for a military purpose.
Please note that even the accidental discharge of a nuclear bomb is defined as a warlike act.
f. arising out of the transmission of a
communicable disease by an "insured";
This is unchanged from earlier editions of the Special Form policy. No coverage is available for any liability due to someone being injured after catching an infectious disease from an insured. Communicable disease includes those which are transmitted via sexual relations.
Example: Laura Pleabitten was serving a homemade meal to her best friend, Wilma Teer. While earlier in the day Laura thought she was coming down with the flu, she went ahead with her plan to have Wilma over for dinner. Wilma, a former neighbor, now lives halfway across the country. Wilma called Laura because she was in town for the biggest business meeting of her life. During dinner, Laura suddenly felt worse and she quickly cancelled the rest of the get together. Later, Laura’s husband took her to an emergency clinic where she was diagnosed with a severe case of strep throat. Laura recovered quickly but she was upset when, a week later, she received a legal notice from Wilma. Wilma woke up in her hotel room the morning after her visit with Laura. Wilma was so sick that she missed her business meeting with persons interested in investing in her publications business. She was suing Laura for the loss of venture capital. Such a loss would NOT be covered by the Special Form policy.
g. losses due to sexual molestation, corporal punishment or physical or mental abuse;
Example: Hallie Slapshot was quite upset to hear from her insurer that her claim wasn’t eligible for coverage under her Special Form policy. Hallie, a teacher, was at her wit’s end during one Friday class. Her fifth grade class was wild the entire day with kids continually talking and bickering. Hallie decided to tell her children to sit and be quiet for the last half hour of the school day. When Paul Prestglass knocked several books onto the floor, Hallie whipped over to his desk, picked Paul up and whacked him solidly on his bottom. Hallie was ashamed of herself immediately, but Paul’s parents weren’t interested in her “feeling bad.” The Prestglasses filed suit, asking for $30,000. Although Hallie’s policy has liability limits of $300,000, corporal punishment is excluded from coverage.
h. any loss developing from the use, sale,
manufacture, delivery, transfer, or possession by any person of a Controlled
Substance(s) as defined by the Federal Food and Drug Law at 21 U.S.C.A.
Sections 811 and 812.
Controlled Substances include, but are not limited to:
· Cocaine
· LSD
· Marijuana
· All narcotic drugs
Note that this exclusion is quite broad. It is along the same lines as the exclusions for motor vehicle liability. In other words, coverage would be excluded for any loss having any connection with controlled substances.
Examples:
· A theft loss where a home was broken into and illegal drugs were stolen.
· A liability loss where one insured’s guest injures another under the influence of hallucinogens.
· A fire loss to a basement resulting from equipment used to process illegal substances.
· An insured’s guest who becomes sick because she is given several tablets of penicillin instead of aspirin.
This exclusion makes an exception for any loss involving the legitimate use of prescription drugs by a person following the orders of a licensed physician.
It is important to be aware that the following exclusions DO NOT apply to a bodily injury loss to a residence employee when the loss either occurs during or develops out of the employee performing his or her job:
· “Motor Vehicle” Liability,
· Watercraft Liability,
· Aircraft Liability,
· Hovercraft Liability, and
· Liability stemming from an insured’s premises which are not defined as an insured location.
Example: Constance Maytane’s home is insured by a Special Form policy. She has a full-time gardener/handyperson named Krimanee Kutter to take care of her home, which sits on four acres of lavish lawns and gardens. Just as Krimanee was riding a lawn tractor up a slope, she made a sharp turn and the tractor tumbled over on top of her. Fortunately, Constance’s policy will handle her medical bills for her broken ribs, ankles and lacerated feet and legs.
6. There is no protection provided under
Coverage E - Personal Liability for:
a. Liability:
(1) caused by any assessment charged against an insured by any association, corporation or community of property owners. However, this exclusion can be ignored for any coverage which applies under Additional Coverage 4. Loss Assessment.
Example: Xavier Junepalm just got a request from his homeowner association to pay $795 to the HighPryce Haven Capital Playthings Fund. The association is collecting the money to renovate the association’s community house. Specifically, they want to remodel the house’s Party Den, which is over 20 years old and looking a little shabby. Xavier pays the assessment and then sends in a claim to his insurer, Yagattabee Kiddun Fire & Calamity. An adjuster phones Xavier and, after getting her laughter under control, tells him that the assessment doesn’t qualify for coverage.
