Study 5 - Anatomy of a Property Policy: The Homeowners Forms

Question 1

What does the First Explanatory Statement contain in A Guide to Your Policy?

Answer 1

It distingushes between Section I, on property insurance, and Section II, on liability insurance.

Question 2

What does the Second Explanatory Statement contain in A Guide to Your Policy?

Answer 2

As required by statute, this clause notes that various provisions limit the policy’s coverage and advises the insured to read the policy carefully. This statement also reminds the insured that insurance cannot be a source of profit, only an indemnity for actual losses incurred.

Question 3

What does the Agreement Between Insurer and Insured contain in A Guide to Your Policy?

Answer 3

It says simply that the insurer provides the insurance described in the policy in return for payment of the premium and subject to the specified terms. All monetary amounts are expressed in Canadian currency.

Question 4

What terms are defined in the Basic Form definition clause?

Answer 4

• Business
• Coverage Summary Page
• Data
• Domestic Water Container
• Dwelling
• Ground Water
• Insured
• Premises
• Residence Employee
• Spouse
• Surface Waters
• Terrorism
• Vacant
• Watermains
• We, Us, or Our
• You or Your

Question 5

What terms are defined in the Broad and Comprehensive Form definition clauses?

Answer 5

• All terms not defined in the Basic Form
• Three terms no defined in Basic: Data Problem, Fungi & Spores
• Vacant is defined slightly differently

Question 6

Define business.

Answer 6

Any continuous or regular pursiut undertaken for financial gain, including a trade, profession or occupation.

Question 7

Define coverage summary page.

Answer 7

Coverage Summary Page is the clear legal term for Declarations: statemetns included in a policy that are agreed to by the insured and form the basis of the contract of insurance.

Question 8

Define data and data problem.

Answer 8

Data: Representations of information or concepts in any form.

Data problem: Erasure, destruction, corruption, misappropriation, or misinterpretation of data; error in creating, amending, entering, deleting, or using data; or inability to receive, transmit, or use data.

Data problem is not defined in the Basic form due to it not being a part of the named perils.

Question 9

Define domestic water container.

Answer 9

A device or apparatus for personal use on the premises for containing, heating, chilling, or dispensing water.

Exmamples: Hot water heating tanks and their piping and radiators, hot water storage tanks and associated piping, water reservoirs and dispensers, bathtubs, sinks, toilets, aquariums or waterbeds, outdoor private swimming pools, wading pools, ornamental pools or ponds, hot tubs.

Question 10

Define dwelling.

Answer 10

The building described on the Coverage Summary Page, wholly or partially occupied by the insured as a private residence. Used to distinguish the residence from outbuildings.

Question 11

Define fungi.

Answer 11

Includes, but is not limited to, any form or type of mould, yeast, mushroom, or mildew, whether or not allergenic, pathogenic, or toxigenic, and any substance, vapour, or gas produced by, emitted from, or arising out of any fungi or spore(s) or resultant mycotoxins, allergens, or pathogens.

Data problem is not defined in the Basic form due to it not being a part of the named perils.

Question 12

Define fungi.

Answer 12

Includes, but is not limited to, any form or type of mould, yeast, mushroom, or mildew, whether or not allergenic, pathogenic, or toxigenic, and any substance, vapour, or gas produced by, emitted from, or arising out of any fungi or spore(s) or resultant mycotoxins, allergens, or pathogens.

Fungi is not defined in the Basic form due to it not being a part of the named perils.

Question 13

Define ground water.

Answer 13

Water in the soil beneath the surface of the ground, including but not limited to water in wells and in underground streams, and percolating waters. May constitute the water table or water from heavy or prolonged rain or melting snow, hail, or ice that is percolating to the water table.

Question 14

Define insured.

Answer 14

The person(s) named as insured on the Coverage Summary Page and, while living in the same household, the insured’s spouse; the relatives of the insured or spouse; and any person under 21 in their care. In addition, a student who is enrolled in and actually attends a school, college, or university and who is dependent on the named insured or his or her spouse for support and maintenance is also insured even if temporarily residing away from the principal residence stated on the Coverage Summary Page.

Question 15

Define premises.

Answer 15

The land contained within the lot lines on which the dwelling is situated. Does not include municipal property adjacent to the insured premises, including boulevards, sidewalks or roadways.

Question 16

Define residence employee.

Answer 16

A person employed by the insured to perform duties in connection with the maintenance or use of the premises. This includes persons who perform household or domestic services or duties of a similar nature for the insured. This does not include persons while performing duties in connection with the business of the insured.

Question 17

Define spores.

