8.1 - Specialized Dwelling Coverages

Question 1

Specialized Types of Dwellings

Answer 1

-secondary homes
-high-valued homes
-mobile homes
-rented dwellings
-dwellings used for accommodation sharing
-seasonal dwellings
-hobby farms

Question 2

Secondary Homes

Answer 2

-some insured may own two homes that they live in concurrently throughout the year
-primary home is the one they live in most of the time; the secondary home is one they live in often
-both are personal use for the insured and not rented to others while the insured is away
-it is the frequency of the insured’s use of the secondary home that determines whether it qualifies for coverage as a secondary home
-secondary home is not a summer cottage, but more like a traditional home
-the insured cares for and maintains the dwelling with the same care as for the main home
-insurers use the same policy forms - for example, the HOs forms - to cover a secondary home as they use to cover a primary home

Question 3

High-Valued Homes

Answer 3

-distinctive home with high replacement value
-tend to be designed by architects and built with custom features not typically found in a standard home, which may include: post-and-beam construction, marble countertops, hardwood floors, bold roof lines, design windows, and state-of-the-art kitchens, also may contain antiques, fine arts, wine collections, high-end audio and video equipment, or jewellery not usual to a normal home
-“high value” amount may vary between insurers, and may also change over time, depending on the rate of inflation and supply and demand in the housing market
-recently, a common threshold of high value has been $1 mil+

Question 4

High-Valued Home Insurance

Answer 4

-distinctive homes require specialized insurance coverage
-high-valued home insurance costs more than standard home insurance, but along with the coverage provided by the standard insurance, high-valued home insurance includes more innovative added coverage, such as kidnap expense coverage, equipment breakdown coverage, home invasion coverage, home appraisal expenses, disappearing deductible, cash-payout options, and increased special limits

Question 5

High-Valued Home Insurance Coverages - Kidnap Expense Coverage

Answer 5

-insureds who own and live in high-valued homes are often high-profile families within their community, and their children can be targets for kidnappers seeking ransom
-coverage provided up to a specified limit for costs resulting from child abduction, including travel and phone costs, and medical, dental, and psychiatric fees

Question 6

High-Valued Home Insurance Coverages - Equipment Breakdown

Answer 6

-homes are now being built with equipment and sensitive system controlled by new technology, fragile electronics, and computer equipment that breaks down more often and costs more to repair than traditional equipment
-examples - main electrical panel’s circuit breaker fails to trip as designed, and A/C compressor fails due to overheating, a broken shaft causes dishwasher to break
-standard HOs forms excludes LoD caused by mechanical breakdown, so expenses to repair or replace the equipment is not covered
-Equipment breakdown coverage provides a specified amount of insurance for accidental breakdown of the equipment or system, even if caused by human error, improper installation, or lack of maintenance
-usually no age restriction, and the insured may choose to replace the item with environmentally friendly or safer equipment and system when the older equipment breaks down - ex, replacing a hot water tank with a tankless water heater
-in addition, should the insured have to move out of the house temporarily due to equipment breakdown, the extra expenses incurred to live elsewhere will be covered

Question 7

High-Valued Home Insurance Coverages - Home Invasion Coverage

Answer 7

-because their contents may be perceived to be more valuable, the homes of high-income families are more attractive to thieves and burglars
-should the insured’s family be present during a home invasion, high-valued home insurance may offer up to a specified amount of coverage to help pay medical, psychiatric, home security, and other expenses associated with trauma

Question 8

High-Valued Home Insurance Coverages - Home Appraisal

Answer 8

-due to the custom features of high-valued homes, many standard cost calculators may not be able to calculate the correct replacement value for them
-insurers hire professional home appraiser to provide expert, detailed reports of the characteristics of high-valued homes
-the purpose of such a report is to estimate the cost to rebuild the home and to document custom features using measurements, photographs, and detailed descriptions
-the appraisal ensures that an adequate amount of insurance is carried on the home
-the appraisal also helps in the claims process in the event of a loss