(2) created by any contract or agreement made by or involving an insured. This exclusion does not affect written agreements or contracts:
(a) that directly related to the ownership, maintenance or use of an "insured location" or
(b) where an insured takes over some other person’s liability before an "occurrence" unless the loss is excluded somewhere else in the Special Form policy.
Note: This exception doesn’t do anything beyond restoring coverage for liability losses which could have been lost by being mentioned under a written contract. In other words, the liability coverage under the Special Form policy is meant to cover losses connected to the covered property. The fact that such a liability is part of some contract arranged with an insured won’t affect that eligible coverage.
Example: Ollie Encindentul hired a neighbor’s son to paint his home. His neighbor, who happened to be a lawyer, wrote an employment contract that included an agreement which stated that Ollie would take care of any loss involving someone hurt by tripping over painting supplies or equipment. Ollie signed the contract, not bothering to explain to his neighbor that the contract was unnecessary. However, if it weren’t for the exceptions to the contract exclusion, this agreement would have eliminated an eligible loss from coverage.
Example: Joey’s parents have signed him up for another season of baseball with the Wayver County Youth Sports Conclave (WCYSC). His parents filled out the registration form that had a revised waiver section. This year, instead of merely agreeing to hold all persons connected with WCYSC harmless for any injuries connected with baseball (including those due to gross negligence), the section also required Joey’s parents to assume any liabilities for suits or claims on behalf of WCYSC. Unknown to Joey’s folks and the other nice parents involved with WCYSC, they have just agreed to pay for lawsuits against WCYSC that make it beyond the brief hold harmless agreement. Unfortunately, the Special Form policy will not protect Joey’s folks from this potential disaster.
b. Property Damage to property owned by an
insured. The HO 2000 edition of the Special Form policy strengthens this
exclusion. It prohibits recovery for an insured’s costs/expenses related to the
need to repair, replace, enhance,
restore or maintain such property to prevent injury to a person or damage to
other persons’ property, anywhere. In other words, there’s no set of
circumstances for property damage liability coverage to be extended to an
insured’s own property. However damage suffered by a property belonging to an
insured is often covered by the Special Form policy’s Coverage Part C -
Personal Property.
c. Property damage to property which is rented to, occupied or used by or in the care of an insured. This exclusion does not apply to "property damage" caused by fire, smoke or explosion.
Example: The Gobbleyoungs come back home from a weekend trip and find that their home was burglarized. The thieves stole most of the Gobbleyoungs' DVD collection, including a dozen titles that were borrowed from their local library. The library sends them a bill for $350 for the lost DVDs. The Gobbleyoungs will have to pay the cost themselves. As borrowed property, their liability to the library caused by the theft loss is not covered by their policy.
d. “Bodily injury” to any person eligible to receive any benefits that are provided on a volunteer basis or required to be provided by any “insured” under any worker’s compensation law, non-occupational disability law, or occupational disease law. Again, this is a precaution against obligating the Special Form policy from granting coverage that should be, rightfully, provided by another.
e. "Bodily injury" or "property damage" for which an "insured" under this policy also is insured under a nuclear energy liability policy or would be an insured under a policy except that the limits have already been exhausted.
A nuclear energy liability policy is one issued by any one of the following companies:
· Nuclear Energy Liability Insurance Association (formerly American Nuclear Insurers)
· Mutual Atomic Energy Liability Underwriters
· Nuclear Insurance Association of Canada
or any one of the successors to these companies.
Note that both exclusions 6d. and 6e. are to prevent the Special Form policy from offering coverage that should be provided by other, specialized insurance policies.
f. "Bodily injury" to “you” or an "insured" within the meaning of the Special Form policy’s definition of insured.
The Special Form policy’s liability section is designed to cover an insured against his or her legal liability to others (or third parties), not for providing first party (an insured) protection.
7. Coverage F - Medical payments to Others
does not apply to "bodily injury":
a. To a "residence employee" if the "bodily injury";
(1) occurs away from the “insured location” and
(2) has no relation to the fact that the “residence employee” is working for the “insured.”
In other words, coverage is only provided in situations that represent the liability most closely related to the covered residence. If the loss has either a remote or no relation to the covered property, the loss is excluded from protection under the Special Form policy.
