title:HowtoInsureYourHome:AStepByStepGuidetoBuyingtheCoverageYouNeedAtPricesYouCanAfford

author:publisher: SilverLakePublishing

isbn10|asin: 1563431327printisbn13: 9781563431326ebookisbn13: 9780585044231

language: English

subject Insurance--Purchasing,Insurance,Homeowners--Purchasing.

publicationdate: 1996lcc: HG9986.H691996eb

ddc: 368.096

subject: Insurance--Purchasing,Insurance,Homeowners--Purchasing.

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HowtoInsureYourHomeAStepbyStepGuidetoBuyingtheCoverageYouNeed

atPricesYouCanAfford

TheMerrittEditors

MERRITTPUBLISHINGADIVISIONOFTHEMERRITTCOMPANY

SANTAMONICA,CALIFORNIA

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HowtoInsureYourHomeAStepbyStepGuidetoBuyingtheCoverageYouNeedatPricesYouCanAfford

Firstedition,1996Copyright©1996byMerrittPublishing

MerrittPublishing1661NinthStreetSantaMonica,California90406

ForalistofotherpublicationsorformoreinformationfromMerrittPublishing,pleasecall(800)638-7597.OutsidetheUnitedStatesandinAlaskaandHawaii,pleasecall(310)450-7234.

Allrightsreserved.Nopartofthisbookmaybereproduced,storedinaretrievalsystemortranscribedinanyformorbyanymeans(electronic,mechanical,photocopy,recordingorotherwise)withoutthepriorwrittenpermissionofMerrittPublishing.

LibraryofCongressCatalogueNumber:96-075086

TheMerrittEditorsHowtoInsureYourHomeAStepbyStepGuidetoBuyingtheCoverageYouNeedatPricesYouCanAfford.Includesindex.Pages:247

ISBN:1-56343-132-7PrintedintheUnitedStatesofAmerica.

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AcknowledgmentsTheMerrittEditorswhocontributedtothisbookincludeCynthiaDavidson,JanKing,MeganThorpeandJamesWalsh.Thanksalsoto:KimberlyBaerDesignAssociates,KathieBaumoel,CynthiaChaillie,GingerMcKelveyandMimiTennant.

SomeformsthatappearinthisbookarebasedonstandardformsandinformationusedwiththepermissionoftheInsuranceServicesOffice.

HowtoInsureYourHomeisthesecondbookinMerrittPublishing'sHowtoInsure...series.UpcomingtitleswillincludeHowtoInsureYourIncomeandHowtoInsureWhatYouOwn.Becausethesebooksaredesignedtomaketheconceptsandtheoriesofinsuranceunderstandabletoordinaryconsumers,theMerrittEditorswelcomeanyfeedback.Pleasefaxusat(310)396-4563orcall(800)638-7597duringregularbusinesshours,Pacifictime.MoreinformationfromMerrittPublishingisavailableontheInsWebInternetsiteandathttp.//www.merrittpub.com.

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TableofContents

Chapter1WhyYouNeedHomeownersInsurance 1

Chapter2HowtoFigureOutHowMuchInsuranceYouNeed 21

Chapter3WhyLiabilityIsSuchaMajorIssue 45

Chapter4ImportantDefinitions 67

Chapter5Fires,FloodsandEarthquakes 91

Chapter6CoverageforCondosandOtherDwellings 113

Chapter7CoveragesandIssuesforRenters 135

Chapter8HowInsuranceCompaniesPriceHomeownersCoverage 153

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Chapter9Assigned-RiskProgramsandAlternativeMarkets

167

Chapter10HowtoMakeaClaim 183

Chapter11HowtoAvoidCommonCoverageProblems 203

Chapter12TipsforSmartBuyers 225

Index 241

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Chapter1WhyYouNeedHomeownersInsuranceFleeingfromthe1991Oaklandfires,TobieShapiropackedeverythingshecouldintohercarandleftherhometomeetherhusbandandchildrenonsafeground.Sheandherfamilyfiguredtheyweregoingtolosetheirhomebuttheyfeltlittlefinancialthreat.Theirhouseanditscontentswerecoveredbyhomeownersinsurance.

Orsotheythought.Afterthefireincineratedtheirhome,theShapirosfoundthattheirhomeownerscoveragedidn'tcovereverythingthey'dlost.Theirinsuranceagenthadrecommendedagainstbuyingguaranteedreplacementcostcoverage,whichwouldhavepickedupanybuildingcoststhatexceededthepolicy'sfacevalue.

Afterthefire,contractorssetthecostofrebuildingtheShapiros'homeatmorethan$1milliontheywereinsuredforlessthan$400,000.

TheShapirosweren'talone.TheCaliforniaDepartmentofInsuranceconcludedthat,ofthe4,842homesdamagedordestroyedintheOaklandfire,1,409wereunderinsured.

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Underpressurefromstateregulators,about30insurancecompaniesagreedtoupgraderetroactivelymorethan1,000homeownerspoliciesinOaklandincludingtheShapiros'.Butyoucan'tcountonpoliticalpressuretoworkforyouwhenyoumakeaclaim.