Answer 17

Includes, but not limited to, any reproductive particle or microscopic fragment produced by, emitted from, or arising out of any fungi.

Spores is not defined in the Basic form due to it not being a part of the named perils.

Question 18

Define spouse.

Answer 18

Either of a man and a woman who are married to each other or who have together entered into a marriage that is voidable or void, or either of two persons who are living together in a conjugal relationship outside marriage and have so lived together continuously for a period of three years or, if they are the natural or adoptive parents of a child, for a period of one year.

Question 19

Define surface waters.

Answer 19

Water on the surface of the ground where water does not usually accumulate in ordinary watercourses, lakes, or ponds. Could be due to heavy downpour of rain or a rapid melting of snow or ice that cannot dissipate quickly enough. May also include the escape of water from any source which travels over the surface of the ground.

Question 20

Define terrorism.

Answer 20

An ideologically motivated unlawful act or acts, including but not limited to the use of violence or force or threat of violence or force, committed by or on behalf of any group(s), organization(s), or government(s) for the purpose of influencing any government and/or instilling fear in the public or a section of the public. Does not apply to individuals not acting on behalf of a group or malicious acts or vandalism that may occur during a lawful demonstration.

Question 21

Define vacant.

Answer 21

Refers to the circumstance where, regardless of the presence of furnishings, all occupants have moved out with no intention of returning and no new occupant has taken up residence; or, in the case of a newly constructed house, no occupant has yet taken up residence. When a property is vacant, it is at greater risk of vandalism, fire, and burglary.

Question 22

Define watermains.

Answer 22

Pipes forming part of a water distribution system, which convey consumable water but not waste water.

Question 23

Define unoccupancy.

Answer 23

Applies to a building with no people in it but to which people intend to return.

Question 24

Define We, Us, or Our.

Answer 24

The company providing the insurance.

Question 25

Define You or Your.

Answer 25

Refer to the insured.

Question 26

What does Coverage A of the Homeowners Forms apply to?

Answer 26

Coverage A - Dwelling Building

Applies to the dwelling itself and certain other property on the premises including but not limited to: carports, solariums, conservatories, patio covers, and decks, outdoor swimming pools, and permanently installed outdoor equipment on the premises. Also applies to materials and supplies intended for use in construction, alteration or repair of the dwelling.

Question 27

When does coverage against theft apply to the dwelling?

Answer 27

Only when the dwelling is completed and ready to be occupied.

Question 28

How much coverage may be applied to building fixtures and fitting temporarily removed from the premises for repair or seasonal storage?

Answer 28

10 percent of the amount of insurance on Coverage A.

Question 29

How much coverage may be applied to trees, plants, and shrubs on the premises?

Answer 29

5 percent of the amount of insurance on Coverage A. Loss under this option is limited to fire, lightning, explosion, impact by aircraft or land vehicles, riot, and vandalism or malicious acts.

Question 30

What does Coverage B of the Homeowners Forms apply to?

Answer 30

Coverage B - Detached Private Structures

Applies to structures that are seperated from the dwelling building by a clear space, or are connected to the building by only a fence, utility line, or other similar connection including but not limited to: detached garages, garden sheds, greenhouses, pergolas, free-standing sundecks.

Question 31

What does Coverage C of the Homeowners Forms apply to?

Answer 31

Coverage C - Personal Property

Applies to all movable or temporary property - furniture, clothing, even stocks or bond. It is the opposite of real property (fixed).

Question 32

What 3 parts is Coverage C broken down into?

Answer 32

1. Contents of dwelling and personal property owned, worn or used on the premises.
2. Property away from the premises.
3. Property of a student.

Question 33

What are the differences in Coverage C between the Homeowners forms?

Answer 33

The 3 forms all have the same coverages - the only difference is in the property temporarily removed to a storage warehouse;

Comprehensive: covered for up to 30 days for all perils normally insured, longer than 30 days for theft.

Basic & Broad: coverage for up to 30 days for theft only.

Question 34

What is included in part one of Coverage C?

Answer 34

Contents of dwelling and personal property owned, worn, or used on the premises - includes personal property usual to the ownership or maintenence of the dwelling and all furnishings, clothing, sundries and any other items not fastened to the building. Many forms will allow the insured to include uninsured personal property of other while on the premises.

Question 35

What is included in part two of Coverage C?

Answer 35

The second part of Coverage C covers the insured’s personal property temporarily away from the premises anywhere in the world. This coverage also extends to property in the insured’s possession owned by someone else.

Question 36

What is included in part three of Coverage C?

Answer 36

Part three of coverage C covers the personal property of any student insured by the policy who is temporarily living away from home to attend school.