Example: Let’s look at another situation involving Constance Maytane’s handyperson, Krimanee Kutter. Constance told Krimanee to take a vacation after she recovered from her accident with the lawn tractor. Krimanne decides to go camping. While hiking on one of the most rugged trails in Woethere State Park, Krimanee trips over an exposed tree root and breaks some different bones. Although Krimanee is still Constance’s employee, the accident was off an insured location and had nothing to do with her job, so the medical bills won’t be covered by Constance’s policy.
b. To any person eligible to receive benefits which are voluntarily provided or which are required to be provided under any
(1) workers compensation law,
(2) non-occupational disability law or
(3) occupational disease law.
Example: Krimanee Kutter was hurt, as before, by a lawn tractor while cutting Constance’s spacious lawn. However, as part of hiring Krimanee, state law required Constance to buy Domestic Creature Comfort Insurance. Therefore, while the loss technically qualifies for coverage under the Special Form policy, the state-mandated coverage would take the place of the homeowner policy in handling the job-related loss. Note that the loss would be still be excluded if the state law existed and Constance failed to buy coverage OR if there were no state requirement, but Constance decided to buy separate coverage.
c. If “bodily injury” occurs from any:
(1) nuclear reaction,
(2) nuclear radiation, or
(3) radioactive contamination,
regardless of how it is caused or whether it is controlled or uncontrolled. No coverage is provided from any loss that is a consequence of nuclear reaction, nuclear radiation or radioactive contamination.
d. To any person, other than a "residence employee" of an "insured," regularly residing on any part of the "insured location."
Example: Juniper Earthpal is an old college friend of Jasmine Testy. Jasmine, who has always admired Juniper’s “spirit,” allows her to stay in her “guest barn,” an old pole barn that Jasmine converted to living quarters/art studio shortly after buying her home and grounds. After being at the guest barn for nearly two months, Jasmine figures out that Juniper isn’t serious about finding a local job and place to live, but she’s okay with that. One day Juniper is on Jasmine’s front lawn, playing with her aluminum juggling pegs. Juniper decides to perform for a young mother who’s passing in front of Jasmine’s house with a baby in her arms. As Juniper approaches the pair, she trips, a peg smacks the young mom on the head and both mom and her baby fall to the cement sidewalk. Unfortunately, Juniper’s length of stay at Jasmine’s disqualifies her from being covered by Jasmine’s homeowner policy.
Under its liability portion of coverage, the Special Form policy provides four coverages which are in addition to the insurance limits that appear on the declarations page. Specifically, the Special Form policy also provides coverage for:
· Claims Expenses
· First Aid Expenses
· Damage to Property of Others
· Loss Assessment
1. Claims Expenses
The policy pays:
· For costs and expenses tallied up during an insurance company’s efforts to defend an insured during a lawsuit.
· Expenses eligible for coverage include amounts assigned to an insured for a claim that the insurer is defending on the behalf of an insured. If any premiums or bonds are required while defending against a lawsuit, these premiums will be paid by the insurer. However, the company’s obligation to pay for this expense ends once the amount paid exhausts the Coverage E insurance limit. Also, the insurer HAS NO OBLIGATION to either apply for or to furnish any bond.
· This additional coverage also pays for an insured’s reasonable expenses that are created by cooperating with the insurer. This includes the actual loss of earnings up to $250 per day for assisting the insurance company in the investigation or defense of a claim or a suit. Note that, under the HO 2000 edition of the Special Form policy, the daily limit was substantially increased from $50 to $250.
· Finally, when an entry of judgment takes place, the insurer is obligated to handle any interest on the entire amount that accrues before the insurance company makes payment. This amount is limited to the part of the judgment that does not exceed the limit of liability that applies for the policy.
Example: Judge Pentwup Frustrayshun is tired of Playful Casualty’s attitude while defending its insured, Clyde Pulmonary. As soon as the jury found in favor of the person who sued Clyde for being attacked by his nine crazed Dalmatians, Judge Frustrayshun entered the $175,000 judgment into the court records and said that interest will accrue at 12% quarterly interest until the judgment is paid. Since Clyde’s insurance limit is $250,000, Playful Casualty is obligated to pay both the judgment and the interest when it pays the judgment two months later.
