Homeowners Polices (C)

Question 1

Homeowners policies

Answer 1

The homeowners policy is a comprehensive insurance form used to insure residential risks. The homeowners and dwelling property forms have many similarities, but the homeowners form includes coverage for personal property of the insured and personal liability protection.

Note: ISO references homeowners policies as HO with a corresponding form number to denote the policy type (HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8).

Homeowners policies may be used for the following types of properties or in the following situations:

1- to 4-family owner-occupied residences;
No more than 2 families or 2 roomers or boarders per unit;
Various ownership types to include installments sale contracts, life estates, dwellings under construction, townhomes, and duplexes;
Insuring a tenant of nonowned dwelling (renter’s form);
A residential condominium or cooperative unit (under a condominium form); and
Seasonal dwellings and secondary residences.
Business occupancies may impact eligibility under the HO program. Business occupancies can be accommodated as long as they are incidental and are conducted by the insured on the dwelling premises. Permissible incidental occupancies include offices, schools or studios.

Note: Coverage for business entities is very limited in the property section of the homeowners policy. These limitations impact personal property and other structures coverage. Liability associated with a business is excluded from the policy. Endorsements can be used to provide coverage.

Question 2

Coverage Forms

Answer 2

The currently used 6 coverage forms applicable to HO policies define the coverages, perils, additional coverages, exclusions and conditions. The homeowners form includes personal liability coverage. The form is separated into sections: Section I describes the property coverage, and Section II describes the liability coverage. The form is unified by the insuring agreement, definitions, and common conditions.

Agreement;
Definitions;
Section I – Property Coverage;
Section I – Perils Insurance Against;
Section I – Exclusions;
Section I – Conditions;
Section II – Liability Coverage;
Section II – Exclusions;
Section II – Additional Coverages;
Section II – Conditions; and
Sections I and II – Conditions.
Unlike the dwelling property coverage form, use of a homeowners form is first determined by the type of residential exposure. For example, a single-family residence owned and occupied by the insured will be eligible for certain HO forms. If the insured rents a home or an apartment, a different form would be used. After the appropriate form is chosen, the ISO homeowners program offers different cause of loss forms (similar to the DP program) based on the insured’s needs and budget.

Question 3

Refer to Chapter 3 Homeowners for DP guide

Question 4

HO-2 through HO -5

Answer 4

Homeowners policies are designed to cover dwellings used primarily as private homes. Forms HO-2, HO-3, and HO-5 may be written only for the owner-occupant of a dwelling used exclusively for private residential purposes and not as a vacation home. (The owner must occupy dwelling.) However, the homeowner rules permit incidental office or professional occupancy (such as a beauty shop or a private school), as long as there are no retail sales or more than two people working at any one time. The dwelling may not contain more than one additional family, nor more than 2 roomers or boarders.

The HO-2, HO-3, and HO-5 homeowners forms provide building coverage on a replacement cost basis if the building is insured for 80% or more of its replacement cost. The modified form HO-8 provides coverage on an actual cash value basis.

Question 5

HO-2 (Broad Form)

Answer 5

provides protection for losses from named perils. There are some noticeable limitations that should be pointed out to a client. The following are not covered:

The inside of a building for damage by rain, snow, sleet, sand, or dust unless wind or hail damage first creates the opening;
The inside of a building for loss by a falling object unless the falling object first damages the roof or an outside wall;
Fences, driveways, and walks for damage from a vehicle owned or operated by a resident; or
Damage from water or steam if a dwelling is vacant for a period of more than 60 days.

Question 6

Ho-3 Special Form

Answer 6

provides protection for dwelling and other structures on an open peril basis, and personal property is covered only for broad perils. Unlike under the HO-2 (broad form), vehicle damage to fences, driveways, or walks is covered even if caused by an insured or resident.

HO-3 (special form) exclusions to the dwelling or other structures are as follows:

All property, losses, and perils not covered because of limitations of the insuring agreement and the general exclusions;
Damage caused by freezing while the dwelling is vacant, unoccupied, or being constructed unless the insured takes reasonable care to maintain heat in the premises or to shut off and drain the water supply;
Theft in or to a dwelling or structure under construction;
Vandalism and malicious mischief if the dwelling has been vacant for a certain period of time (more than 60 consecutive days in most states);
Gradual, preventable, or expected losses such as wear and tear, latent defect, contamination, bulging, or expansion of foundations, pavements, walls, or floors;
Faulty, inadequate, or defective planning, zoning, surveying, design, etc.;
Losses caused by weather conditions to the extent that they contribute to causes found in the general exclusions (e.g., flood or power failure); and
Acts, decisions, or the failure to act.

Question 7

Open perils vs named perils

Answer 7

Broader coverage Open Perils with possible exclusions
Named perils specifically listed

Question 8

HO-4 Contents broad form

Answer 8

, also referred to as tenant broad form, insures personal property for broad perils. Coverage may not be issued to an owner-occupant. The HO-4 form may be written for a tenant who resides in a rented dwelling, apartment, or mobile home, but does not provide coverage on the dwelling itself.

Question 9

HO-5 Comprehensive form

Answer 9

covers both the dwelling and other structures on an open peril basis. It also covers personal property on an open peril basis, with the exception of landlord furnishings in an apartment that is rented (or held for rental to others). Landlord furnishing is limited to $2,500 limit and provided on a named peril basis.

Another expansion of coverage is found in the definition of theft. In the HO-5, theft includes misplacing or losing of insured property, also known as mysterious disappearance.

Question 10

HO-6 Condominium Unit Owners

Answer 10

also expands coverage to include parts of the building, such as alterations and appliances that the insured is required to insure because of the condominium association agreement.