IfYouOwnProperty,YouNeedCoverage

Homeownersinsuranceisanecessityforbothhomeownersandrenters.Ahomeownerspolicyisacompletepackageofpersonalpropertyandliabilitycoveragesdesignedtocovertheaverageresidentialandpersonalexposuresthatmostindividualsandfamiliesencounter.

Personalpropertydoesn'tjustmeanrealestate.Itmeansjustaboutanyhouseholdpossessionthat'sfinanciallyvaluablefromthesmallestearringtothelargestrefrigerator.

Apolicycanbeissuedtocoverapremisesusedprincipallyforprivateresidentialpurposes(someincidentalbusinessoccupancies,suchasastudiooroffice,arepermitted),andwhichcontainsnomorethantwofamilylivingunits(thatmeanssinglefamilyhomesandduplexesareeligible).

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Separatepoliciesarealsoavailablefortenantsofapartmentbuildingsandcondominiumunitowners,whoonlyhavepersonalpropertyandliabilityexposuresanddonotneedtoinsurethedwelling.

Itisimportanttorememberthathomeownersinsurancecoversthevalueofthehomeorhomesinwhichyoulivenotjustthephysicalproperty.Inotherwords,theinsuranceshouldcoverrisksandliabilitiesthatmightencumberthevalueofyourproperty.

Thefactthatyouhavea$200,000homeownerspolicydoesn'tmeanthat'sallyouwillgetifyourhomeisdestroyed.The$200,000limitusuallyappliesonlytothecostofreplacingthephysicalstructure.Typically,apolicywillpayupto$100,000morehalfofthefaceamountofthepolicytoreplacethehome'scontents,includingvaluables.Anditwillalsocoverlegalcostsrelatedtoaliabilitylawsuit.

Ifyouhaveaseparatestructureonthepropertyagarage,shedorguesthousethat'susuallycoveredinadditiontothefaceamount.Yourlandscapingandanytemporarylivingexpensesyouincurwhileyourhouseisrebuiltarealsocoveredadditionally.

Inotherwords,ahomeownerwitha$200,000policycouldget$200,000torebuild,$100,000forpersonaleffects,$10,000torelandscape,$10,000torebuildthegarageand$25,000tocovertemporarylivingexpenses.That'satotalcoverageofnearly$350,000ona$200,000facevalue.Andthecostofdefendingthehomeownerinaliabilitylawsuitcouldaddanother$50,000to$100,000beyondthat.

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BasicTypesofCoverage

Mostinsurancecompaniesoffersixbasictypesofhomeowners-insurancepolicies.Everyinsurermaynotofferallsix,andthenamesandspecificlimits(namedperils)ofcoveragemayvarysomewhatfromcompanytocompany.Inmoststates,thesearethetypicaloptions:

HO-1.Thebasichomeownerspolicyprotectsyourhomeagainst11namedperils.Thiscoverageisrarelyenough,somanystatesarephasingoutthistypeofpolicy.HO-2.Thebroadhomeownerspolicycoversyourhomeagainst17namedperils.AvariationofHO-2isavailabletomostmobile-homeowners.Thistypeofpolicygenerallycosts5to10percentmorethantheHO-1coverage.HO-3.Thespecialhomeownerspolicyprotectsyourhomeagainstallperilsexceptthosespecificallyexcludedbythecontract.Ittypicallycosts10to15percentmorethantheHO-1policy.

Manycompaniesalsoofferaguaranteedreplacementcostpolicy,whichgoesonestepfurtherthanastandardHO-3.Itofferstopaythefullamountneededtoreplaceyourhomeanditscontents,evenifthatexceedsthepolicylimit.Thistypeofpolicy,usuallywrittenasaformofHO-3,offerscoveragesimilartowhatwasformerlycalledHO-5,apolicythathasbeenphasedoutbymostcompanies.

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HO-4.Therenterspolicygenerallyprotectsthepossessionsoftenantsinahouseorapartmentagainst17namedperils.Italsoprovidesliabilitycoveragebutdoesn'tprotecttheactualdwelling,whichshouldbecoveredunderthelandlord'spolicy.Renterswhodon'twanttopayforliabilityprotectioncanoptforapolicythatcoversonlypersonalproperty.HO-6.Thepolicyforco-opandcondominiumownersprovidescoverageforliabilityandpersonalproperty,muchlikeHO-4.Whileinsurancepurchasedbytheco-oporcondominiumassociationcoversmuchoftheactualdwelling,individualownerswhowantcoverageforimprovementstotheirunitsmustwritethemintoanHO-6policy.Ifyouaddaporch,forinstance,you'llneedanendorsement(anadditiontoyourpolicythatexpandsitscoverage).HO-8.Primarilyforolderhomes,thispolicycoversthesameperilsasHO-1butinsuresthehouseonlyforrepaircostsoritsactualcashvalue,notitsreplacementcost.That'sbecausethecostofrebuildingsomehomeswiththematerialsanddetailsoftheoriginalwouldmakereplacementcostcoverageprohibitivelyexpensive.AnHO-8policypaystorestorethedamagedproperty,butnotnecessarilywiththesamekindorqualityofmaterialsastheoriginal.