2. First aid expenses
The policy will pay expenses for first aid to others incurred by an "insured" for "bodily injury" covered under this policy. “We” will not pay for first aid to an "insured.”
3. Damage to property of others,
The Special Form policy will pay to cover property that belongs to other persons which is damaged (accidentally) by an insured. The coverage is on a replacement cost basis. The limit for this coverage was increased from $500 to $1,000 under the HO 2000 edition of the Special Form policy. The $1,000 amount is a per "occurrence" limit. This coverage is an example of risk management since the amount is available to quickly handle minor losses before they can escalate into expensive lawsuits. However, the insurer will NOT pay for "property damage":
· to the extent of any amount recovered under Section I of the policy;
· from an act that is intentionally caused by an "insured" who is 13 years of age or older;
· to property that is owned by an "insured";
· to property that is owned by or rented to a tenant of an "insured" or a resident in “your” household;
· that arises out of a “business” pursuit of an "insured"; an act or omission in connection with a premises owned, rented or controlled by an "insured,” other than the "insured location";
· or the ownership, maintenance, or use of aircraft, watercraft or motor vehicles, or all other motorized land conveyances.
Note: This exclusion does not apply to a motor vehicle designed for recreational use off public roads, not subject to motor vehicle registration and not owned by an "insured.”
4. Loss assessment
The policy will pay up to $1000 in assessments charged to an insured during the policy period. The assessment has to be made by a corporation or association of property owners and the assessment has to involve "bodily injury" or "property damage" that is eligible for coverage under Section II (liability) of the policy. Further, the coverage applies only to loss assessments charged against “you” as owner or tenant of the "residence premises."
This additional coverage will also pay for the liability for an act of a director, officer or trustee who causes a loss while performing their respective duties for the property owner, corporation or association. Such persons must have been elected by the member property owners and their work must be compensation-free.
The policy will not cover loss assessments charged against an insured or a corporation or association of property owners by any governmental body.
Regardless of the number of assessments, the limit of $1000 is the most the insurer is obligated to pay for a loss stemming from:
· one accident, including continuous or repeated exposure to substantially the same general harmful condition; or,
· a covered act of a director, officer or trustee.
Note: If more than one director, officer or trustee is involved in a covered act, it is considered to be a single act. Also note that the policy’s Policy Period condition does not apply to Loss Assessment coverage.
Example: Randolf Fasade’s home is damaged during a storm that sweeps through his homeowner community. The storm also destroys the screened-in porch of the community’s “Meetin’ & Greetin’” Center. The storm damage occurs on June 5th. The insured’s Special Form policy, written by Pleasures Mutual Insurance Company, expires on June 8th and is replaced by a new, identical Special Form policy written by the Pleasures Now Myne, Inc. On June 23rd, Randolf gets a notice assessing him several hundred dollars for his share of the cost to repair the “Meetin’ & Greetin’” Center. Even though the loss assessment was made on a date when the Pleasures Now Myne, Inc. policy is in effect, the assessment is related to the June 5th loss, so the coverage is still handled by the Pleasures Mutual policy.
Limit of Liability
The Special Form policy makes a maximum dollar amount available for any single, eligible loss. The total amount paid under Coverage E for all damages related to a single loss will not be more than the Coverage E insurance limit that is shown in the declarations. The stated limit IS NOT affected by the number of:
· "insureds,"
· claims made, or
· persons injured.
Example - Scenario one: The Johnvilles decided to host their neighborhood’s First Annual Summer Neighborfest! Everything went really well with nearly every family in a four block area attending. Unfortunately, things ended badly. Salma and Nellie Johnville’s potato salad wasn’t stored properly and half of the Neighborfest attendees ended up with severe food poisoning. As soon as the neighbors were well enough to contact their lawyers, the Johnvilles received:
· 35 pieces of hate mail
· 17 notices filing lawsuits against them
· 40 sets of emergency medical bills
· 50 sets of receipts for various “off the shelf” stomach and pain remedies.
Although the Johnvilles can paper the walls of their home with all the paperwork they received, their insurance company explains that, since all of the “stuff” was created by the “Potato Salad Slaughter” event, it’s all handled as a single loss and their $500,000 liability limit is the total amount available to respond to all of the activity.
All "bodily injury" and "property damage" that is created by any one accident or from continuous or repeated exposure to substantially the same general harmful conditions shall be considered to be the result of one "occurrence."
