Chapter 21 - Homeowners Insurance, Section II

Question 1

Define Claim Expenses

Answer 1

The court costs, attorney fees, and other legal expenses incurred in providing a legal defense. Additional coverage can be added to cover these.
-Also can cover up to $250 per day in actual loss of earnings.

Question 2

Define Contractual Liability

Answer 2

Legal liability of another party that the business firm agrees to assume by a written or oral contract.

Question 3

Define Damages to Property of Others. What is the purpose?

Answer 3

• Provision in Section II of a homeowners policy that pays up to $1000 per occurrence on behalf of an insured who damages someone’s property. Payment is made without regard to legal liability.
• to preserve personal friendships and keep peace in neighborhoods.

Question 4

Define Earthquake Endorsement

Answer 4

A coverage addition that covers direct physical loss to property covered under Section I and caused by an earthquake.

Covers earthquakes, landslides, volcanic eruption, and earth movement

Question 5

Define First-Aid Expenses

Answer 5

Expenses incurred by the insured for costs incurred related to bodily injury taken as a first step.

Question 6

Define Home Business Insurance Coverage Endorsement

Answer 6

Covers both business property and legal liability arising out of a home-based business.

Question 7

Define Identify Theft Endorsement

Answer 7

An endorsement to a homeowners policy that reimburses crime victims for the cost of restoring their identity and cleaning up their credit reports.

! This covers only expenses incurred and not any dollar amount that the thief actually may steal.

Question 8

Define Inflation Guard Endorsement

Answer 8

Endorsement added at the insured’s request to a homeowners policy to increase periodically the face amount of insurance on the dwelling and other policy coverages by a specified percentage.

Provides for an annual pro rata increase in the limits of insurance in the Section I coverages

Question 9

Define Insurance Score

Answer 9

A credit-based score based on an individual’s credit record and other factors that is highly predictive of future claim costs; insureds with low insurance score generally file more homeowners and auto insurance claims than insureds with good credit and higher insurance scores.

Question 10

Define Loss History Report

Answer 10

A report that reveals the prior claim history of a home.

Question 11

Define Medical Payments to Others

Answer 11

Pays for medical expenses of others under a homeowners policy in the event that a person (not an insured) is accidentally injured on the premises, or by the activities of an insured, resident employee, or animal owned by or in the care of an insured.
-The policy states the situations under which coverage applies.

Question 12

Define Occurence

Answer 12

An accident, including continuous or repeated exposure to substantially the same general, harmful conditions, which results in bodily injury or property damage during the policy period.

Question 13

Define Personal Injury

Answer 13

Injury for which legal liability arises (such as for false arrest, detention or imprisonment, malicious prosecution, libel, slander, defamation of character, violation of the right of privacy, and unlawful entry or eviction) and which may be covered by an endorsement to the homeowners policy. Also included in the coverage by a personal umbrella policy.

Question 14

Define Personal Liability

Answer 14

The liability from a claim or suit for damages that is brought because of bodily injury or property damage allegedly caused by the insured’s negligence.

Question 15

Define Personal Property Replacement Cost Loss Settlement Endorsement

Answer 15

An addition that pays claims on the basis of replacement cost with no deduction for depreciation.
-If the cost to repair or replace exceeds $500, the property must actually be repaired or replaced to receive replacement cost. Otherwise only the actual cash value is used.

Question 16

Define Personal Umbrella Policy

Answer 16

Provides an additional amount of liability insurance after the underlying coverage is exhausted.

Question 17

Define Scheduled Personal Property Endorsement (With Agreed Value Loss Settlement)

Answer 17

Provides additional coverage for nine classes of property (jewelry, furs, cameras, musical instruments, silverware, golfer’s equipment, fine arts, postage stamps, and rare and current coins) and the insurer agrees to pay the stated amount for a scheduled item if a total loss occurs

Question 18

Define Watercraft Endorsement

Answer 18

Covers watercraft that are otherwise excluded by the homeowners policy. It provides liability and medical payments coverage on any inboard or inboard-outdrive powered watercraft, sailing vessels 26 feet or more in length, and watercraft powered by one or more outboard motors exceeding 25 total horsepower.

Question 19

What does personal liability insurance protect against?

Answer 19

The named insurer and family members against legal liability arising out of their personal acts. Not negligence.

Question 20

What does the insurer pay in personal liability insurance? 2 Where is the coverage found?

Answer 20

• The insurer pays amount for which the insured is found legally liable, up to the policy limits
• The insurer also pays defense costs

-The coverage is found in Section II of the Homeowners policy

Question 21

What two liability coverages are provided to homeowners under Section II?

Answer 21

Coverage E: Personal liability, Minimum $100,000 per occurrence
Coverage F: Medical Payments to others, $1000 per person

Question 22

Under Section II, What is Coverage E? What are the three characteristics?

Answer 22

Protects the insured when a claim or suit for damages is brought because of bodily injury or property damage allegedly caused by an insured’s negligence

• The coverage is broad and based on legal liability
• The policy contains a per-occurrence limit
• The insurer provides a legal defense, even if the suit is frivolous or fraudulent

Question 23

Under Section II, What is Coverage F? What are the four characteristics?

