5.3 - Extension, Application, and Limitation of Coverage Flashcards
Extensions of Coverage
-primary protection for the homeowners form is provided by Coverages A, B, C, and D.
-Also extends coverage to a number of losses that are incidental to the main loss or are minor losses in their own right
-some of the extensions increase policy limits, others do not
Extensions serve the following purposes:
-Extensions provide temporary coverage for additional exposures
>moving to another home
>Property Removed
-Extensions increase or add coverage for loss costs not contemplated in the limits for the primary coverages (Coverages A, B, C, and D)
>debris removal
>fire department charges
>freezer food
> lock replacement
-Extensions expand or restrict the policy’s coverage under specific situations
>tear out
>change of temperature
>Credit or debit cards, forgery and counterfeit money
>inflation protections
-Extensions encourage loss prevention or mitigation. This purpose for an extension may be furthered in some cases by the waiving of a deductible
>Arson Conviction reward
>Inflation protection
Extensions of Coverage - Moving to Another Home
-if a named insured acquires a new dwelling in Canada that is to be occupied as a principal residence by the named insured, extended coverage to personal property while in transit from the existing residence to the new residence and up to 30 days thereafter or until the policy expires, whichever comes first
-this extension allows the insured to arrange coverage for the new location while maintaining the peace of mind that insured belongings are covered
-only one residence can be the principal residence
-in practice, if the named insureds vacate the prior location with the intention of moving elsewhere, but other, unnamed insureds maintain residence at the insured location, a material change in risk has occurred, and the insurer must be notified immediately
-there is no coverage after 30 days for personal property in the newly acquired principal residence
-in practice, to maintain the coverage beyond 30 days, the insured must have notified the insurer of the change, and the underwriter must have agreed to remain on risk
Extensions of Coverage - Property Removed
-extends any insurance remaining after a loss to cover the insured property removed from insured locations to prevent further damage.
-for the basic fire policy, this applies either for 7 days from the date from the date that removal of the property begins or until the policy expires; whichever occurs first
-coverage for property at temporary locations ends after seven days unless the insured and insurer have agreed otherwise
-in the IBC homeowners forms, the property removed extensions applies for 30 days or until the policy expires, if that is less than 30 days. The longer period is enforceable against the insurer because it is to the insured’s benefit
-unlike commercial property forms - and the insurance acts - the homeowners forms do not explicitly limit coverage for property removed to what remains after the amount of loss has been deducted from the amount of insurance. This omission may also be to the insured’s benefit
-but it reflects the effect of another clause that routinely also appears in property policies: the automatic reinstatement clause, which reinstates the full amount of insurance after a loss
Extensions of Coverage - Credit or Debit Cards, Forgery and Counterfeit Money
-concern can be not just the loss of the actual card, but the potential liability for debts illegally incurred by the person who found or stole it or by others with whom it is shared
-agreements between cardholders and issuers are not uniform, some limit the cardholder’s responsibility to a modest amount for charges made before the issuer has been notified of the loss, in other cases, cardholders may be financially responsible for the full amount of debt accrued or loss of cash before the fraud is detected and the report is filed
-this extensions offers some protection against such loss, subject to the following limitations:
>the coverage applies only to cards issued to or registered in the named of an insured
>the insured must have complied with all the conditions of the card agreement
>there is no coverage if the card is used by a household member or any person entrusted with the card
>there is no coverage for the insured’s liability arising from cards issued to the insured’s employer or to the insured’s business, unless they are in the insured’s name and the insured is personally responsible for all indebtedness under such cards
>the insured’s failure to notify the issuer of a card that it has been lost or stolen would result in denial of a claim
-in the IBC forms, counterfeit currency losses are limited to an unspecified dollar maximum for any one transaction
-a more general such limit applies for the extension as a whole during the policy period
-there is no automatic reinstatement of the limit for this extension, the coverage is not subject to a deductible
Extensions of Coverage - Change of Temperature
-this extension applied to indirect loss involving personal property kept in the dwelling that would not be normally recoverable under the policy
-there must be direct damage to the dwelling or equipment caused by an insured peril to qualify for coverage
-ex. a thief breaks a sunroom window but gets scared off, the plants in the room freeze and die. Theft is an insured peril, so the indirect loss to the plants is covered under this extension
Extensions of Coverage - Refrigerator or Freezer Food
-applies when an interruption of power to or mechanical breakdown of a refrigerator or food freezer causes spoilage and resultant loss of food items
-fridge or freezer does not have to be inside the dwelling, but on the insured premises defined in the dec page
-indemnifies insured for:
>the value of spoiled food
>damage to the refrigerator or freezer caused by the spoilage (smell permeates the lining)
>reasonable expenses incurred to prevent the food spoilage while the fridge or freezer is being repaired (cold storage facility)
-loss or damage must have been caused by:
>accidental interruption of electrical power on-or off-premises
>or mechanical breakdown of the fridge or freezer
-the extension does not cover:
>spoilage caused by the operation of an electrical circuit breaker or fuse