Question 37

What is meant by blanket limit?

Answer 37

All items of personal property insured under Coverage C are covered by a single amount of insurance called a blanket limit because there are too many items to list each item with a seperate limit. Due to this, Coverage C has it’s own exclusions and limitations.

Question 38

What are the three types of property excluded under Coverage C?

Answer 38

• Motorized vehicles or their equipment (except: snowblowers, watercraft, lawnmowers, other gardening equipment, wheelchairs or scooters designed to carry a person with a physical disability.
• Camper units, truck caps, trailers of their equipment.
• Aircraft or their equipment.

Question 39

What does Coverage D of the Homeowners Forms apply to?

Answer 39

Coverage D - Additional Living Expenses

Applies to indirect losses that arise when certain circumstances force temporary unoccupancy in all or part of the dwelling building.

Question 40

What 3 parts is Coverage D broken down into?

Answer 40

1. Additional Living Expense
2. Fair Rental Value
3. Prohibited Access

Question 41

Explain Additional Living Expense.

Answer 41

An insured peril may render the insured dwelling unfit for occupancy or force the insured to move out while repairs are being made. Under the additional living expense coverage, the insurer will pay for any necessary increase in living expenses, including moving expenses incurred by the insured, so that the insured’s household can maintain its normal standard of living.

Question 42

Does the Additional Living Expenses coverage end when the policy expires?

Answer 42

No. Even if the policy is not renewed during the restoration period or the estimated restoration period, the additional expenses incurred continue to be covered, up to the limit of Coverage D or until the dwelling is fit for occupancy, whichever comes first. The coverage will cease once the insured takes up residency in a new location.

Question 43

Explain Fair Rental Value.

Answer 43

If an insured rents part of the dwelling or detached private structure to a tenant, the insured may also lose this rental income and they may be entitled to claim fair rental value. The insured must provide proof of the tenant.

Question 44

Explain Prohibited Access.

Answer 44

When civil authorities such a the police or other authorized emergency personnel order the insured dwelling’s occupants to move out the insured may be eligible for Prohibited Access coverage. The resulting additional living expenses or loss of fair rental value to the insured is covered but only up to two weeks.

Question 45

What two reasons might an insured be eligible for Prohibited Access coverage?

Answer 45

1. A neighbouring premises has sustained damage that poses danger to the insured premises. Coverage applies when the neighbouring premises was damaged by a peril that would have been covered under the insured’s Homeowners form if it had occurred to the insured dwelling.
2. A mass evacuation is required as a direct result of a sudden and accidental event within Canada or the United States. Mass evacuation is not an insured peril but a civic emergency.

Question 46

What is an extension?

Answer 46

A feature of policy wording that enhances the coverage offered by the policy. It is part of the policy wording, rather than added to it.

Question 47

What is the purpose of the Debris Removal Extension?

Answer 47

It provides coverage for the cost of demolition following a loss. The IBC Homeowners forms apply an additional 5 percent to the sum of the amounts of insurance for Coverages A, B, and C.

Question 48

What is the purpose of the Property Removed extension?

Answer 48

This extends any insurance remaining after a loss to cover insured property removed from insured locations to prevent further damage. The extension in the Basic Fire Policy applies for 7 days, the Homeowners forms apply for 30 days.

Question 49

What is the purpose of the Moving to Another Home extension?

Answer 49

If the insured acquires a new dwelling in Canada that is to be occupied as a principal residence by the named insured, the homeowners forms will extend coverage to personal property while in transit to the new residence and for up to 30 days thereafter or until the policy expires.

Question 50

What is the purpose of the Fire Department Charges extension?

Answer 50

Many fire departments charge residents for services. The threat of this cost may deter homeowners from reporting fires until things get out of control. This extension is meant to encourage insureds to call the fire department - offering a $1,000 limit to cover these expenses. This coverage is not subject to a deductible.

Question 51

What is the purpose of the Change of Temperature extension?

Answer 51

If loss is caused by change of temperature. Applies to indirect loss involving personal property kept in the dwelling that would not normally be recoverable under the policy, but there must be direct damage to the dwelling or equipment caused by an insured peril to qualify for coverage. For example, if a window in your house was broken as an attempted theft, and cold air enters a room which contains plants that died. Because theft is an insured peril, the indirect loss to the plants would be covered.

Question 52

What is the purpose of the Freezer Food extension?

Answer 52

Applies when there is a change in temperature within a food freezer that cause spoilage and resultant loss of food items. Does not need to be in the dwelling, just on the premises. A dollar limit applies - not subject to a deductible. Does not apply to refrigeration units.