Question 9

High-Valued Home Insurance Coverages - Disappearing Deductible

Answer 9

-a deductible is the insured’s portion of a covered loss; it helps insurers defray some of the expense of handling and processing smaller, more frequent losses
-one of the common application of a deductible has the insurer paying in full for losses that exceed the deductible
-insureds with high-valued home insurance are usually concerned with major losses and tend not to report small losses
-high-valued home policies usually waive the deductible for a loss of a specified amount - perhaps $10,000 or more - and pay such a loss in full

Question 10

High-Valued Home Insurance Coverages - Cash-Out Option

Answer 10

-the insured must satisfy certain conditions to receive the replacement cost of a damaged or destroyed building:
>the building must be promptly rebuilt on the same site
>at the same location
>with new materials or property of like kind and quality
>and for like occupancy
-if the insured does not comply with these conditions, the insurer will pay only the ACV of the damaged property
-under a high-valued home insurance polity, the insured may receive cash payment up to the policy limit without deduction for depreciation and without having to rebuild or replace the damaged or destroyed building

Question 11

High-Valued Home Insurance Coverages - Increased Special Limits

Answer 11

-the special limits concern types of property that could be covered under other policy forms and also help prevent skewing of the blanket limit by a few high-valued articles
-floaters are policy forms that may provide enhanced limits or perils for more valuable or vulnerable insured property such as jewellery, collectibles, and fine arts
-significant amounts of such valuable property tend to be more common in high-valued homes
-that means there is less danger that such property will skew the blanket limit for contents coverage or require separate coverage under a floater, instead, the high-valued home policy simply increased the special limits for valuable property over what is normally available in standard policies such as the homeowners forms
-ex. standard HOs form might include sublimit for loss of jewellery due to theft of $2000, and under the high-valued home policy, that sublimit may be increased to $50,000

Question 12

“Mobile Home”

Answer 12

-Manufactured housing, commonly called house trailers, usually placed in one location and left there permanently, but retaining the ability to be moved, as required in many areas. Behind the cosmetic work fitted at installation to hide the base, there are strong trailer frames, axles, wheels, and tow-hitches

Question 13

Mobile Homes

Answer 13

-factory built homes on their own chassis and constructed to code requirements set by the Canadian Standards Association (CSA)
-towed to the dwelling site or to mobile home parks, where they are then placed on a full, continuous foundation of concrete or concrete blocks or on heavy timber supports, and generally the space between the ground and the underside of the unit is closed off with a full plywood skirting
-the better installations also tie the unit down to provide greater stability against windstorm
-tie-downs are heavy straps passing over the unit and fastened to the foundations on either side or to the ground, if the unit rests of piers or heavy timber
-for aesthetic reasons, tie-downs in more sophisticated units are built in and hidden by the outer covering
-some tie-downs are fixed only to the chassis and do not pass over the top of the unit
-mobile homes differ from conventionally built dwellings in having built-in equipment and furnishings
-they incorporate many design features taken from ideas for the efficient use of space developed by the trailer and motor home and boat builders
-the interior components are often integral to the construction of a mobile home, because the weight of the unit must be kept to a minimum
-these differences lead insurers to believe that a minor loss in a conventionally built dwelling might be a major loss in a mobile home, where damage to interior components could imply structural damage as well
-the differences also seem to justify concern about the lifespans of mobile homes; the manner and materials of their construction suggest they are less durable than conventionally built homes and so depreciate more quickly

Question 14

“Modular Home”

Answer 14

-a type of manufactured housing that is built in a factory and moved to a building site in large individual sections; is not movable and may be considered a permanent structure

Question 15

Modular Homes

Answer 15

-modular homes and mobile homes differ in their construction standards, materials and foundations
-modular homes are built in a factory and moved to the building site in large individual sections
-they are placed on a slab or basement foundation and include all-electric heat or a gas furnace
-unlike a mobile home, a modular home, once placed on a slab or concrete foundation, is not movable and may be considered a permanent structure
-insurers usually cover modular homes under their homeowners forms