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Throughoutthisbook,whenwecitepolicylanguage,we'llrefertothestandardHO-3orhomeownersthreepolicy.Ifyouhaveanotherversion,youcanstillusethediscussionasitappliestothelanguagethat'scommonwhichismostofthelanguage.

CoverageSectionsandConditions

Allhomeownerspoliciesaredividedintotwosections:

SectionOneprovidescoveragefortheinsuredperson'sdwelling,otherstructuresonthegrounds,personalpropertyownedbyfamilymembers,andcertaintypesoflossofuse,suchasrentalvalueoradditionallivingexpenses.

SectionTwoprovidespersonalliabilitycoverage,medicalpaymentscoverage,andadditionalcoveragesforclaimexpenses,firstaid,anddamagetothepropertyofothers.

Knowinghowaninsurancecompanydefineswhatyourpersonalpropertyisgivesyouhelpfulinformationaboutanyadditionalcoveragethatyoumayneedtopurchase.

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Personalpropertyincludeseverythingthatisnotrealproperty;suchasindoorandoutdoorfurniture,linens,drapes,clothing,mostappliances(butnotbuilt-ins),andallotherkindsofhouseholdgoodsandequipmentusedforthemaintenanceofthedwelling.

Unlikeyourhouseandotherstructures,whichareinsuredtocoveralllossesnotspecificallyexcluded,personalpropertyisinsuredonanamedperilsbasis.Allofthenamedperilsaresubjecttoexclusionsandeachindividualnamedperilmayhaverestrictionsorexclusionsthatapplytoit.

Thesetechnicaldefinitionsandexclusionsareamajorreasonthatyouneedhomeownersinsuranceandthatyouneedtobecarefulaboutwhatkindofinsuranceyoubuy.

Oneindividualperilthatisgenerallyaccompaniedbyrestrictionsorexclusionsisfireandlightning.Thereisnodefinitionoffireinthepolicy,butfireisgenerallydefinedasaproductofcombustionwhichproducesflame,light,andheat.

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Fireisamajorpointofdisputebetweeninsurancecompaniesandpolicyowners.It'sdefinedininsurancetermsaseitherfriendlyorhostile.Thegasflameofastove,acandle,orafireinthefireplaceareexamplesoffriendlyfires;however,ifthegasflameignitesapotofgrease,oracandletipsoverandsetsfiretocurtains,oranemberpopsoutofthefireplaceandsetsfiretoacouch,theresultingfiresarehostile.

TypesofOwnership

Determiningthetypeofownershipthatappliestowhereyouliveisimportantindecidingwhattypeofpolicyandcoverageyouneed.Thedifferenttypesofownershipare:

Feesimple.Youownthehousingunitandlandandareresponsibleformaintenanceandrepairsontheproperty.Thisisthemostcommontypeofownership,typicallyusedforsingle-family,detachedhouses.Condominium.Youownyourhome'sinteriorbutnothingelseexclusively.Youshareownershipofthebuilding,landandothercommonareas(roof,elevators,hallways)withotherowners.Whilemostpeopleassociatecondominiumswithapartment-stylehousing,otherhousingstylessuchastownhousesandmanorhomesmaybeboughtascondominiums.

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Cooperative.Ownershipisintheformofacorporation.Ownersbuyashareofstockinthecorporation,whichgivesthemtheprivilegeofoccupancy.Cooperativescanbemorerestrictiveonwhomovesin.Taxesarepaidonthebuildingratherthanoneachunit,aswiththefeesimpleorcondominiumownershiptypes.

Withinthesethreemaintypes,thereareanumberofcommonsub-types.

Clusterorpatiohomes.Agroupofhousessimilarineverywaytosingle-familyhomes,exceptthattheresidentsshareownershipandmaintenanceofthelandinthedevelopmentoftenagolfcourseorotherrecreationfacility.Commonlyboughtasafeesimpleproperty.Townhouse.Agroupofusuallysixbuildingsplacedsidebysidewithonecontiguouswallbetweeneachtwounits.Unitsmoreoftenthannothaveatleasttwolevelsandgenerallyincludeaccesstolandthatmaybedividedbyprivacyfences.Eachunithasaprivateentrance.Commonlyboughtasafeesimplepropertyorcondominium.Apartmentflat.Amulti-storybuildingsubdividedintoone-storyunits,witheachunitusuallyhavingoneowner.Apartmentsmayincludebalconies.Residentsshareacommonentrance.Commonlyboughtasacondominiumorcooperative.

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Quadorfour-cornerhomes.Fourtownhouse-styleunitswithtwocontiguouswalls.Greenwaysusuallysurroundtheproperty.Commonlyboughtasafeesimpleproperty.Manorhouse.Afour-unitbuilding(twounitsdownstairs,twoupstairs)withoneentranceandafour-cargarage.Commonlyboughtasacondominium.