Question 53

What does the Freezer Food extension indemnify the insured for?

Answer 53

• the value of the spoiled food
• damage to the freezer caused by the spoilage (for example, the smell)
• reasonable expenses incurred to prevent the food spoilage while the freezer is being repaired (for example, a public cold storage facility)

Question 54

In order for the Freezer Food extension to apply, what must the cause of loss be?

Answer 54

• accidental interruption of electrical power on- or off-premises
• mechanical breakdown of the freezer

Question 55

What is the purpose of the Lock Replacement extension?

Answer 55

Helps reduce the potential for future loss by protecting the dwelling from unwanted entry and subsequent theft. Financial assistance is available to re-key locks or replace them, the insured is required to report theft of keys to law enforcement to avoid insureds using this extension when keys are lost.

Question 56

What is the purpose of the Tear Out endorsement?

Answer 56

The extension will pay to repair only the parts that must be torn apart to repair the damage and prevent further damage by an insured peril. When the source of water is not immediately clear, finding it may involve “chasing the leak” - tearing apart the insured building even in parts where no direct damage to the building has occured. This is not covered under this extension. It also does not cover the cost of tearing out and replacing property to repair damage related to outdoor swimming pools or public watermains.

Question 57

What is the purpose of the Arson Conviction Award?

Answer 57

It can be paid the the insured or anyone who provides information that leads to the conviction of the guilty party that committed arson. The limit is $1,000 in the IBC forms. The extension is not subject to a deductible.

Question 58

What is the purpose of the Credit or Debit Cards, Forgery and Counterfeit Money extension?

Answer 58

Not all cardholder agreements are uniform and in some cases cardholders may be financially responsible for some losses due to fraud. This extension offers some protection against such loss, subject to limitations It also offers coverage against losses suffered by the insured for accepting in good faith counterfeit Canadian or American currency, limited to $200 for any one transaction, with a limit of $1,000 for the policy period. This coverage is not subject to a deductibleWhat .

Question 59

What are the limitations for the Credit or Debit Cards, Forgery and Counterfeit Money extension

Answer 59

• The coverage only applies to cards issued to or registered in the name of the 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 the 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.

Question 60

What is the purpose of the Inflation Protection extension?

Answer 60

Because inflation continues to accrue through the policy term, after a loss or at policy renewal the Inflation Protection extension automatically increases the amounts of insurance for inflation since the inception or most recent renewal or change.

Question 61

What is the insured perils clause?

Answer 61

It describes the essential protection offered by the policy: the cause of loss to insured property that may be covered under the policy. It is that protection - extended, limited and refined by the other clauses in the policy - that the insurer provided in return for payment of premium under the Agreement.

Question 62

What are the difference between the insured perils between the Basic, Broad and Comprehensive Homeowners Forms?

Answer 62

Basic - Named perils, including Theft, Glass Breakage and Transportation
Broad - All risks on the dwelling building and detached private structures, the same named perils as Basic on personal property
Comprehensive - All risks on all items

Question 63

When are basic policies preffered?

Answer 63

When the 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.

Question 64

What is the Notice to Authorities Clause?

Answer 64

When the loss or damage is due to malicious acts, burglary, robbery, theft, or attempted theft, the event must be reported by the insured to the police or other relevant law enforcement authority. Since most people who hesitate to file a false police report due to the risk of arrest and prosecution, this helps insurers to reduce fraud. Also increases the insurer’s prospects for subrogation after the claim has been settled.

Question 65

What is the Exclusion clause?

Answer 65

Risks, perils, or properties defined in the policy as not covered. Type of property that are not insured, perils that are never or sometimes not insured against.

Question 66

What is a specified peril?

Answer 66

In the IBC all-risks Habitational forms, some of the exclusions that limit coverage are qualified by exceptions to those exclusions in the form of the Specified Perils. Thus, the exclusion applies to all losses except a loss that is caused by one of the specified perils. (vs. the insured perils for Named Perils forms).

Question 67

What is the Basis of Claim Payment clause?

Answer 67

It includes the details of how the amount of indemnity will be calculated. The clause opens with a statement limiting the insurer’s liability for loss or damage to the dwelling, detached private structures and personal property to the insured’s financial interest or the amount of insurance, whichever is less.

Question 68

Describe actual cash value.

Answer 68

The fair market value of property, taking into account factors that might augment or reduce the value of the property in question. Actual cash value (ACV) is usually calculated in one of three ways: (1) cost to repair or replace less depreciation; (2) fair market value; or (3) consideration of all relevant evidence of the value of the damaged property.

