Recap of Chapter Six

1. Homeowners insurance is written as a package policy, meaning it includes both property coverage and liability coverage in the same policy. Most Homeowners forms are designed for owner-occupants of the insured dwelling. However, certain forms are available for tenants and condominium unit-owners. To be eligible for Homeowners coverage, a residential dwelling may contain up to 4 residential units. The dwelling may also have no more than 2 roomers or boarders per family. Certain incidental business occupancies may be permitted, and broader coverage for these exposures may be added by the Permitted Incidental Occupancies Endorsement. A dwelling under construction may also be eligible, as long as it is intended to become the named insured's primary residence. The residence premises is the dwelling where the insured resides. It also includes other structures and the grounds at that location. The insured location is broader than the residence premises. It may include the residence premises, temporary residences such as hotel rooms, vacant land other than farmland, and cemetery plots.

2. The definition of insured identifies the people who are protected under the Homeowners policy. Insureds include the named insured, the named insured's resident spouse, and relatives who live in the household. The policy also includes household residents who are under age 21 and in the care of the named insured, a resident spouse, or a resident relative. Students may continue to qualify as insureds while living away at school. This applies to relatives of the insured up to age 24 and to persons in the insured's care up to age 21. For liability coverages, the definition of insured is expanded to include certain other persons. This may include individuals using an insured's covered vehicle with permission, employees using a motor vehicle with permission, and persons legally responsible for an insured's animals, other than bailees. If the named insured dies, the named insured's legal representative is granted the insured's rights and duties under the policy.

3. There are six standard Homeowners forms. Each form is designed for a different type of insured or residential property, and each provides a different level of property coverage. The Broad Form (HO-2) provides named perils coverage for the dwelling, other structures, and personal property. This means coverage applies only when the loss is caused by a peril specifically listed in the policy. The Special Form (HO-3) provides broader protection for the dwelling and other structures by covering them on an open perils basis. Personal property, however, is covered on a named perils basis. The Comprehensive Form (HO-5) provides the broadest coverage of the standard Homeowners forms. It covers the dwelling, other structures, and personal property on an open perils basis. The HO-2, HO-3, and HO-5 are commonly used for owner-occupied homes. The remaining forms are designed for more specific residential situations. The Contents Broad Form (HO-4), also known as the Tenants Form, is designed for renters. It does not insure the dwelling itself; instead, it covers the tenant's personal property on a named perils basis. The Unit-Owners Form (HO-6) is designed for condominium unit-owners. It provides specialized dwelling coverage for the unit-owner's property interests, along with personal property coverage on a named perils basis. The Modified Form (HO-8) is designed for older homes that may not qualify for coverage under the other Homeowners forms. Under this form, the dwelling, other structures, and personal property are covered only against limited named perils.

4. Across most Homeowners forms, when coverage is provided for the dwelling or other structures, covered losses are settled on a replacement cost basis. This means the policy is designed to pay the cost to repair or replace the damaged property with similar materials, without deducting for depreciation. The HO-8 Modified Form is an exception. Under the HO-8, losses to the dwelling and other structures are settled on an actual cash value basis, meaning depreciation is considered when determining the amount payable. When personal property coverage is provided under any Homeowners form, losses are generally settled on an actual cash value basis. The Personal Property Replacement Cost Endorsement may be added to change personal property valuation from actual cash value to replacement cost. However, this endorsement does not apply to certain property, such as fine arts or collectors items. For building losses to be settled on a replacement cost basis, the insured must maintain insurance to value of at least 80% of the structure's replacement cost immediately before the loss. The insurer may initially pay the actual cash value of the loss and then pay the remaining replacement cost amount after the damaged property is actually repaired or replaced.