ApplyingOwnershiptoaPolicy

Afterdeterminingthetypeofownershipthatappliestoyourhome,youcanthencomparetheneedsofownershiptovariouspolicytypes.Inmanycases,youwillbeabletouseendorsementsorriderstoadaptstandardpolicytypestospecificneeds.

Endorsementsandridersserveasaddendaaddingcoverageorconditionstostandardinsurancecontracts.

HomeownersformsHO-1,HO-2,andHO-3maybeissuedtoanyofthefollowing:

anowner-occupantofadwelling,theintendedowner-occupantofadwellinginthecourseofconstruction,oneco-owner,wheneachdistinctportionofatwo-familydwellingisoccupiedbyseparateco-owners,

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apurchaser-occupantwhenthesellerretainstitleunderaninstallmentcontractuntilpaymentsarecompleted,andanoccupantofadwellingunderalifeestatearrangementwhendwellingcoverageisatleast80percentofthecurrentreplacementcost.

Incaseswhereahomeownerspolicyissoldtoaco-owner,purchaser-occupant,oranoccupantunderalifeestate,theownerorremainingco-ownerwillhaveaninsurableinterestinthedwelling,otherstructures,premisesliability,andmedicalpaymentscoverage.

Aco-owner'sinsurableinterestcanbeinsuredbyattachinganadditionalinsuredendorsementtothepolicy.

Inthecaseofco-owners,theremainingco-owner-occupantwouldhavetopurchaseaseparatepolicytocoveranypersonalpropertyexposure.

MobilehomesmaybecoveredbyHO-2orHO-3whenamobilehomeendorsementisattachedtothepolicy.Thisendorsementalterscertainpolicyprovisionsasnecessarytoprovidemobilehomecoverage.

Tobeeligible,amobilehomemustbedesignedforyear-aroundlivingandbeatleast10feetwideandatleast40feetlong.

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Mobilehomesmayalsobecoveredwithseparate,stand-aloneinsurancepoliciesdesignedparticularlyforthatuse.

HomeownersformHO-4canbesoldtoanyofthefollowing:

atenantnon-ownerofadwellingorapartment,atenantnon-ownerofamobilehome,anowner-occupantofacondominiumunit,anowner-occupantofadwellingorapartmentwhennoteligibleforcoverageunderoneofthecombinedbuildingandcontentshomeownersforms.

Ahomeownerspolicymaynotbeissuedtocoveranypropertytowhichfarmformsorfarmratesapply,orpropertysituatedonanypremisesusedforfarmingpurposes.

WhoisanInsured?

Amajorreasonthatyoumayneedhomeownersinsuranceisthatyouhaveafamilytoprotectfrompropertylossorliabilityclaims.Thedefinitionspageofahomeownerspolicyidentifiesthepersoninsuredbythepolicy(calledthenamedinsured)andotherpeopleinsuredattherequestofthenamedinsured.Thisportionofthepolicymayincludethefollowinglanguage:

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Insuranceonthedwellingandanyotherstructuresisprovidedforthenamedinsuredandtheinsured'sspouseifthespouselivesinthesamehousehold.

Personalpropertycoverageandpersonalliabilityinsuranceareprovidedforthenamedinsuredandallresidentsofthesamehouseholdwhoarerelativesoftheinsured,orwhoareunderage21andinthecareofanymemberoftheinsured'sfamily

Ifthenamedinsuredorthespousedies,coveragecontinuesforlegalrepresentatives.Untilalegalrepresentativeisappointed,atemporarycustodianofthenamedinsured'spropertywouldalsobecovered.Allhouseholdmemberswhoareinsuredatthetimeofthenamedinsured'sdeathwillcontinuetobecoveredwhiletheycontinuetoliveattheresidencepremises.

Upontherequestofthenamedinsured,thepersonalpropertyofothersmaybecoveredwhileontheresidencepremises,andthepersonalpropertyofguestsoraresidenceemployeemaybecoveredwhileinanyresidenceoccupiedbyaninsured.

Aresidenceemployeemeansanemployeeofanyinsuredwhoperformsdutiesrelatedtomaintenanceoruseoftheresidencepremises,orwhoperformshousehold,domestic,orsimilardutieselsewherewhicharenotconnectedtothebusinessofanyinsured.

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TypesofCoverage

Ahomeownerspolicyincludesvariouscoveragestoreducefinancialexpensesorlosseswhichcouldresultfromaverageresidentialandpersonalexposuresthatmostpeopleandtheirfamiliesencounter.Thesecoveragesprovideasortofloosechecklistofexposuresyoumayface.

DwellingcoverageisthemostsignificantcoverageonallformsexceptHO-4andHO-6.Apolicymustshowaspecificamountofinsuranceforthedwelling.Coverageappliestothedwelling,attachedstructures,andmaterialsandsuppliesonoradjacenttotheresidencepremisesforuseintheconstruction,alteration,orrepairofthedwellingorotherstructures.