Question 16

Mobile Homeowners Forms

Answer 16

-like HOs forms, the mobile homeowners form is a package that includes property and liability coverages
-there is a single IBC mobile homeowners form, which insures against named perils, which makes it most directly comparable to the IBC Homeowners basic form
-the differences in coverage between the mobile homeowners and homeowners basic forms reflect the differences between mobile homes and traditional homes

Question 17

Mobile Homeowners Forms:
Coverage A - Mobile Home Building

Answer 17

-HOs forms describe the “dwelling building” as, first, “the dwelling and attached structures.”
-the Mobile HOs form describes the “mobile home building” as, first, “the dwelling including appliances, furniture and equipment forming a permanent part of the building, permanently attached carports or garages, awnings, skirting, porches and tie down equipment”
-the remaining three parts of the description - permanently installed outdoor equipment, outdoor swimming pool and attached equipment, and construction materials and supplies on or adjacent to the premises - are the same as in the HOs forms
-emergency removal expense is an optional extension of Coverage A unique to the mobile HOs form, which permits the insured to use up to 5% of the amount of insurance under Coverage A for any reasonable expense incurred to remove the building to protect it from an insured peril, and the deductible will not apply to this allocation of coverage
-this optional extension is not to be confused with the 30-day extension for property removed under the extensions of coverage clause, that extension covers the removal of insured property from the premises to prevent LoD for 30 days or until the policy expires
-in contrast, emergency removal expense reimburses the insured for expense incurred in moving the unit itself to prevent LoD

Question 18

Mobile Homeowners Forms:
Coverage C - Personal Property

Answer 18

-the description of the mobile home building in Coverage A includes appliances, furniture, or equipment forming a permanent part of the building
-in the HOs forms, those items are insured under Coverage C, but in the mobile homeowners form, they are excluded under Coverage C
-special limits under Coverage C are slightly diff between the mobile HO form and the HOs basic form, but in both forms, in effect, a first group of limits applies to loss by any insured peril and a second group, only to loss by theft
-in the IBC forms, a dollar amount for each limit is specified in the mobile HOs form

Question 19

Mobile Homeowners Forms:
Exclusions

Answer 19

-there are 2 exclusions unique to the mobile homeowners form:

1. LoD occurring while the building is being moved, except in an emergency to protect in when endangered by an insured peril
   >Moving includes the period of time during which the levelling jacks or blocks are removed or all utilities are disconnected
2. Loss due to conversion, embezzlement, or secretion by any person in possession of the building

Question 20

Rented Dwellings

Answer 20

-an insured may buy a house not to reside in but purely as an investment, the return on investment would come from the value of the land the house sits on, the house itself, and the income from renting it to a tenant
-the owner of the house will insure the building and contents belonging to them that are in the dwelling, but the tenant will be responsible for insuring their on personal property
-rented dwellings can generate a higher than acceptable loss frequency if not underwritten properly, and insurers are cautious when they are asked to cover a rented dwelling
-rented dwellings pose hazards that are not present in an owner-occupied dwelling

Question 21

Rented Dwellings - Maintenance

Answer 21

-owners of a rented dwelling may not show as much pride of ownership as they would if they lived in the dwelling
-it may not be convenient for the owner to go to the dwelling to do maintenance work on a regular basis, or the owner may wish to reduce expenses
-most insurers require that the owner regularly inspect the dwelling to ensure that no problems arise or hire a property manager to look after maintenance and rent out the dwelling on an owner’s behalf
-to help assess the risk, insurers may also require owners to complete a rented dwelling questionnaire, asking for info about tenants and maintenance of the dwelling and premises