5. Most Homeowners forms that provide named perils coverage use the Broad Form's 16 named perils, along with the applicable limitations and exceptions. Under named perils coverage, a loss is covered only if it is caused by one of the perils specifically listed in the policy. The Broad Form named perils are:

• Fire or lightning
• Windstorm or hail
• Explosion
• Riot or civil commotion
• Aircraft
• Vehicles
• Smoke, excluding smoke from agricultural smudging or industrial operations
• Vandalism or malicious mischief
• Theft, subject to policy limitations
• Volcanic eruption
• Falling objects
• Weight of ice, snow, or sleet
• Accidental discharge or overflow of water or steam from a plumbing, heating, air conditioning, or automatic fire protective sprinkler system, or from a household appliance
• Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning system, or an automatic fire protective sprinkler system
• Freezing of a plumbing, heating, air conditioning, or automatic fire protective sprinkler system, or of a household appliance
• Sudden and accidental damage from artificially generated electrical current

6. Several named perils include important limitations that students should recognize when determining whether a loss is covered. For the windstorm or hail peril, watercraft are covered only while located inside a fully enclosed building. Personal property inside a building is covered for windstorm or hail damage only when the wind or hail first creates an opening in the building, and that opening allows the damage to occur. The perils of vandalism or malicious mischief and accidental discharge or overflow of water or steam are subject to the policy's vacancy provision. Coverage is barred if the dwelling has been vacant for more than 60 consecutive days before the loss. Theft coverage is also limited. The policy excludes theft committed by an insured, theft involving dwellings under construction, and off-premises theft of watercraft. Coverage for mold, fungi, and wet rot is very limited under the standard policy. Broader coverage may be added by the Limited Fungi, Wet or Dry Rot, or Bacteria Coverage Endorsement.

7. Section I of the Homeowners policy provides the policy's property coverages. These coverages protect the dwelling, other structures, personal property, and certain related property loss exposures. Coverage A – Dwelling applies to the dwelling located on the residence premises. It also covers structures attached to the dwelling, as well as materials and supplies located on or next to the residence premises that are used to construct, alter, or repair the dwelling or other structures. For the HO-6 Unit-Owners Form, Coverage A is different because the insured owns a condominium unit rather than an entire building. Under the HO-6, Coverage A applies to alterations, appliances, fixtures, and improvements that are part of the covered unit's building. Coverage B – Other Structures applies to structures on the residence premises that are separated from the dwelling by a clear space. However, Coverage B does not apply to structures used strictly for business purposes or to structures rented or held for rental to others, unless they are used only as a private garage. The Coverage B limit of insurance is automatically provided as an amount equal to 10% of the Coverage A limit.

8. Coverage C – Personal Property covers the insured's personal property anywhere in the world. The Coverage C limit of insurance is usually an amount equal to 50% of the Coverage A limit. Although Coverage C provides broad protection for personal property, certain types of property are subject to special limits of liability. These special limits apply to items such as money, securities, passports, watercraft, trailers, portable electronic equipment, and business personal property located on or away from the residence premises. Theft losses involving certain valuable property, such as jewelry, watches, furs, firearms, silverware, and goldware, are also subject to special limits. If the insured needs broader protection for valuable items, some property may be insured separately under the Scheduled Personal Property Endorsement. This endorsement generally provides open perils coverage for scheduled items, with loss settlement based on the property's agreed value or its actual cash value, depending on the endorsement terms. Coverage C also excludes certain property. Examples include animals, motor vehicles, property of roomers or boarders, and credit cards. Coverage D – Loss of Use covers certain indirect losses that result from a covered property loss. This includes additional living expenses when the insured must temporarily live elsewhere and fair rental value when a covered loss prevents part of the residence premises from being rented.

9. The Debris Removal Additional Coverage pays the reasonable expense to remove debris of covered property after a covered loss. This coverage is included within the limit of liability that applies to the damaged property. If the debris removal expense and the direct property damage together exhaust the applicable limit of liability, the policy provides an additional amount for debris removal. This additional amount is equal to 5% of the applicable coverage limit. The Trees, Shrubs, and Other Plants Additional Coverage provides limited coverage for damage to trees, shrubs, plants, or lawns caused by certain named perils. The policy will pay up to $500 for any one tree, shrub, or plant, subject to the overall limit that applies to this Additional Coverage.