Dwellingcoverageisalsosoldasaseparatekindofinsurance.Becauseitdoesn'tcoverliabilityorotherrisks,it'sbestusedinadditiontoastandardhomeownerspolicyforsecondhomes,vacationcondos,etc.Acaveat:Somestate-runhomeinsuranceplansaredwelling-onlycoverage.

Coverageforotherstructuresappliestostructuresontheresidencepremisesseparatedfromthedwellingbyaclearspace,orconnectedonlybyafence,utilityline,orsimilarconnection.Thestan-

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dardamountofinsuranceis10percentoftheamountwrittenforthedwellingcoverageanditisprovidedasanadditionalamountofinsurance.If10percentisn'tenough,higheramountsofthiscoveragemaybewrittenforspecificstructures.Personalpropertycoverageisincludedonallforms.Thecoverageisusuallyanadditionalamountofinsuranceequalto50percentoftheamountwrittenforthedwelling.Thiscoverageappliestopersonalpropertyownedorusedbyanyinsuredpersonwhileitisanywhereintheworld.Attherequestofthenamedinsured,personalpropertyownedbyothersmaybecoveredwhileitisontheresidencepremises.Thislimitmaybeincreasedordecreasedbutnotbelow40percentbyendorsement.

OnformsHO-4andHO-6,therenters'policies,personalpropertycoverageisthemajorformofpropertyinsurance.Theminimumamountofcoverageis$6,000andthepolicymaybewrittenforanyhigheramount.

Allhomeownerspoliciesprovideessentiallythesamecoverageforlossofuseoflivingspace.Ifacoveredpropertylossmakestheresidencepremisesuninhabitable,thepoliciescoveratyouroptioneitheradditionallivingexpenses

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relatedtomaintainingthenormalstandardoflivingofthehouseholdorthefairrentalvalueofthepartoftheresidencewhereyoulive.(Ifacoveredpropertylossmakesthepartofyourresidencerentedtoothersuninhabitable,thepoliciesalsocoverthelossoffairrentalvalue.)

PropertyandLossesNotCovered

Homeownersinsurancecoversalotbutitobviouslycan'tcovereverythingyouownoreverythingyoudo.Mosthomeownerspoliciesalsolistspecificpropertyandspecifickindsoflossesnotcoveredbythepolicy.Thefollowingtypesofpropertyandlossesarenotcoveredbyanyhomeownerspolicyandtheyserveasakindofanti-checklist:

land,includingthatunderaninsuredresidence,structuresusedsolelyforbusinesspurposes,structuresrentedorheldforrentaltoanypersonwhoisnotatenantoftheinsureddwelling,articlesseparatelydescribedandspecificallycoveredbyotherinsurance,pets(mammals,birds,orfish),aircraftandparts,otherthanmodelorhobbyaircraft,propertyofroomers,boarders,andothertenantswhoarenotrelatedtoanyinsured,

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accounts,drawings,paperrecords,electronicdataprocessingtapes,wires,records,discs,orothersoftwaremediacontainingbusinessdata(blankrecordsormediaarecovered),lossescausedbyperilshavingcatastrophicpotentialtheseincludethecommonwater,nuclear,andwarriskexclusions,lossescausedbythecommonpowerfailureandordinanceorlawexclusions,lossescausedbytheneglectofaninsuredpersontouseallreasonablemeanstosaveandpreserveproperty,anyintentionallossarisingoutofanactcommittedbyoratthedirectionofaninsured,lossescausedby,resultingfrom,contributedto,oraggravatedbyearthmovement,andlossestoamotorvehicleandanyelectronicapparatusdesignedtobeoperatedsolelybyuseofthepowerfromthemotorvehicle.(However,homeownerspoliciesdocovervehicleswhicharenotsubjecttomotorvehicleregistrationandareusedtoserviceaninsuredperson'sresidenceorassistthehandicapped.)

Ifyou'rehopingtoinsureanyoftheseitemsoractivitieswithhomeownerscoverage,you'llbeoutofluck.Again,theoperatingassumptionhereisthattheinsurancecompanywillprovidecoverageagainstlosses

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thatarelikelytooccurinaperson'sordinaryexperience.

HomeownersversusDwelling

Manyresidencesareinsuredbyhomeownerpoliciesbutstand-alonedwellingpoliciesarestillissuedforavarietyofreasons.Somedwellingsareineligibleforhomeownerscoveragebecauseofthestructure'sage,locationorvalue.Otherdwellingsareineligiblebecauseofthenumberoflivingunitsinvolvedahomeownerspolicymaybeusedtocoverone-ortwo-unitresidentialproperty,whiledwellingformsmaycoverastructurecontaininguptofourlivingunits.

Dwellingpoliciesareprimarilyissuedtocovernon-owneroccupiedbuildings.

Homeownerscoverageisbroaderthanstand-alonedwellingcoverageinanumberofimportantways.Themostimportantdistinctionisthathomeownerscoversliabilityanddwellingdoesnot.

Unlikedwellinginsurance,allhomeownersinsuranceeventhemostbasicpoliciesincludescoveragefortheftofpersonalproperty.Itevenincludescoverageforthelossofpropertyfromaknownlocationwhenitislikelythatthepropertyhasbeenstolen.