Question 22

Rented Dwellings - Marijuana Grow Ops and Meth Labs

Answer 22

-legalized grow operations are becoming more common and these operations must be licensed either to produce or to produce and sell marijuana products
-passage of Cannabis Act 2018, it has become legal in Canada to cultivate up to 4 plants per household for legal use
-fires are much more likely to occur in a home or dwelling containing a grow operation, in part because of high-intensity lighting needed to grow the plants
-also increased risk of burglary, vandalism, water damage, and mould, among other perils
-alterations to a dwelling to accommodate setting up a grow-op or meth lab can damage the dwelling:
>holes may be cut into the walls to install illegal wiring
>windows may be covered or sealed to maintain humidity, which can result in mould
>water damage from watering the plants and the harmful air quality produced by such activities my make the dwelling uninhabitable
-the damages can cost thousands and if the authorities shut down these activities, the house must remain vacant while repairs are being made, and occupancy permits must be obtained before the house can be rented again
-all habitational forms exclude LoD caused by criminal acts

Question 23

Rented Dwellings - Vacant Dwelling

Answer 23

-a vacant house is more susceptible to damage, and may attract squatters or vandalism, and if for example, a pipe busts, there is no one there to mitigate the damage and the loss
-if insured landlord does not have a new tenant to move in, the home would be considered vacant when the current tenant moves out
-unless the insured check the dwelling regularly, they may not even know the tenant left house vacant
-as soon as insured is aware of vacancy, they are required to notify the insurer, and the insurer may choose to remain on risk by issuing a vacancy permit for additional premium
-but even with a vacancy permit, coverage for such perils as vandalism and water damage will cease as soon as the dwelling becomes vacant

Question 24

Rented Dwellings - Occupancy - too many renters

Answer 24

-most insurers restrict occupancy to no more than 2 or 3 unrelated individuals living together in a dwelling or self-contained suite in a multi-family dwelling
-sometimes even if tenant agrees under contract that the dwelling will only be occupied by one person, they may then take in roommates or sublet rooms in the house to share the rent without authorization from the landlord
-too many people occupying the same dwelling can be hazardous and may change the occupancy to a boarding house, which is a material change in risk that may render the insurance policy void

Question 25

Rented Dwellings - Vandalism and Malicious Acts

Answer 25

-damages from the tenant to a rented dwelling may include graffiti on the walls, broken windows, damages appliances, shattered mirrors, and holes in the drywall
-depending on the type of coverage purchased for the rented dwelling, there may not be coverage for vandalism and malicious acts by a tenant

Question 26

Rented Dwellings - Residential Basic Form

Answer 26

-a named-perils form that offers coverage that is simpler or more modest than the popular package of property and liability insurance
-the insured may choose to cover only the building or both the building and contents, which is why the residential form is suitable for a rented dwelling
-an amount of insurance for the building, the contents, or both must be shown on the dec page for coverage to apply
-the residential basic form may be thought of as the habitational version of the basic fire policy, and it also serves those who are ineligible for an insurer’s package policy or who have a location that is ineligible for broader coverage
-many of the features of the residential basic form are common to the HOs forms
-the dwelling building and DPS are covered for replacement cost on the same conditions as apply in the HOs forms, but the option for GRC offered under the HOs forms, is not available under the residential basic form and personal property is covered only for ACV

Question 27

“Accommodation Sharing”

Answer 27

-an arrangement set up by means of a website or mobile app in which a property primarily occupied by its owner is rented for a short time period to a third party

Question 28

Accommodation Sharing

Answer 28

-Airbnb is one of the most popular accommodation-sharing apps
-but accommodation sharing creates risk exposures and potential insurance coverage gaps for both hosts and guests
-some seasonal dwelling forms permit occasional rental, usually with a max # of rentals and max # of rental days, but others may not
-the HOs policy wordings can vary among insurers, and they may have a number of exclusions that limit coverage for exposures arising from accommodation sharing, including property damage exclusions, theft exclusions, and liability exclusions

Question 29

Accommodation Sharing - Property Damage Exclusions

Answer 29

The following types of property damage exclusions could affect coverage in accommodation-sharing cases:
-damage to the dwelling and contents of hosts
-damage to the property of guests

