Chapter 5 - Homeowners Policy

Terms in this set (45)

In the Special Form (HO-3), the dwelling and other structures (Coverages A and B) are insured on an open perils basis, meaning all perils are insured if they aren't specifically excluded in the policy. Losses to the dwelling and other structures are valued on a replacement value basis just as they are in the HO-2. The Special Form (HO-3) specifically excludes the following causes of loss under Coverage A and B:

Collapse, except as provided by Additional Coverages
Freezing of household appliances or a plumbing, heating, air conditioning, or automatic fire protective system unless the insured has taken reasonable care to maintain heat in the building or shut off the water supply and drained the appliances and systems of water.
Freezing, thawing, pressure or weight of water or ice on patios, fences, swimming pools, foundations, piers, docks, retaining walls.
Theft in or to a dwelling under construction, including construction-related materials and supplies.
Vandalism and malicious mischief, including ensuing loss, if the dwelling has been vacant for more than 60 consecutive days immediately before the loss.
Mold, fungus, or wet rot unless resulting from accidental discharge or overflow of water or steam that is hidden from view.
Wear and tear, marring, deterioration, mechanical breakdown, latent defect, inherent vice, smog, rust, corrosion, dry rot.
Smoke from agricultural smudging or industrial operations.
Pollution including discharge, dispersal, seepage, migration, or release of smoke, vapor, fumes, acids, or other chemicals unless such discharge is caused by a Coverage C Peril Insured Against.
Settling, cracking, bulging, or expansion of foundation, walls, floors, pavements, patios.
Birds, vermin, rodents or insects.
Animals owned or kept by an insured.

Personal property (Coverage C) is insured on a named perils basis that includes the same 16 named perils in the Broad Form (HO-2). Coverage C losses are valued on an actual cash value basis. It Includes losses to a fence, driveway or walk caused by a vehicle owned or operated by the insured.

The burden of proof for losses to the dwelling and other structures falls to the insurer because coverage is provided on an open perils basis. On the other hand, the burden of proof for losses to personal property falls to the insured to show which of the 16 named perils caused the loss.
Three types of coverage are provided under Coverage D and all are for indirect, or consequential, loss. The limit of insurance appearing on the declarations for Coverage D is the total limit payable for all three types of coverage provided. For example, a wildfire burns near the insured's home. If direct damage from the wildfire occurs to the residence premises, Additional Living Expense and Fair Rental Value coverages are triggered. If direct damage from wildfire occurs to the named insured's neighbors, and a civil authority evacuates the named insured, Civil Authority Prohibits Use coverage is triggered.

Additional Living Expense
If a property loss covered by Section I of the policy makes the residence premises unfit to live in, the policy pays for any necessary increase in living expenses incurred by the named insured to maintain the household's normal standard of living. Payment is made for the shortest time necessary to repair or replace the damage. If the insured must relocate permanently, payment will be made for the shortest time it takes the insured to settle at the new location.

Fair Rental Value
If a property loss covered by Section I of the policy makes that part of the residence premises rented to others unfit to live in, the policy pays for the fair rental value of such premises - less any continuing expenses - while it's unfit to live in. Payment is for the shortest time required to repair or replace the rented portion of the premises.

Civil Authority Prohibits Use
If a civil authority prohibits the named insured from using the residence premises as a result of direct damage to neighboring premises by a peril insured against under the homeowners policy, the policy pays losses under Additional Living Expense and/or Fair Rental Value for no more than two weeks.

Loss and expenses due to the cancellation of a lease or agreement are NOT covered.

Limits of Coverage - The automatic limits of insurance for Coverage D vary by the homeowners form of coverage:
30% of Coverage A for forms HO-2, HO-3, and HO-5
30% of Coverage C for form HO-4
50% of Coverage C for form HO-6
10% of Coverage A for form HO-8
Ordinance or Law - Losses resulting from the enforcement of an ordinance or law regulating the construction, repair, remodeling, renovation or demolition of a building are excluded except what is provided in the additional coverage, Ordinance or Law.

Earth Movement - Losses resulting from: earthquake, including land shock waves or tremors before and after volcanic eruptions, landslides, mudslides, mudflow, subsidence, or sinkhole, and any earth sinking, rising, or shifting. Direct loss by fire or explosion that ensues is covered. This exclusion doesn't apply to loss by theft.

Water Damage - Water damage means flood, surface water, tidal water, overflow of a body of water, water or water-borne material that backs up through sewers or drains or that overflows from a sump pump, and water that exerts pressure on or seeps or leaks through a building, foundation, swimming pool, or other structure. Direct loss by fire, explosion, or theft resulting from water damage is covered. Water damage is excluded whether caused by human, animal, or natural forces.
Power Failure - If the failure of power or utility services takes place off the residence premises, this exclusion applies. However, if the failure of power or utility services takes place on the residence premises and is caused by a Peril Insured Against, it doesn't apply.

Neglect - There is no coverage for losses if the insured fails to use all reasonable means to save and preserve covered property at and after the time of a loss.

War - War includes the following, including any consequences of: undeclared war, civil war, insurrection, rebellion or revolution, warlike act by a military force or personnel, destruction, seizure or use for a military purpose. Discharge of a nuclear weapon is deemed warlike even if it occurs accidentally.

Nuclear Hazard - Damage is excluded by any nuclear reaction, radiation or radioactive contamination, or a consequence of any of these.

Intentional Loss - No coverage applies to any loss that arises out of any act an insured commits or conspires to commit with the intent to cause loss. In the event of intentional loss, no insured is entitled to coverage, including innocent insureds (those who did not cause the loss, but are covered on the same policy as the person who caused the loss).

Governmental Action - The destruction, confiscation, or seizure of covered property by order of any governmental or public authority is excluded. The exclusion doesn't apply to such acts taken at the time of a fire to prevent its spread, if the fire loss would be covered under the policy.