Ahomeownerspolicywillusuallycoveroutdoorproperty,suchasawningsandantennasadwellingpolicydoesnot.

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Finally,coverageforvehicledamageisalsobroader.Unlikedwellingcoverage,basichomeownerscoveragecoversvehicledamagetofences,driveways,walks,andoutsidelawns,shrubs,treesandplantsaslongasit'snotcausedbysomeoneinyourhousehold.

Likehomeownersinsurance,dwellinginsurancecomesinvariousformsincludingbasic,namedperils(alsocalledbroad)andallrisk(alsocalledspecial).

Inadditiontoprovidingbroadercoverage,anallriskformshiftstheburdenofprooffromthepersonmakingaclaimtotheinsurancecompany.Withnamedperilcoverage,thepersonmakingtheclaimhastoprovethatacoveredperilcausedtheloss.Withallriskcoverage,theinsurancecompanyhastoprovethatanexclusionappliedinordertodenycoverage.

Withsomerecentpolicyrevisions,thegapbetweendwellingandhomeownerscoverageshasbeguntoclose.Personalliabilityinsuranceandothercoverageswhichareassociatedwithhomeownerspolicieshavebecomeoptionsunderdwellingpoliciesatleastinthemajorityofstates.

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Conclusion

Thischapterhasdefinedsomeofthemostbasicreasonsthatyouneedtohavehomeownersinsurance.Thenextchapterwillfocusontoolsyoucanusetodeterminethekindofcoverageandjusthowmuchcoverageyoushouldbuyforyourhome.

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Chapter2HowtoFigureoutHowmuchInsuranceYouNeedIfyouownahome,chancesareyouhavehomeownersinsurancethemortgagecompanyusuallyrequiresit.There'salsoagoodchanceyouneverthinkaboutyourcoverage,orhowmuchcoverageyouhaveuntilyourpremiumbillarrives.Oruntilatreecrashesthroughyourlivingroom.Orafirebarbecuesyourkitchen.Oraburglarabscondswiththefamilysilver.

Theproblemis,untilitcomestimetomakeaclaim,it'shardtoknowwhetheryourinsurerwillprovideafairandfastsettlement.And,untilyougetasettlement,it'shardtoknowforsurewhetheryouboughttherightkindandamountofcoverage.

However,therearesomeguidelinesyoucanfollowtofigureouthowmuchhomeownersinsuranceyouneed.

First,yourchoiceofwhichcoverageandjusthow

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muchcoveragetopurchasewillbeinfluencedbyanumberofmarketfactors.Eventhoughinsuranceisaregulatedindustry,therecanbealotofdifferencebetweentwoinsurancecompaniesfromthewaytheychargepremiumstothewaytheysettleclaims.

Ina1993ConsumerReportsquestionnaire,morethan240,000policyownersprovidedinformationabouttheirinsurancecoverage,thenatureoftheirlosses,anyclaimsproblemstheyhad,andtheiroverallsatisfactionwithhowtheirclaimswerehandled.Whenreaderswereaskedtomeasureoverallsatisfactiononasix-pointscale,rangingfromcompletelysatisfiedtocompletelydissatisfied,here'showtheyresponded:

AmicaandUnitedServicesAutomobileAssociation(USAA),thehighest-ratedhomeownersinsurersinanearlierstudy,toppedthelistagainbycompletelysatisfyingalmost8outof10policyowners.ThreeinsurersfamiliartocomplaintsaboutclaimshandlingTravelers,Metropolitan,andPrudentiallandedatthebottomofthesurvey,completelysatisfyinglessthanhalfofthepolicyownerssurveyed.AmicaandCincinnatiInsuranceCompany,thetwoinsurerswiththebestrecordsforpromptness,eachsettledmorethan90percentofitsclaimswithinonemonth.Travelers,theonlymajorinsurancecompanywithamuchworsethanaveragerecordforpromptpayment,paidabout71percentofitsclaimswithinone

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month.(Theaveragecompanypaidabout81percentoffiledclaimswithin30days.)

Mostofthepeoplewhoansweredthesurveyweresatisfiedwiththeamountoftheirfinalsettlements.Ofthosewhofeltthattheyreceivedtoolittle,almosthalfsaidthattheylearnedafterfilingaclaimthattheyhadlesscoveragethanthey'dthought.

IfYouHaveaMortgage

Ifyouhaveamortgageonyourhouse,thefinancecompanywillusuallybeincludedonahomeownerspolicyasaninsuredpartyorco-payee.Ifaninsuredlossoccursbutthecompanydeniestheclaimbecauseyouhaven'tcompliedwithsomeconditionorrequirementpaymentwouldstillbemadetothemortgageeuptoitsinsurableinterest.Thisusuallymeansthebalanceofwhateveryouoweonthemortgage.

Butyoushouldcheckthislanguageclosely.Ifyouhaveamortgage,youmightalsowanttocheckthatortalktosomeoneatthemortgagecompany.

Ifthelimitofyourhomeownerscoverageisbasedonyourmortgage,makesurethatitisenoughtocoverthecurrentcostofrebuilding.