The total liability under Coverage F for all medical expense payable for "bodily injury" to one person as the result of one accident will not be more than the limit of liability for Coverage F as shown in the declarations.
Severability of Insurance
This insurance applies separately to each "insured." This condition will not increase the limit of liability for any one "occurrence."
If different insureds are involved with distinct losses that are covered by the policy, then the entire insurance limit is applied to each insured. In other words, the named insured may be sued for two different events during a single policy period and the total Coverage E insurance limit will be applied, in full, to each occurrence. Theoretically, all of the insureds identified under a single policy could suffer losses for different reasons on the same day and the policy’s full insurance limit would apply separately to each person and for each occurrence. However, the Special Form policy does try to limit its exposure to loss by defining all claims or expenses connected to a covered occurrence as a single loss and by construing all losses that result from a continuous and substantially same set of harmful conditions as a single loss. But circumstances can challenge this limitation. Let’s look at the Johnvilles’ Potato Salad Slaughter again.
Example - Scenario two: The Johnvilles again host their neighborhood’s First Annual Summer Neighborfest! And, again, everything ends poorly when half of the guests are poisoned by the Johnvilles’ potato salad. However, in this instance, instead of everyone getting sick from one batch of potato salad, we find that Salma and Nellie each make a batch of potato salad at different times; the separate batches of salad go bad because both ladies leave the salads unrefrigerated; and they put out their salad in two different serving areas. While their insurer argues that it is a single occurrence because it all stems from bad potato salad, the (embarrassed) Johnvilles argue back that the losses stem from two separate events and that the insurance limit should apply separately to each event. In this instance, the Johnvilles’ position is correct.
All "bodily injury" and "property damage" that is created by any one accident or from continuous or repeated exposure to substantially the same general harmful conditions shall be considered to be the result of one "occurrence." (However, consider the preceding example.)
The total liability under Coverage F for all medical expense payable for "bodily injury" to one person as the result of one accident will not be more than the limit of liability for Coverage F as shown in the declarations.
Duties After Loss
In case of an "occurrence," an "insured" is obligated to perform several duties. The HO 2000 edition of the Special Form policy removes any reference to having to do the duties after an “accident or occurrence.” This makes sense because an accident can occur which does not qualify as an occurrence under the policy, so the duties are not required. Another change in the latest edition of the policy is a specific statement that, if failure to comply with the policy conditions harms the insurer’s ability to handle the loss, the insurer may not be obligated to pay for the loss or defend an insured. The policy uses the phrase ”prejudicial to the insurer,” which does leave room for debate over how an insured may lose their insurance protection. But the added wording is helpful to both the insurer and the insured. It gives greater emphasis to the importance of complying with the policy’s conditions and it gives the insurer a way to protect itself from an uncooperative insured.
Under this condition, the insured is obligated to:
· Give written notice to the insurance company or the agent as soon as is practical. This information should include:
(1) The identity of the policy and "insured.” (The HO 2000 edition changes this to providing the identity of the policy and the “named insured” shown in the declarations.)
(2) Reasonably available information on the time, place and circumstances of the "occurrence."(The HO 2000 edition removes the reference to accident.)
(3) Names and addresses of any claimants and witnesses.
· Cooperate with the insurer in its investigation, settlement or defense of a claim/suit.
This specific requirement is new under the HO 2000 edition of the Special Form policy. Again, the latest edition has the goal of putting greater emphasis on an insured’s role in assisting the insurer with the claims process.
· Promptly forward to the insurance company every notice, demand, summons, or other process relating to the accident or "occurrence."
· At the request of the insurance company, the “insured” must help:
(1) To make settlement;
(2) To enforce any right of contribution or indemnity against any person or organization who may be liable to an “insured”;
(3) With the conduct of suits and attend hearings and trials; and,
(4) To secure and give evidence and obtain the attendance of witnesses.
· Under the coverage—Damage to Property of Others—submit to the insurance company, within 60 days after the loss, a sworn statement of loss and show the damaged property, if in an “insured's" control.
· No "insured" will, except at the "insured's" own expense, voluntarily make payment, assume obligation or incur expense other than for first aid to others at the time of the "bodily injury."