Answer 23

A Mini-Accident policy

• Medical payments to others pays the reasonable medical expenses of another person who is accidentally injured while on an insured location, or by the activities of an insured, resident employee, or animal owned by or in the care of an insured
• The insured is not required to be legally liable
• Coverage does not apply to the insured or regular residents of the household, other than a residence employee
• Coverage applies even if the injury occurs away from an insured location

Question 24

What are the exclusions that apply to both Coverage E and Coverage F? 10

Answer 24

• Liability arising out of the use of a motor vehicle, with some exceptions
• Liability arising out of the use of an aircraft, hovercraft, or certain watercraft
• Expected or intentional injury
• Business activities, with some exceptions
• Professional services
• Liability arising out of the use of an uninsured location
• War or other hostile military acts
• Liability arising out of the transmission of a communicable disease
• Bodily injury or property damage arising out of sexual molestation, corporal punishment, or physical or mental abuse
• Liability arising out of the use, sale, manufacture, delivery, transfer, or possession of controlled substances

Question 25

How much and for how long will insurers pay under Coverage F?

Answer 25

They will pay for necessary medical expenses incurred or medically ascertained with three year from the date of the accident.

Question 26

Under medical payments to others, what are the insured locations? 8

Answer 26

• Residence premises show in the declarations
• Any other residence acquired during the policy period
• Rented garage or storage unit
• Nonowned premises where an insured is temporarily residing, such as a motel room
• Vacant land other than farmland
• Land owned or rented to an insured on which a residence is being built for an insured
• Cemetery plots or burial plots
• Parts of a premises occasionally rented to an insured for nonbusiness purposes, such as a hall rented for a wedding reception

Question 27

What exclusions apply only to Coverage E? 6

Answer 27

• Contractual liability
• Property owned by the insured
• Property in the care of the insured, with some exceptions
• Workers compensation
• Liability for a nuclear incident
• Bodily injury to an insured

Question 28

What exclusions apply only to Coverage F? 4

Answer 28

• Injury to a resident employee off an insured location
• Workers compensation
• Injuries that result from nuclear energy
• Persons regularly residing on the insured location

Question 29

What are coverages are automatically included under Section II in a homeowners policy? 4

Answer 29

• Claims expenses
• First-aid expenses
• Damage to property of others - Up to $1k per occurrence for property damage caused by an insured.
• Certain loss assessments are covered up to $1,000

Question 30

What is the condition under Section II regarding Limit of Liability? 2

Answer 30

• The insurer’s total liability under Coverage E for all damages arising from one occurrence will not be more than the limit shown in the declarations.
• The insurer’s total liability for medical expenses for bodily injury to one person resulting from an accident will not exceed the Coverage F limit shown in the declarations

Question 31

What is the condition under Section II regarding Duties after an “Occurrence”?

Answer 31

Written notice of the event must be provided to the insurer, including the time, place, circumstances, and names of any claimants and witnesses

Question 32

What is the condition under Section II regarding Duties of an Injured Person under Coverage F?

Answer 32

The injured person (or his/her representative) must provide written proof of claim and authorize the insurer to obtain copies of medical records

Question 33

What is the condition under Section II regarding No suit against insurer?

Answer 33

An insured may not sue the insurer unless the insured has complied with the conditions required in Section II

Question 34

What is the condition under Section II regarding Other Insurance?

Answer 34

The insurance is excess over other valid and collectible insurance, with some exceptions

Question 35

What is the condition under Section II regarding Concealment and Fraud?

Answer 35

No coverage is provided to an insured who concealed or misrepresented any circumstance or material fact or engaged in fraudulent conduct

Question 36

What are the main types of endorsements that can be added to a homeowners policy? 8

Answer 36

• Inflation guard endorsement
• Earthquake endorsement
• Personal property replacement cost loss settlement endorsement
• Scheduled personal property endorsement (with agreed value loss settlement)
• Personal injury endorsement
• Watercraft endorsement
• Home business insurance coverage endorsement
• Identity theft endorsement

Question 37

What are some major rating and underwriting factors? 9 Why?

Answer 37

• Type of construction - Wood burns easy = more expensive than brick
• Location of home - High probability of loss = higher rates
• Fire-protection class, which depends on the quality of the public fire department, accessibility to the fire department, water supply, and fire hydrants. Harder to put your house fire out = more you have to pay.
• Construction costs - higher to replace = higher rates
• Age of home - Older homes = More wrong = Higher rates
• Type of policy - Cost to insure -> HO5 > HO3 > HO2
• Deductible amount - higher deductible = lower rate
• Insurance score: a credit-based score that is highly predictive of future claim costs
• Loss history report - home with previous issue -> more likely for another issue = higher rate

Question 38

The amount paid under the personal property replacement cost loss settlement endorsement is limited to what?

Answer 38

The smallest of:

• Replacement cost at the time of loss
• Full repair cost
• Coverage C limit, if applicable
• Any special dollar limits in the policy (such as theft limits on jewelry, furs, and silverware)
• For loss to any item, the limit of liability applies to the item

Question 39

What are 8 tips for buying a homeowners policy?

Answer 39

• Carry adequate insurance
• Consider purchasing a personal umbrella policy
• Improve your credit record
• Don’t ignore floods and earthquakes
• Take advantages of discount
• Consider a higher property insurance deductible
• Shop around for a homeowners policy
• Add necessary endorsements