Todeterminetherebuildingcost,askaninsuranceagenttocalculatethecurrentcostofconstructionfor

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ahouselikeyoursorhireaprofessionalappraisertodoit.

InthewakeoftheJanuary1994Northridgeearthquake,theissueofco-payeescametoapointinsouthernCalifornia.Banks,insurancecompaniesandhomeownerstangledoverhowclaimsunderearthquakeinsurance(aspecialendorsementtothestandardhomeownerspolicy)wouldbepaid.Insteadofpayingclaimsdirectlytohomeowners,severalbiginsurancecompanieswrotechecksthatnamedtendersasco-payees.Thebanks,inturn,werereluctanttosignovertheproceedsuntilhomeownersprovedthatrebuildinghadbegun.

Inachicken-and-eggcycle,mosthomeownerscan'tbegintorebuilduntilthey'vereceivedmoneyfromtheinsurancecompany.Buttheycan'tgetaninsuranceclaimuntilrebuildingbegins....

Inthe1992AlabamaSupremeCourtdecisionAllstateInsuranceCompanyv.JamesHilleyetal.,theissueofrebuildingcameunderclosescrutiny.

InJuly1985,HilleyandhisfamilyboughtahomeownerspolicyfromAllstatewithcoveragelimitsof$38,000forthedwellingand$19,000forpersonalproperty.

InJanuary1986,theHilleys'homeandtheirpersonalcontentsweredestroyedbyfire.Theyfiledasworn

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proofoflossformandreceivedabout$14,000forthelossoftheirthingsand$13,000fortheactualcashvalueoftheirhouse.(Thecheckfor$13,000wasmadepayabletotheHilleysandtothefinancecompanyholdingtheirmortgage.Afterpayingoffthemortgage,theHilleyshadabout$3,000left.)

TheHilleystriedtoborrowmoneytofinancetherebuildingbuttheirapplicationsweredenied.TheywroteAllstateabouttheirinabilitytoobtainfinancing.Allstate'sadjusterwroteback,refusingtopayanymoremoneyuntilthehousehadbeenrebuilt.

TheHilleysthenaskedAllstatetoguaranteetheadditionalmoneydueunderthepolicytoaconstructioncompanythathadagreedtorebuildonthoseterms.Theadjusterwroteback,''wedonothaveacontractwiththeconstructioncompanyonlywiththeinsureds."

So,theHilleyssuedAllstate.Theyclaimedthat,undertermsofthehomeownerspolicy,Allstatehadpromisedeithertorebuildthehouseortopaythem$38,000.

AstatecircuitcourtsidedwiththeHilleysandawardedthem$2millioninactualandpunitivedamages.Allstateappealed,butthestatesupremecourtaffirmedtheaward.Itconcluded:

Allstate'swrongconsistedoffalselyrepresentingtopolicyholderstheextentofcoverageandconcealingthenecessityofobtainingfinancingpriortoAllstate'spaying[fullreplacementvalue].[Allstatepromisedthat,]intheeventofafire,itwouldrebuildtheHilleys'

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house,replacetheirhouse,orpaythemthe$38,000....Thestatementwasnotapromisetoactinthefuture.ItwasrepresentedtotheHilleysasapresentfactofAllstate'sobligationsundertheinsurancepolicy.

ThecourtnotedangrilythatAllstate'ssenioradjusterfornorthernAlabamaadmittedherefusedfullsettlementon20to25percentofallhomeownersclaimsonsimilargrounds.

ReplacementValueandReplacementCost

Youshouldhaveenoughinsurancetocoverthecostofrebuildingyourhome.Thatmaybearlittlerelationtoitsmarketvalue.Ifthelimitofyourhomeownerscoverageisbasedonyourmortgage,makesurethatitisenoughtocoverthecurrentcostofrebuilding.

Afinelycraftednineteenth-centuryhouseinarundownneighborhoodcouldcostfarmoretorebuildthanitwouldcosttobuy.

Mostinsurancecompaniesrecommendthatyouinsureyourhomefor100percentoftherebuildingcost,includingthefoundation.Thoughveryfewhomesaretotallydestroyed,itdoeshappenasvictimsofthe1991fireinOakland,California,canattest.There,somefoundationsmeltedinthe2,000-degreeheat.

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Inmostsituations,youshouldbuyinsuranceforatleast80percentofyourhome'sreplacementvalue.Ifyoubuyless,youforfeittherighttocollectthefullreplacementvalueoftheinsuredproperty,evenforapartialloss.

Example:Ifthereplacementcostofyourhouseis$100,000andyouhaveafireinthekitchenthatcauses$10,000indamage,you'llcollect$10,000aslongasyouhaveatleast$80,000ininsurance.

Anotherexample:Youbuy$100,000ofcoveragetheestimatedreplacementcostonyournewhome.Afewyearslater,thehouseburnstotheground.Atthattimeit'sdeterminedthatthefullreplacementcostis$110,000.Inordertocollectthislossonthereplacementcostbasis,youmustbecarryingatleast80percentof$110,000$88,000.Sinceyou'vegot$100,000,thelosswillbesettledonthereplacementcostbasis.