Note that this last duty appears to be inconsistent with the policy’s earlier warning against an insured doing things that may prejudice the insurer’s rights or ability to handle a claim. One way to interpret this duty is to assume that as long as an insured is willing to make a payment out of his or her own pockets, then doing so is approved by the insurer. Since payments (outside of first aid treatment) can be viewed as an admission of liability, it does not seem appropriate to allow customers to make out of pocket payments….at least not without a separate warning that, by doing so, they may sacrifice their insurance coverage.
Duties of an Injured Person—Coverage
F—Medical Payments to Others
The injured person or someone acting for the injured person will:
· Give the insurance company written proof of claim, under oath if required, as soon as is practical; and
· Authorize the insurance company to obtain copies of medical reports and records.
The injured person will submit to a physical exam by a doctor of the insurance company’s choice when and as often as “we” reasonably require. Note that there is no definition of “reasonable.” Items like this are often a point of contention between injured persons and insurers. While four separate exams may be reasonable to a company claims adjuster, an injured person might question why he would need to be examined more than one or two times.
Payment of Claim—Coverage F—Medical
Payments to Others
The policy explicitly states that receiving a payment under this coverage DOES NOT mean an insured considers himself guilty for causing a loss, nor is it an indication that the insurer thinks that they are obligated to pay an injured party.
Suit Against Us
No action can be brought against the insurance company unless there has been full compliance with all of the terms under this section of the Special Form policy. This condition now refers to an insured’s need to FULLY comply with ALL POLICY TERMS, before he or she can file a suit. Though the HO 2000 edition changes make the wording stronger, they do not substantially change the insured’s obligation from earlier editions.
The second part of this condition mentions that another party can’t play “piggyback” by assuming a right to join the insurance company as a party to any action against an "insured." Also, no action with respect to personal injury liability can be brought against the insurance company until the obligation of the "insured" has been determined by final judgment or agreement signed by us.
Bankruptcy of an Insured
Bankruptcy or insolvency of an "insured" will not relieve the insurance company of any obligations.
Of course, it would be interesting to challenge this condition. For instance, if an insured misses a premium payment and the policy terminates for nonpayment, but the nonpayment was due to an insured being bankrupt and a loss occurs….well it would be interesting to test this condition.
Other Insurance—Coverage E—Personal
Liability
This insurance is excess over other valid and collectible insurance, except insurance written specifically to cover as excess over the limits of liability that apply in this policy.
For an illustration of how to determine whether other valid insurance exists, please refer to PF&M section 469_C005, Association Group Policy Held Not To Contribute With Member's Homeowners Policy in Court Cases.
Concealment or Fraud
In the HO 2000 edition of the Special Form policy, this condition has been moved to the Section II conditions from the Sections I and II conditions. As previously stated, whether before or after a loss, the policy will not protect an insured who, related to the insurance provided by the policy:
· Intentionally conceals or misrepresents any material fact or circumstance;
· Engages in fraudulent conduct; or
· Makes false statements.
1. Policy Period
This policy applies only to loss in Section I or "bodily injury" or "property damage" in Section II that takes place during the policy period.
2. Liberalization Clause
If the insurance company makes a change which broadens coverage under this edition of “our” policy without additional premium charge, that change will automatically apply to “your” insurance as of the date “we” implement the change in “your” state, providing that the implementation date falls within 60 days prior to or during the policy period stated in the declarations. This liberalization clause does not apply to changes implemented through introduction of a general program revision. Such a revision must include items that both broaden and restrict coverage. A general program revision can be implemented through either a subsequent policy edition OR an amendatory endorsement.
3. Waiver or Change of Policy Provisions
An insurer has to give an insured written permission or approval in order to make any valid waivers or changes in the policy. However, an insurer’s request for either an appraisal or examination will not waive any of an insurer’s rights.
Note on Conditions 4. Cancellation and 5. Nonrenewal: For purpose of providing a complete analysis, we have included comments on both of these conditions. HOWEVER, state laws control most aspects of how, when and if a policy can be cancelled or nonrenewed. Individual companies should be thoroughly familiar with the law of each state in which it uses the Special Form policy, since these laws may stipulate what is required for:
· nonrenewal or cancellation reasons
· parties who must receive advanced notice of either cancellation or nonrenewal
· an insured’s recourse concerning a cancellation or nonrenewal
· how such notices must be mailed
· whether a notice must indicate the reason for either a cancellation or nonrenewal
· how much advanced notice is required for cancellations or nonrenewals
· the timing of such notices, etc.