>spoilage caused by intentional disconnection of the power supply in the building containing the fridge or freezer
>the cost (ex. gas, transportation, delivery charges) to acquire replacement food
-a dollar limits applies to the coverage under this extension, coverage is not subject to a deductible
-extension applies only to refrigerators and freezers and frozen food; it does not cover refrigeration unit and refrigerated foods
-in the event of a direct loss - for example, due to fire - LoD to food or appliances are considered under Coverage C - PP
Extensions of Coverage - Data
-insurer will pay up to a specific amount for duty or licensing fees for the cost of downloading or restoring data for which the insured has paid duty or licensing fees, when the loss of data is caused by and insured peril
-Data pertaining to business is not covered
Extensions of Coverage - Debris Removal
-the cost of debris removal may be incidental for smaller losses, but where the building is destroyed and the land entirely cleared, the cost of debris removal can run into the tens of thousands of dollars
-requires limits on this extensions to avoid coverage for the dwelling being quickly eroded by these costs
-since a loss and the resulting expense for debris removal may involve several coverages under the policy, the IBC HOs forms apply an additional 5% to the sum of the amounts of insurance for Coverages A, B, and C. Coverage D is not included in these calculations because ALE is an indirect or consequential loss that only arises from direct LoD to the property insured
Extensions of Coverage - Tear Out
-sometimes to find a source of a water leak for example, “chasing the leak” may cause tearing apart the insured building even in parts where no direct damage to the building occurred
-the tear out extension will not pay to repair all parts of the building torn apart to find the leak, rather the extensions will pay to repair only the parts that must be torn apart to repair damage and prevent further damage by an insured peril
-the cost of tearing out and repairs related to domestic water containers is not insured
-the tear out extension does not cover the cost of tearing out and replacing property to repair damage related to outdoor swimming pools or public watermains
> ex. pipe in shower ruptures, cost of drywall damage to get to the pipe to stop it leaking (minimize further damage) is covered
ex. roof is seeping into the ceiling. As seepage is not an insured peril, the cost of the drywall torn down to find the source of the leak is not covered
Extensions of Coverage - Fire Department Charges
-many municipalities or volunteer fire depts charge residents of other municipalities or even their own residents for the services of their fire departments
-the threat of an invoice may deter HOs from reporting fires until things get out of control
-this extension is meant to encourage insureds to call the fire dept immediately to mitigate the severity of fire
-the HOs forms extend coverage for up to a specified dollar limit for charges incurred to have the fire dept attend the insured premises to save or protect insured property from LoD from further loss
-in the IBC HOs forms, the limit is inserted on a case-by-case basis, and the coverage is not subject to a deductible
Extensions of Coverage - Lock Replacement
-this extensions helps reduce further potential for future loss by protecting the dwelling from unwanted entry and subsequent theft
-financial assistance - up to a specified dollar amount in the IBC HOs forms - is available to rekey locks or replace them, at the insurer’s option
-policy requires the insured to report theft of keys to law enforcement as a condition of coverage, which reduces the potential for an insured to report keys as stolen when they may have merely been lost
Extensions of Coverage - Outdoor Trees, Plants, and Shrubs
-insured may apply up to a specific percentage of the amount of insurance carried on the insured dwelling to trees, plants, and shrubs on the insured premises
-the insurer will not pay greater than a specific dollar amount on any one tree, plant, or shrub, including debris removal expenses
-perils insured are fire, lightning, explosion, impact by aircraft or land vehicle, riot, and vandalism or malicious acts
Extensions of Coverage - Arson Conviction Reward
-can be paid to the insured or anyone who provides information that leads to the conviction of the guilty party
-the information may concern a fire that resulted in a total loss under the policy, in which case the reward may be paid in addition to the policy limits
-the limit is specifically inserted in the IBC forms, and that is typical, as well, of many habitational policies
-this extension is not subject to a deductible
Extensions of Coverage - Inflation Protection
-Brokers update the replacement Cost calculators every few years, but inflation continues to accrue through the policy term
-after a loss or at the policy’s renewal or anniversary, the inflation protection extension automatically increases the amounts of insurance for inflation since the inception or most recent renewal, anniversary, or policy change
-inflation margins are established through Stats Canada’s Consumer Price Index and are calculated against each of Coverage A, B, and C
-generally the inflation extension is called upon only where a total loss has occurred or where compliance with a coinsurance clause must be established
Insured Perils clause
-describes the causes of loss to insured property that may be covered under the policy
-it also describes the essential differences between habitational policies
-insurers may offer unique coverages to gain market advantage, but all habitational policies are distinguished by insured perils clauses that reflect those three types of coverage
-basic policies are preferred when insured is looking for the least amount of coverage for specific types of loss, or when the insurer considers the insured a greater risk than average and wishes to limit that risk by only insuring against certain perils
-most brokers prefer to offer broader coverage to avoid being accused of an error or omission by an insured dissatisfied with just the basic coverage; most underwriters try to accommodate that preference for the broker and insured alike
-the insured may decline the broader coverage
