Chapter 20 Outline
I. Homeowners Insurance
A. Eligible Dwellings
1. Residential structures, contents
2. Owner occupied
3. Acceptability issues
4. Structural issues:
a. design, purpose, package
b. how to analyze sections – physical damage versus legal liability for damage,
injury
B. Overview of Homeowners Policies
1. HO-2 (broad form) covers the dwelling, other structures, and personal property on a
named perils basis.
2. HO-3 (special form) covers the dwelling and other structures on a risk-of-direct-
physical loss basis. All direct physical losses are covered except those losses
specifically excluded. Personal property, however, is covered on a named perils
basis.
3. HO-4 (contents broad form) covers a tenant’s personal property on a named perils
basis. Up to 10 percent of the insurance on personal property can be applied to any
building additions or alterations by the insured.
4. HO-5 (comprehensive form) provides open perils coverage (―all-risks coverage‖) on
the dwelling, other structures, and personal property. All direct physical losses are
covered except those losses specifically excluded.
5. HO-6 (Unit-Owners Form) covers personal property on a named perils basis. A
minimum of $5000 of insurance is also provided on the condominium unit that
covers improvements and additions and certain other types of property.
6. HO-8 (Modified Coverage Form) is specifically designed for older homes.
C. Determination of Policy Amounts
1. Once the insured has selected the amount of insurance on the dwelling (Coverage
A), all other Section I coverages are percentages of Coverage A.
2. Section II—minimum liability limits are the same for all the homeowners policies.
II. Analysis of Homeowners 3 Policy (Special Form)
A. Persons Insured
1. Named insured and spouse
2. Resident family members
3. Other persons under age 21 in the care of an insured
4. Full-time students under age 24 away from home
B. Section I—five basic coverages
1. Coverage A—Dwelling. It covers the dwelling and attached structures, as well as
materials and supplies used to construct, repair, or alter the dwelling or other
structures.
2. Coverage B—Other Structures. Other structures include a detached garage, tool
shed, or horse stable. The amount of insurance is 10 percent of Coverage A.
3. Coverage C—Personal Property. Personal property is covered anywhere in the
world. The amount of insurance under Coverage C is 50 percent of Coverage A,
which can be increased if desired. However, if personal property is usually located
at another residence, such as a cabin or vacation home, the off-premises coverage is
limited to 10 percent of Coverage C,
or $1000, whichever is greater. Special limits apply to items that are particularly
subject to theft.
4. Coverage D—Loss of Use. The Coverage D amount is 30 percent of Coverage A.
Three benefits are provided—additional living expenses, fair rental value, and
prohibited use.
5. Additional coverages include cost of debris removal; repairs needed to prevent
further damage; limited coverage of trees, shrubs, plants, and lawns; up to $500 for
a fire department service charge; loss of credit cards, electronic fund transfer cards,
forgery of checks, and counterfeit money up to $500; broad coverage of property
removed from premises threatened by a covered peril for up to 30 days; loss
assessment charge up to $1000; certain collapse losses; coverage for glass or safety
glazing material; coverage for landlord’s furnishings up to $2500; limited coverage
for increased construction costs because of some ordinance or law; and coverage of
grave markers up to $5000.
C. Deductible—a deductible of $250 applies to each covered loss. The deductible can be
increased with a reduction in premiums.
D. Perils Insured Against in HO-3, Section I
1. Under Coverages A and B, all direct physical losses are covered except certain
losses specifically excluded.
2. Under Coverage C, personal property is covered only for certain named perils.
E. Section I Exclusions
Certain exclusions apply to Coverages A and B:
1. Collapse, except collapse losses covered under ―additional coverages‖
2. Freezing of plumbing, heating, air conditioning, or automatic fire protection
sprinkler system unless heat is maintained or the water supply is shut off and
drained. However, if the building has an automatic sprinkler system, the insured
must continue the water supply and maintain heat in the building.
3. Damage to pavements, patios, swimming pools, and similar structures from ice,
water pressure, freezing, and thawing
4. Theft of materials and supplies from a dwelling under construction
5. Vandalism, malicious mischief, and glass breakage if the dwelling is vacant for
more than
60 consecutive days immediately before the loss
6. Mold, fungus, or dry rot losses
7. Other exclusions
Certain additional exclusions also apply to Coverages A, B, and C. Losses resulting
directly or indirectly from any of the following are excluded:
1. Ordinance or law
2. Earth movement
3. Water damage, such as flood, sewer back up, and seepage
4. Power failure off the residence premises
5. Neglect of the insured to save and preserve the property after a loss
6. War
7. Nuclear hazard
8. Intentional loss
9. Government action
10. Weather conditions that otherwise are excluded
11. Failure to act by any person, group, or government body
12. Faulty, inadequate, or defective planning and design
F. Section I Conditions include the following:
1. Duties after a loss—include giving immediate notice, protecting the property from
further loss or damage, and preparing an inventory of damaged personal property.
The insured may also be required to exhibit the damaged property and file a proof
of loss within 60 days after the insurer’s request.
2. Loss settlement—for personal property, the basis of payment is actual cash value.
For dwellings and other structures, the basis of payment is replacement cost
provided the insured carries insurance at least equal to 80 percent of the
replacement cost of the dwelling. If not, the insured will receive the larger of the
actual cash value or an amount determined by a special formula.
3. Loss to a pair or set
4. Appraisal clause
5. Other insurance and service agreement
6. Suit against the insurer
7. Insurer’s option to repair or replace the damaged property with like property
8. Loss payment—paid to named insured
9. No abandonment of property
10. Mortgage clause—protects the mortgagee’s interest
11. Policy period
12. Concealment or fraud
G. Section I and II Conditions
1. Liberalization clause
2. Waiver or change of policy provisions
3. Cancellation
4. Nonrenewal of the policy
5. Assignment of the policy
6. Subrogation
7. Death of named insured or spouse