6.7 Section I Conditions

Duties After Loss

When a loss occurs to covered property, the insured has certain duties under the policy. These duties help the insurer investigate the claim, determine coverage, and calculate the amount of loss.

The insured must:

• Give prompt notice of the loss to the insurer;
• Notify the police if the loss involves theft;
• Notify the credit card, electronic fund transfer card, or access device company if the loss involves coverage under the Credit Cards, Electronic Fund Transfer Card or Access Device, Forgery, and Counterfeit Money Additional Coverage;
• Protect the property from further damage by making reasonable and necessary temporary repairs;
• Keep accurate records of repair expenses;
• Cooperate with the insurer during the claim investigation;
• Prepare an inventory of damaged property, including the quantity, description, actual cash value, and amount of loss, along with any available bills, receipts, or related documents; and
• Submit a signed, sworn proof of loss within 60 days after the insurer requests it.

The proof of loss should include important claim information, such as the time and cause of loss, the interests of the insureds and any other parties, other insurance that may apply, changes in property occupancy, repair estimates for the damaged building, the damaged property inventory, and receipts for additional living expenses.

Loss Settlement

When a loss is valued on an actual cash value (ACV) basis, the policy pays the value of the damaged property at the time of loss. However, payment will not exceed the amount needed to repair or replace the damaged property.

Even when a Homeowners policy generally settles certain losses on a replacement cost basis, some types of property are always valued at actual cash value. These include:

• Personal property;
• Awnings, carpeting, and household appliances;
• Outdoor antennas and related equipment;
• Structures that are not buildings; and
• Grave markers.

For buildings and other structures insured on a replacement cost basis, the insured must carry insurance equal to at least 80% of the property's full replacement cost at the time of loss. This requirement is known as insurance to value.

If the insured does not maintain the required amount of insurance, the policy will not automatically pay the full replacement cost of the damaged property. Instead, the insurer will pay the greater of:

• The actual cash value of the damaged part of the building; or
• The portion of the loss determined by comparing the policy limit to 80% of the building's full replacement cost.

In other words, when the insured carries less than the required amount of insurance, the loss payment may be reduced according to the coinsurance formula.

When determining the building's replacement cost, certain components are not included in the calculation. These excluded items include excavations, foundations, other below-ground supports, underground pipes, and underground drains.

Until the damaged property is actually repaired or replaced, the insurer will pay no more than the actual cash value of the damage.

Loss to a Pair or Set

Homeowners policies include a standard Pair or Set condition. When a covered loss damages part of a pair or set, the insurer has two options. The insurer may repair or replace the damaged part to restore the pair or set to its value before the loss. Alternatively, the insurer may pay the difference between the actual cash value of the complete pair or set before the loss and its actual cash value after the loss.

Appraisal

If the insured and insurer disagree about the amount of a covered loss, either party may request an appraisal. The appraisal process is used to determine the amount of loss, not whether the policy provides coverage. After a written appraisal request is made, each party must select a competent appraiser within 20 days. The two appraisers then choose an umpire within 15 days. Each appraiser separately determines the amount of loss. If the appraisers agree, their agreement establishes the amount payable by the insurer. If the appraisers do not agree, the differences are submitted to the umpire, and a decision agreed to by any two of the three participants determines the amount of loss.

Each party is responsible for paying the cost of its own appraiser. The cost of the umpire and any other appraisal expenses are shared equally by the insured and the insurer.

Other Insurance and Service Agreement

When a covered loss is also insured under another policy, the insurer will pay only its pro rata share of the loss. The pro rata share is determined by comparing this policy's limit of insurance to the total amount of all applicable insurance. In addition, this policy applies as excess insurance over any coverage provided by a service agreement. This means the service agreement must pay first, and the Homeowners policy responds only after that coverage has been applied.

Suit Against Us

If the insured brings legal action against the insurer, the insured must first comply with all terms and conditions of the policy. Any lawsuit must be filed within 2 years from the date the loss occurred.

Mortgage Clause

The standard Mortgage Clause applies to all Homeowners policies. When a covered loss is payable under Coverage A or Coverage B, payment is made to both the insured and the mortgagee according to their respective financial interests in the property.

If the insurer denies the insured's claim, that denial does not automatically apply to the mortgagee. The mortgagee may still have coverage if it:

• Notifies the insurer of any change in ownership, occupancy, or substantial change in risk;
• Pays any premium due under the policy; and
• Submits a signed, sworn statement of loss within 60 days after receiving notice that the insured failed to submit one.

The insurer must provide the mortgagee with at least 10 days' notice before the effective date of any policy cancellation or nonrenewal.

Recovered Property

If either the insurer or the insured recovers property after a claim payment has been made for that property, the party who recovers it must promptly notify the other party. The insured may choose to keep the recovered property or allow it to become the insurer's property. If the insured keeps the recovered property, the claim payment will be adjusted to reflect the recovery.

Other Conditions

Many Section I Conditions are commonly found in property insurance policies. Learners should recognize that several of these conditions are similar to those used in the Dwelling Program. These conditions include:

Condition	Description
Insurable Interest and Limit of Liability	Even if more than one person has an insurable interest in the covered property, the insurer's liability for any one loss will not be more than the amount of the insured's interest at the time of loss or the applicable limit of liability.
Our Option	The insurer may repair or replace any part of the damaged property with material or property of like kind and quality, as long as the insured is given written notice within 30 days after the insurer received the proof of loss.
Loss Payment	Losses are adjusted with the named insured and payable to the named insured 60 days after the insurer receives the proof of loss, unless someone else is named or legally entitled to receive payment.
Abandonment	The insurer may reject property abandoned by an insured.
No Benefit to Bailee	Coverage will not benefit a person or organization holding, storing, or moving property for a fee.
Volcanic Eruption Period	All volcanic eruptions within a 72-hour period are considered one eruption.
Policy Period	All losses must occur during the policy period.
Loss Payable Clause	If the Declarations show a loss payee, the definition of insured will include the loss payee.