Topic 13. Homeowners Insurance

BUS 200Introduction to Risk Management

and Insurance

Jin Park

Overview Risks faced by homeowners Types of Homeowners Policy Structure of Homeowners Policy Analysis of HO-3

Section I – Property coverages Section II – Liability coverages Endorsements

Personal Umbrella Policy

Risks Faced by Homeowners Liability

Injury to others Damage to property of others

Damage to or destruction of the home Loss of use of the home Loss of or damage to personal property Defective title

Types of Homeowners Policy Homeowner’s policy is a package policy!

Property coverage Liability coverage Limited health coverage

For Owner-Occupant HO-1: Basic Form HO-2: Broad From HO-3: Special Form HO-8: Modified Coverage

Used for special types of property: older homes ACV

For Tenants HO-4: Contents Broad Form

For Condominium unit owners HO-6: Condominium Unit Owners Form

This does not include condominium commercial-unit owners.

Types of Homeowners Policy HO FormCoverage

2 3 4 6

Coverage A – Dwelling

$15,000 minimum

$15,000 minimum

N/A $1,000 minimum

Coverage B – Other Structures

10% of A 10% of A N/A N/A

Coverage C – Personal Property

50% of A 50% of A $6,000 minimum

$6,000 minimum

Coverage D – Loss of Use

20% of A 20% of A 20% of C 40% of C

Covered Perils – A & B Named Open N/A

Covered Perils – C Named = HO-2 = HO-2 = HO-2

Types of Homeowners Policy Named Perils – Basic Form (HO-1)

Fire, lightening, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism or malicious mischief, theft, damage by glass or safety glazing material, and volcanic eruption

Named Perils – Broad Form (HO-2) falling objects, weight of ice, snow or sleet,

freezing, three categories of water-related damage from home utilities or appliances, and electrical surge damage.

Structure of Homeowners Policy

HO-3 (Special Form) Insuring Agreement

We will provide the insurance described in this policy in return for the premium and compliance with all applicable provisions of this policy.

Definitions

Section I – Property Coverages Coverage A – Dwelling

Residence Premises and Attached Structures Coverage B – Other Structures

Structures on the Residence Premises separated from the dwelling

Coverage C – Personal Property Covered property

Owned of used by any insured anywhere in the world Limit for property at other residences Special Limits Property not covered

Coverage D – Loss of Use Additional living expenses Fair rental value Civil authority prohibits use

Only up to 2 weeks

Section I – Property Coverages Coverage E – Additional Coverages

Debris Removal Reasonable Repairs Trees, Shrubs, and Other Plants Fire Department Service Charge Property Removed Credit Card, Electronic Fund Transfer Card or Access

Device, Forgery and Counterfeit Money Loss Assessment Collapse Glass or Safety Glazing Material Landlord’s Furnishings Ordinance or Law Grave Markers

Section I – Property Coverages Section I – Perils Insured Against

A. Coverage A. - Dwelling and Coverage B - Other Structures

Open perils B. Coverage C - Personal Property

Named Perils Same as HO-2 form policy

Section I – Property Coverages Section I – Exclusions

1. Ordinance or Law2. Earth movement3. Water damage4. Power failure5. Neglect6. War7. Nuclear hazard8. Intentional loss9. Government action And more …

Section I – Property Coverages Section I – Conditions

A. Insurable interest and limit of liability

B. Duties after lossC. Loss settlement

CoinsuranceD. Loss to a pair or setE. AppraisalF. Other insurance or

service agreementG. Suit against usH. Our optionI. Loss payment

Section I – ConditionsJ. Abandonment of

propertyK. Mortgage clauseL. No benefit to baileeM. Nuclear hazard clauseN. Recovered propertyO. Volcanic eruption

periodP. Policy periodQ. Concealment or fraudR. Loss payable clause

Section II – Liability Coverages Coverage E – Personal Liability

Bodily Injury Property Damage Defense Costs

Damage includes special, general, and punitive damage. Coverage F – Medical Payments to Others

Medical Expenses No-Fault

Section II – Exclusions Section II – Additional Coverages Section II – Conditions

Section II – Liability Coverages Coverage F – Medical Payments

To a person on the “insured location” with the permission of an insured

To a person off the “insured location” if the bodily injury:

Arises out of a condition on the insured location of the ways immediately adjoining

Is caused by the activities of an insured Is caused by a residence employee in the course of

employment Is caused by an animal owned by or in the care of an

insured

Section II – Liability Coverages Section II - Exclusions

A. Motor vehicle liabilityB. Watercraft liabilityC. Aircraft liabilityD. Hovercraft liabilityE. Additional exclusions to Coverage E & FF. Exclusions to Coverage E only

A. PD to property owned by or rented to an insuredB. BI which should be covered by workers compensation law,

non-occupational disability law, or occupational disease law

C. BI and PD which can be covered by nuclear energy liability policy

G. Exclusions to Coverage F only

Section II – Liability CoveragesE. Additional Exclusions to Coverage E & F

1. Expected or intended injury2. Business3. Professional services4. Insured’s premises not an insured location

Premises are owned by, rented to, and rented to others by an insured, but not insured.