10. The Credit Cards, Electronic Fund Transfer Card or Access Device, Forgery, and Counterfeit Money Additional Coverage provides up to $500 for certain losses involving unauthorized use of credit cards or access devices, forgery, or counterfeit money. The Loss Assessment Additional Coverage provides up to $1,000 for the insured's share of certain covered losses that are assessed against members of a property owners association. The policy also provides limited coverage for collapse of a building when the loss meets the policy's requirements. In addition, up to $5,000 is available for damage to grave markers.

11. Section I excludes certain causes of property loss, even when damage occurs to covered property. One important exclusion is earth movement, which includes events such as earthquakes. However, the insured may add an Earthquake Endorsement to provide coverage for this exposure. Section I also excludes losses caused by off-premises power failure, neglect, war, and intentional loss. Certain types of water damage are excluded as well. These include damage caused by flood, tidal water, sewer or drain backup, overflowing sump pumps, and water that exerts pressure on, seeps through, or leaks through foundations, walls, floors, or other parts of a building.

12. Section II of the Homeowners policy provides the policy's liability coverages. These coverages protect the insured against certain claims made by others and include both personal liability protection and limited medical payments coverage. Coverage E – Personal Liability applies when a claim or suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence. Coverage E also includes defense coverage, meaning the insurer pays the cost to defend the insured against a covered claim. The Coverage E limit applies on a per occurrence basis. Coverage F – Medical Payments to Others pays necessary medical expenses incurred by others because of an accident. The expenses must be incurred within 3 years of the date of the accident. Payments under Coverage F are not an admission of liability. Instead, this coverage is designed to provide limited goodwill payments that may help reduce the likelihood of litigation. Coverage F does not pay medical expenses for any insured or for a person who regularly resides at the insured location, except for a residence employee. The Coverage F limit applies per person. Section II also includes several Additional Coverages. These include supplementary payments for certain expenses incurred by the insured at the insurer's request, first-aid expenses, up to $1,000 for Damage to Property of Others, and up to $1,000 for certain loss assessments. The Damage to Property of Others Additional Coverage does not apply when the damage is intentionally caused by an insured who is age 13 or older. Section II does not automatically cover personal injury, such as liability arising from defamation or invasion of privacy. This coverage may be added by endorsement through the Personal Injury Endorsement.

13. Homeowners policies exclude certain liability exposures that are better insured under other types of insurance. Students should pay close attention to these exclusions because they help define the boundary between personal liability coverage and specialized liability coverage. Liability for bodily injury or property damage arising out of the ownership, maintenance, or use of a motor vehicle is generally excluded. However, limited exceptions may apply, such as when the vehicle is in dead storage, is used solely to service a residence, or qualifies as a covered golf cart. Liability arising out of watercraft is also limited. Homeowners policies generally provide automatic liability coverage for stored watercraft, sailing vessels less than 26 feet in length, and outboard motorboats with 25 horsepower or less. Inboard motorboats and other watercraft that do not meet these requirements are subject to additional restrictions, especially when the watercraft is owned, rented, or borrowed by an insured. Liability arising out of aircraft and hovercraft is also excluded. In addition, Coverages E and F do not cover bodily injury or property damage arising out of certain other exposures, including business pursuits, the rendering or failure to render professional services, transmission of communicable diseases, abuse committed by an insured, or controlled substances.

14. Section II provides excess coverage over other collectible insurance. This means that if another policy is available to cover the loss, that policy generally pays first, and the Homeowners policy responds only after the other collectible insurance has been used. An exception applies when the other insurance is specifically written as excess insurance. In that situation, the policies must be reviewed to determine how the coverage applies. Both Section I and Section II also include a Subrogation condition. Under this condition, the insured may waive their rights of recovery against another party before a loss occurs. If those rights have not been waived and the insurer makes a claim payment, the insurer may require the insured to assign their rights of recovery to the insurer. This allows the insurer to seek reimbursement from the party responsible for the loss.

15. Mobile homes may be insured by adding an endorsement to the Broad Form (HO-2) or Special Form (HO-3), or they may be insured under a separate mobile home insurance policy. When the Mobile Home Endorsement is attached, Coverage A – Dwelling is revised to cover the mobile home. Coverage A also applies to attached structures, attached appliances, and utility tanks that are part of or used with the mobile home.