4. Cancellation
a. “You” may cancel this policy at any time by returning it to the company or by letting “us” know, in writing, the date that cancellation is to take effect.
b. The insurance company may cancel this policy only for the reasons stated below by letting “you” know, in writing, of the date cancellation takes effect. This cancellation notice may be delivered to “you” or mailed to “you” at “your” mailing address shown in the declarations.
Note: Proof of mailing will be sufficient proof of notice.
Other conditions under which cancellation
may occur:
Non-payment of premium - When “you” have not paid the premium, the insurance company may cancel at any time by letting “you” know at least 10 days before the date cancellation takes effect.
Under 60 days of coverage - When this policy has been in effect for less than 60 days and is not a renewal with “us,” the insurance company may cancel for any reason by letting “you” know at least 10 days before the date cancellation takes effect.
Material misrepresentation - When this policy has been in effect for 60 days or more, or at any time if it is a renewal, the insurance company may cancel if there has been a material misrepresentation of fact which, if known to “us,” would have caused “us” not to issue the policy.
Substantial change in risk - When this policy has been in effect for 60 days or more, or at any time if it is a renewal, the insurance company may cancel if the risk has changed substantially since the policy was issued. This can be done by letting “you” know at least 30 days before the date cancellation takes effect.
Any reason after one year - When this policy is written for a period of more than one year, the insurance company may cancel for any reason at anniversary by letting “you” know at least 30 days before the date cancellation takes effect.
Money refunded - When this policy is canceled, the premium for the period from the date of cancellation to the expiration date will be refunded pro rata. If the return premium is not refunded with the notice of cancellation or when this policy is returned to the insurance company, the company will refund it within a reasonable time after the date of cancellation takes effect.
5. Nonrenewal
The insurance company may elect not to renew this policy. They may do so by delivering to “you” written notice at least 30 days before the expiration date of this policy, or mailing to “you” at “your” mailing address shown in the declarations. Proof of mailing will be sufficient proof of notice.
6. Assignment
The assignment condition has not changed in the HO 2000 edition of the Special Form homeowner policy. This policy provision merely states that a policy assignment cannot take effect unless and until the insurer gives its approval in writing.
Example: The Greebles have been the contract purchasers of a home owned by Josh Hardline for 15 years. The homeowners policy was written in Josh’s name. The Greebles finally made their last loan payment. As soon as Josh received the check, he sent a short letter to Fairkumpany Mutual. The letter had Josh’s signature and requested that the insurance coverage be assigned to the Greebles. Fairkumpany sends the Greebles a statement showing their acceptance of the assignment. With Fairkumpany’s written approval in hand, Josh Hardline’s assignment of the policy to the Greebles becomes effective and the Greebles now own all of the policy rights.
While a company may validate a policy assignment, such arrangements are rare. Typically, once the insurable interest in a home has changed, it is preferable to terminate the old policy and rewrite coverage in the name of the current insurable interest.
7. Subrogation
This provision has not changed in the HO 2000 edition of the Special Form homeowner policy. This part of the policy still gives an "insured" the choice to waive all of his or her rights to recover against any person who is legally responsible for a loss that is paid under this policy. The waiver must be in writing. If these rights are not waived, the insurer may require the insured to assign the rights so the insurer can attempt to recover payment from another party that is responsible for the loss. The rights are only good for the maximum amount that the insurer paid to handle the loss.
When an insured assigns its rights to the insurer, the "insured" must sign and deliver all related papers and cooperate with the insurance company. Why? Well, having the insured’s right to recover payment against another party does an insurer no good if the insured does not help it to make its case. For instance, if a relative or friend of the insured was responsible for the loss, having the insured’s right to subrogate against the friend or relation is useless if the insured doesn’t want to make their friend or relative pay the insurer.
Subrogation does not apply under Section II to medical payments to others or damage to property of others.
8. Death
If any person named in the declarations or the spouse, if a resident of the same household, dies:
a. The insurance company will insure the legal representative of the deceased with respect to the premises and property of the deceased covered under the policy at the time of death.
Note: "Insured" includes any member of “your” household who is an "insured" at the time of “your” death, but only while a resident of the "residence premises"; with respect to your property, “insured” includes the person having proper temporary custody of the property until the appointment and qualification of a legal representative.