Question 69

Why might actual cash value sometimes be considered unfair and subjective?

Answer 69

Some property has a personal value to an insured greater than its economic value. Changes in technology may not allow a fair comparison of damaged property with the new property that would replace it. And it may impose financial hardship on an insured to pay the difference between actual cash value and the cost to replace it.

Question 70

Describe replacement cost.

Answer 70

Insurance coverage that indemnifies for loss or damage to insured property at the current market price rather than at a depreciated value. Thus, the rating and premium are based on the current cost to replace the insured property.

Question 71

What are the conditions the insured must satisfy to receive the replacement cost of a damaged or destroyed building?

Answer 71

1. Replacement must be made promptly.
2. Replacement must be on the same location.
3. Payment will be limited to the cost of repairing or replacing (whichever is less) on the same site with new materials or property of like kind and quality and for like occupancy.
4. Settlement will be made only when the work is completed and then for no more than the actual cost of the work.

Question 72

What is guaranteed replacement cost?

Answer 72

An undertaking by the insurer to pay the cost of repairs to or replacement of the dwelling building even if it is more than the amount of insurance on the dwelling building, provided certain conditions are met in addition to those that normally govern settlement at replacement cost.

Question 73

What are the conditions of guaranteed replacement cost?

Answer 73

1. The amount of insurance on the dwelling building be kept at not less than the cost to replace the dwelling building, as determined by a valuation guide acceptable to the insurer.
2. The amount of insurance on the dwelling building not be reduced below the amount determined by the valuation guide.
3. The insured notify the insurer within 90 days of the start of the work on any improvement, extension or addition to the dwelling.

Question 74

What is the basis of settlement for electronic media?

Answer 74

For electronic media, the insurer will pay the cost of reproduction from duplicates or from originals of the previous generation of the media. It will not pay the cost of gathering or assembling information or data for reproduction.

Question 75

What is the basis of settlement for other records?

Answer 75

For other records, including books of account, drawings, or card index systems, the insurer will pay the cost of blank books, pages, cards, or other materials, along with cost of actually transcribing or copying the records.

Question 76

What is the basis of settlement for all other personal property?

Answer 76

The insurer will settle losses at replacement cost for all other property except:

• articles that are inherently irreplaceable, including antiques, fine arts, paintings and statuary.
• articles whose value largely depends on their age or history, such as memorabilia, souvenirs, and collectors items.
• property that has not been maintained in good or workable condition
• property that is no longer used for its original purpose.

The insurer will only pay actual cash value for these exceptions.

Question 77

What is the Pair and Set clause?

Answer 77

Under the pair and set clause, if any articles are lost or damaged that were part of a setm the Homeowners forms calculate the loss as a reasonable and fair proportion of the total value of the set. Such loss or damage will not, however, be constructed to mean total loss of the set.

Question 78

What is the Parts clause?

Answer 78

It provides that any loss or damage to any part of the property that consists of several parts will be settled for not more than the insured value of the part lost or damaged, including the cost of installation.

Question 79

What is the Deductible clause?

Answer 79

The first paragraph of the deductible clause limits the insurer’s liability to the amount by which the loss exceeds the deductible. The second paragraph applies to the Special Limits of Insurance under Coverage C. It provides that, where the Special Limits apply, they will apply to losses that exceed the deductible amount. That ensured that the insured will not be doubly penalized by the having the deductible apply to a loss after the Special Limit has been applied to it.

Question 80

What is the Amounts Not Reduced clause?

Answer 80

It provides automatic reinstatement of the policy limit after a loss.

Question 81

What is the Insurance Under More Than One Policy clause?

Answer 81

The clause applies where one or more separate policies cover property on a schedule basis. Typically, this can occur when an insured has jewelry or other valuable property for which special policies are available. Where the insured has other insurance on specifically described property, the Homeowners Basic Form becomes excess to that scheduled insurance and will pay only after the scheduled insurance has been exhausted.

Question 82

What is the Subrogation clause?

Answer 82

The subrogation clause transfers the insureds rights of recovery against other to the insurer and entitles it to sue in the insured’s name when the insurer has made payment or assumed liability.

Question 83

What is the Duties After Loss clause?

Answer 83

It is a response to a disturbing number of fraudulent loss claims and requires the insured, after submitting a proof of loss and at the insurer’s request, to submit an examination under oath, produce relevant documents, and allow the insurer to make copies of them.

Question 84

What is the Statutory Conditions clause?

Answer 84

It provides that the Statutory Conditions apply uniformly to all perils covered by the policy but allows for modifications of those Conditions by the policy or endorsements to it.