Question 30

Accommodation Sharing - Property Damage Exclusions
1. Damage to the Dwelling and Contents of Hosts

Answer 30

-the IBC HOs forms exclude damage to the dwelling and contents if the building is used in whole or in part for business purposes
-“business” is defined in the policy as “any continuous or regular pursuit undertaken for financial gain, including a trade, profession or occupation”
-for the exclusion to apply to accommodation -sharing rental depends on whether this is considered a business purpose, and it also depends on how “continuous or regular” is determined. This likely relates to how often and for how long the property is rented
-Quebec has enacted legislation that states that hosts who “regularly” rent their properties are considered to be running businesses and are subject to the same legislation as hotels and B&B operations. Legislation does not clearly define “regular” and “occasional”, so the issue will likely be clarified through court-case decisions
-if homeowners rent any part of their home, and if that rental qualifies as a business, a claim for damage to the building or contents could be denied, and this exclusion would apply even if the rental had nothing to do with the cause of the damage
-some accommodation-sharing service providers include coverage to protect hosts from damage caused by guests, which may fill some of the coverage gaps left by the exclusions in the HOs forms
-under its “host guarantee”, and subject to certain limitations, AirBnB covers up to a specified amount in damage to the host’s property caused by a guest
-the “host guarantee” is provided under Airbnb’s policy with its insurer, and the host is not a party to the contract and has no rights under it, so if Airbnb or its insurer decides there is no coverage, the host has no legal recourse

Question 31

Accommodation Sharing - Property Damage Exclusions
1. Damage to Property of Guests

Answer 31

-the guest’s personal property is not covered under the host’s insurance policy due to the policy exclusion for property of roomers or boarders
-the policy extends to cover uninsured personal property of others while on the premises but not the property of roomers or boarders who are not related to the homeowner
-many property policies cover the property of an insured who is temporarily residing at non-owned premises worldwide, this the guest could seek indemnity for damaged property under the guest’s own policy
-also if the guest’s property is damaged because of the host’s negligence or due to a negligent condition of the property, the guest could sue the host to recover this loss, the guest may even have a claim against the accommodation-sharing service provider

Question 32

Accommodation Sharing - Theft Exclusions

Answer 32

-homeowners forms also exclude LoD due to theft or attempted theft from the part of the dwelling rented to others, such as if guests break into a locked room while renting a home and steal the host’s valuables, the host’s insurer will not cover the claim
-the exclusion depends to some extent on the terms of the rental agreement, because if the entire home is rented, it seems clear that theft of any property is excluded, but if a single room is rented, property stolen from other parts of the home could be covered
-due to the wording of the exclusions, it can apply to thefts that are not committed by a guest or thefts that occur while the home is not rented by a guest

Question 33

Accommodation Sharing - Insurance Issues Related to Housing

Answer 33

-other than Airbnb’s Host Protection Insurance, there has not been a lot of movement in the insurance industry on coverage specific to people hosting on Airbnb
-New York-based Insurance Information Institute, Airbnb is described as “peer-to-peer home rental” or a “peer-to-peer financial arrangement”, which is a concept familiar to some insurer providing coverage with respect to carsharing
-urges people considering providing accommodation sharing to speak with their insurer before they do to find out what the insurer’s policy might be
-if a one time event, the insurer may allow policyholders to proceed without any special endorsement or change in policy
-the Insurance Information Institute also notes that if a person plans to regularly provide short-term rentals, standard homeowners policies do not provide any coverage for business activities conducted in the home, and in such a situation, it suggests a business policy covering a hotel or B&B is required