5. War6. Communicable disease7. Sexual molestation, corporal punishment or physical or

mental abuse8. Controlled substance

Section II – Liability CoveragesSection II – Additional Coverages

These are in addition to limits of liabilityA. Claim ExpensesB. First Aid Expenses

No payment for first aid to an insured

C. Damage to Property of Others At replacement cost up to $1,000 per occurrence for

PD to property of others caused by an insured We will not pay for PD… (see page 568)

D. Loss Assessment Up to $1,000 for an insured’s share of loss

assessment charged

Section II – Liability CoveragesSection II – Conditions

Limit of Liability Severability of Insurance

Insurance applies separately to each insured Duties After Occurrence Duties of An Injured Person – Medical Payments Payment of Claim – Medical Payments Suit Against the Insurer Bankruptcy of An Insured Other Insurance Policy Period Concealment or Fraud

HO-3 Other Provisions Section I and II – Conditions

Liberalization Clause Insurer automatically broadens the coverage available

though the policy if the insurer has instituted a change that broadens all homeowners policies without charging additional premium.

Cancellation Insured may cancel the policy at any time Insurer may cancel the policy only for reasons with a prior

notice 10 days written notice

Non-payment of premium For any reason - If the policy is not a renewal policy and in

effect for less than 60 days. 30 days written notice

Material Misrepresentation, substantial change in risk - If the policy is in effect for more than 60 days.

For any reason - If the policy is written for more than a year

HO-3 Other Provisions Section I & II – Conditions

Waiver or Change of Policy Provisions Must be in writing Nonrenewal Requires at least 30 days’ written notice

Assignment Subrogation Death

HO-3 Endorsements Earthquake Endorsement

To provide protection for property against losses caused by earthquake, including land shock waves or tremors before, during or after a volcanic eruption.

All earthquakes occurring in a 72-hour period are considered a single occurrence.

Personal Property Replacement Cost Endorsement This endorsement changes the settlement basis under

Coverage C from actual cash value to full replacement cost. Antiques, fine arts, paintings, collectors items and obsolete articles are not covered for replacement cost

Scheduled Personal Property Endorsement To provide coverage for scheduled personal property on

a special form basis, i.e., jewelry, coins, fur, musical instruments, etc…

HO-3 Endorsements Business Pursuits Endorsement

To provide coverage for the liability of an insured arising out of business activities, other than a business of which the insured is sole owner or a partner

Personal Injury Endorsement To amend the definition of "bodily injury" in personal liability

coverage to include "personal injury.” Personal Injury

False arrest, imprisonment, malicious prosecution Libel, slander, defamation of character, violation of the right of

privacy Invasion of right of private occupation, wrongful eviction of

wrongful entry Mold Endorsement

To specify coverage limits per incident of model that are lower than the limits available under the HO-3

Title Risk Title defect

A claim against property that has not been satisfied

A title insurance To protect the home buyer against loss caused

by a defect in the title that existed at the time the policy was issued

If anything was wrong with the title to this property at the time this policy was issued, we will defend you and pay for the loss caused when it is discovered, within policy limits.

Personal Umbrella Liability Protect against catastrophic losses High limits Excess over a basic coverage and Broader

coverage pay only after the limits of underlying coverage have

been exhausted Some cases, it covers some exposures that are not

covered by underlying coverage Require specified amounts and kinds of

underlying coverage Some exclusions

Personal Umbrella Liability

5 0 0 ,0 0 0

3 0 0 ,0 0 0

1 ,5 0 0 ,0 0 0

1 ,3 0 0 ,0 0 0

H o m eo w ners P ers o nal A uto W aterc raftL iab ility L iab ility L iab ility

P e rs o na l U m b re lla Lia b ility

Special Limits $200

Money, bank notes, bullion, gold other than goldware, silver other than silverware, platinum other than platinumware, coins, medals, scrip , stored value cards and smart cards

$1,500 Securities, accounts, deeds, evidence of debt, L/C, notes other

than bank notes, tickets, stamps, … Watercraft of all types, including their trailers, equipment and

engines Trailers or semitrailers not used with watercraft of all types Loss by theft of jewelry, watches, furs, precious stones

$2,500 Loss by theft of firearms and related equipment Loss by theft of silverware, silver-plated ware, goldware, …

And more on pp. 3 & 4 of the HO-3 policy in your book