The HO-6 unit-owners form is designed for the owner-occupant of a condominium.

Under Coverage A (Dwelling), the HO-6 policy insures the following:

The alterations, appliances, fixtures and improvements that are a part of the building contained within the residence premises;
Items of real property that pertain exclusively to the residence premises;
Property that is the insured’s insurance responsibility under a corporation or association of property owners agreement; and
Structures owned solely by the insured, other than the residence premises, at the location of the residence premises.
The HO-6 under Coverage A does NOT cover any of the following:

Land, including land on which the residence premises, real property, or structures are located;
Structures rented or held for rental to any person that is not a tenant of the dwelling, unless used solely as a private garage;
Structures from which any business is conducted; or
Structures used to store business property. However, this form does cover a structure that contains business property solely owned by an insured or a tenant of the dwelling, provided that the business property does not include gaseous or liquid fuel, other than fuel in a permanently installed fuel tank of a vehicle or craft parked or stored in the structure.
Under Coverage C (Personal Property), HO-6 insures the following:

Personal property owned or used by an insured while it is anywhere in the world;
After a loss and at the insured’s request, it will cover personal property owned by:
Others while the property is on the part of the residence premises occupied by an insured; or
A guest or a residence employee, while the property is in any residence occupied by an insured.
Under the HO-6 form, Coverage D (Loss of Use) is the total limit of liability for the coverages in:

Additional living expenses;
Fair rental value; and
Civil authority prohibits use.
The HO-6 coverage form does not cover loss or expense due to cancellation of a lease or agreement.

Question 11

Ho-8 Modified Coverage Form

Answer 11

is a unique homeowners form. It is intended for use when replacement cost coverage is not practical. When the market value of the structure is considerably lower than the replacement cost, such as some older homes, this form may be useful. Listed below are some of the differences that are applicable to this form:

Question 12

Theft Coverage

Answer 12

There is also a $1,000 basic limit that applies to theft losses, and no coverage for theft of personal property off premises.

Question 13

Worldwide Coverage

Answer 13

Coverage for personal property away from the premises is limited to the larger of 10% of the personal property limit or $1,000.

Question 14

Debris Removal

Answer 14

This is not considered an additional amount of insurance and is included in the total policy limit.

Question 15

Trees, plants or shrubs

Answer 15

The maximum limit for any one tree, plant or shrub is only $250.

Question 16

Property of guests or redidence employees

Answer 16

Property may be covered only while on the insured premises.

Question 17

Coverages A and B

Answer 17

are provided on a functional replacement cost basis.

Question 18

Glass or safety glazing material

Answer 18

losses are limited to $100.

Question 19

Refer to chapter 3 section C for Covered perils (HO-2 - HO-8)

Question 20

Definitions

Answer 20

Homeowners policy forms include a Definitions section that defines several key terms. Understanding the terms used throughout the policy is critical to comprehending the extent of coverage provided. Some of the more important terms defined in the policy include the following:

Question 21

Bodily Injury

Answer 21

includes bodily harm, sickness or disease, including required care, loss of services, and death that results from the bodily injury.

Question 22

Business

Answer 22

a trade, profession, or occupation engaged in on a full-time, part-time, or occasional basis.

Question 23

Insured

Answer 23

The policy defines an insured as any of the following:

The named insured;
Relatives of the named insured who reside with the named insured;
Other persons under the age of 21 who are in the care of the insured or in the care of a resident relative of the insured residing in the insured’s household;
Full-time students who were residents of the insured’s household prior to moving out to attend school, provided they are under the age of:
24 and are the insured’s relatives; or
21 and are in the insured’s care or in the care of a relative who is a resident of the insured’s household; and
In addition, for Section II - Liability, any person legally responsible for the insured’s animals, watercraft, or certain types of motorized vehicles.

Question 24

Insured Location

Answer 24

The residence premises;
Part of other premises used by the named insured as a residence, and described in the Declarations, or newly acquired during the policy period;
A premises not owned by the insured, but where the insured is living temporarily (a motel room);
Vacant land owned or rented by the insured, excluding farmland;
Land owned or rented by the insured where a residential dwelling (1- to 4-family) is being constructed;
Individual or family cemetery plots or burial vaults of the insured; and
Any part of premises occasionally rented to an insured, except for business purposes (e.g., an insured rents a hall for a daughter’s wedding reception).

Question 25

Property Damage

Answer 25

means physical injury, destruction or loss of use of tangible property.

Question 26

Residence Employee

Answer 26

includes employees of the insured whose duties are related to the maintenance or use of the home, including doing similar duties elsewhere.

Note that the homeowners policies, the terms “you” and “your” refer to the named insured shown on the Declarations. The terms “we” and “our” refer to the company providing insurance.

Question 27

Section I Property

Answer 27

The HO policy form includes property coverage for the insured residence (Coverage A – Dwelling), other structures (Coverage B), and personal property (Coverage C – Contents), similar to dwelling forms. The fourth coverage, loss of use (Coverage D), is similar to the fair rental value and additional living expense coverage described in the broad and special dwelling forms.

All coverage forms include a basic deductible of $250, which applies to all coverages unless noted in the policy.

Question 28

Coverage A - Dwelling

Answer 28

is provided in all forms except the HO-4. The coverage is defined in a similar fashion to the dwelling property form with one exception: building equipment or outdoor equipment used for servicing the residence is no longer included in coverage A. Because contents coverage is included in all HO forms, these items will be covered in coverage C. Finally, the condominium form, HO-6, combines both coverage A and coverage B in this section of the policy.