Question 34

Seasonal Dwellings

Answer 34

-an insured may own a second dwelling for purely recreational purposes, occupying it on weekends or for other short periods of time, often during the spring and summer months, may be located on a lakefront, in the mountains, in a rural or rugged area, or at a resort
-seasonal dwellings are usually covered for limited named perils
-unlike other types of dwelling, a seasonal dwelling may be allowed to remain unoccupied for longer periods of time without penalties
-a seasonal dwelling may be added as a separate location on the same policy - perhaps a homeowners form - as the principal residence, alternatively, the insured may choose to cover the seasonal dwelling separately on a seasonal residence form

Question 35

Seasonal Dwellings - Seasonal Residence Form

Answer 35

-the Seasonal Residence form is a named-perils policy similar to the residential basic form
-in the seasonal from, the optional extensions of coverage under Coverage A - Dwelling Building do not include two extensions found in the residential basic form concerning fair rental value:
1. fair rental value as a result of damage to the dwelling by an insured peril
2. fair rental value because access has been prohibited by civil authority

-in the seasonal form, the optional extensions of coverage under Coverage C - Personal Property do not include three extensions found in the residential basic form:
1. personal property away from premises
2. additional living expense as a result of damage to the dwelling by an insured peril
3. additional living expense because access has been prohibited by civil authority

-in the seasonal form, the standard named perils omit vandalism or malicious acts, but the seasonal form allows the insured to add coverage for that peril and two others by showing them on the coverage summary page and paying an additional premium:
>burglary or robbery
>vandalism or malicious acts
>glass breakage

-if the insured chooses to add coverage for burglary or robbery, then the seasonal form applies special limits of insurance under Coverage C to loss from that peril to the following property:
>securities
>money, including cash cards or bullion
>jewellery, watches, gems, fur garments and garments trimmed with fur
>numismatic property (such as coin collections)
>manuscripts, stamps, and philatelic property (such as stamp collections)
>collectible cards (such as sports personality cards)
>each bicycle, its equipment and accessories

-the other terms and conditions of the seasonal residence form are broadly similar to those of the residential basic form

Question 36

Hobby Farms

Answer 36

-HOs forms exclude coverage for “buildings or structures used in whole or in part for business or farming purposes”
-if for example, the insured has buildings where equipment (such as tractors) and supplies are kept or buildings where livestock are housed, these buildings and the equipment in them are not covered under a homeowners form
-to cover small, personal faming operations, or “hobby farms”, many insurers offer a special policy form or rider to cover limited farming activities
-this form may be a hobby farm policy, sometimes called a country estate policy, of a hobby farm rider attached to a homeowners form
-hobby farm eligibility and coverage differs from insurer to insurer

-to determine whether the risk qualifies as a hobby farm under a homeowners policy, each insurer has specific guidelines; examples:
>primary dwelling owner-occupied
>less than 25 acres
>max of 5 farm animals
>max of 10 poultry
>max income from farming operations of $10,000
>no employees involved in farm operations
>no custom farming, horse boarding, training, or riding facilities
>max $25K of farm equipment
>max $25K of farm-related outbuildings

-a hobby farm policy or rider provides coverage for the dwelling and personal property under a homeowners form (for named perils or all risks), and the exclusion of buildings used in whole or in part for farming purposes is removed and other, specialized coverage are added.

-the policy usually provides coverage for the following:
>outbuildings used for farming purposes (listed on policy along with value of building)
>livestock, which may include coverage for livestock mortality, feed, and other material such as saddles and tack (farm animals such as horses or goats may be insured on a blanket basis or listed individually)
>poultry and eggs (livestock or poultry is covered for either named perils or all risks, with exclusions specific to farm animals)
>farm produce
>farm equipment (farm machinery may be insured against named perils or all risks and either listed individually or covered on a blanket basis

-exclusions specific to a farming operation are added to the policy or rider, for example:
>Coverage for livestock may exclude injury to an animal caused by surgery
>coverage for farm equipment may exclude mechanical breakdown
>coverage for farm produce may be excluded while it is in or on the ground

-any farming operation that does not meet the hobby farm guidelines or requires coverage beyond that available in a hobby farm policy or rider will be written on a farm policy