Afterdeterminingrebuildingcosts,youhavetodeterminehowmuchinsuranceyouneed.

Ifyou'reinsuredforlessthan80percent,theinsurancecompanywillmaketwoestimatesandpaywhicheverislarger.

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Thefirstestimatetheinsurancecompanywillmakeistheactualcashvaluethisisthereplacementcostminusdepreciation.

Example:Ifyour$100,000housesuffers$90,000indamageandhasdepreciatedby60percent,thefirstestimatewouldbe$36,000.Thatisfiguredbymultiplying$90,000by40percent.

Thesecondestimateisbasedontheamountofinsurancethatyoucarry.Thissignificantriskiscalledimpliedco-insurance.

Example:Ifyour$100,000homeisinsuredfor$60,000,youhaveaninsurancepolicyworthonlythree-fourthsofthe80percentreplacementvalue.Theinsurancecompanywouldcomputetheamountoftheclaimbymultiplying$60,000thelimitofthepolicyby75percenttogetthesecondestimateof$45,000.Theinsurancecompanywouldpay$45,000onyour$90,000claim,thegreaterofthetwoestimates.Youwouldberesponsiblefortheremaining$45,000.

Ifyouarecautious,getahomeownerspolicythatwillpayfor100percentoftherebuildingcosts.Sayyouhavea$100,000homethatsuffers$90,000indam-

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age.Witha100percentreplacementpolicy,theinsurancecompanywouldpay$90,000.

Ifyouarewillingtotakeonsomerisk,buyapolicythatpays80percentoftherebuildingcosts.Ifyour$100,000homeisinsuredfor80percent,themaximumvalueofthepolicyis$80,000.Soifyourhomesuffered$90,000indamage,theinsurancecompanywouldpay$80,000.

Thesurestwaytoarrangefullcoverageistobuyaguaranteedreplacementcostpolicy,whichwillpayupto50percentmorethanthefacevalueofthepolicytorebuildyourhome.(Afewcompaniesofferunlimitedcoverage.)

Withaguaranteedreplacementcostpolicy,theinsurancecompanyautomaticallyadjuststheamountofinsuranceeachyeartokeepupwithrisingconstructioncostsinyourarea.Thepolicyalsoprotectsyouagainsttheunexpected,suchasasuddenincreaseinconstructioncostsduetoashortageofbuildingsupplies(aproblemthatoccurredwhenHurricaneAndrewravagedFlorida'sAtlanticcoast).

Companiesthatofferguaranteedcoverageusuallyrequirethatyouinsureyourhousefor100percentofitsreplacementcosttobeginwith.Ownersofhigh-riskorolderhomesmaynotbeeligibleforthistypeofpolicy.

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KeepingTrackofYourHouseandProperty

Youknowhowmuchitcosttobuyyourhouseandhowmuchyouoweonit.Thesenumbersgiveyouastartingpointforcalculatingyourhomeownersinsuranceneeds.Butthereareotherongoingfactorsinsurancepeoplecallthemcostdriversthatyoushouldconsider.

Everytimeyoumakeasignificantadditionorimprovementtoyourhouse,youshouldadjustyourhomeownerscoverage.Inflationcanalsocreepupandleaveyouunderinsured.

Manyhomeownerspolicieshavebuilt-ininflationguardclauses,whichautomaticallyincreaseyourcoverageovertime.Buteventhesepoliciescanmisinterpretvalue.

Mostpoliciescoverastructurethat'sdetachedfromyourhouse,suchasagazeboorfreestandinggarage,forupto10percentofthetotalinsuredvalueofyourhome.Toqualifyasseparate,astructuremustbeseparatedfromthemainhousebyaclearspace,connectedatmostbyafenceorutilityline.Anystructurethatisconnectedbysomethingmoresubstantial,suchasasharedroof,isnotconsideredseparateandshouldbefiguredintothetotalvalueofthehouse.

Thethingsinyourhousecanbetoughtovalueaccurately.Onesimplewaytocalculateyourinsuranceneedsistomakealistofeverythingyouownthatcouldgenerallybedescribedaspartofyourhouseholdincludingfurniture(includingcarpets,drapes,etc.),

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artorotherdecorations,appliances,clothesandotherpossessions.Toorganizethisinventory,youcansimplydividethelistintorelevantroomsinthehouse.

Thechartonfollowingpagesshouldhelp.

Assignedvaluesworkbestiftheyincluderelevantreceiptsorbills.Youshouldalsokeepothersupportdocumentsincludingphotographsorserialnumbersfromappliancesandelectronicequipmentwiththeinventory.

Thereareseveralwaystoinsureyourpersonalpropertywithinthelimitsofhomeownerscoverage.

Anactualcashvaluepolicypaystheamountneededtoreplacetheitem,minusdepreciation.If,forinstance,afiredestroyedasofayoupaid$1,000forfiveyearsago,youwouldreceiveonly$750forit,assumingithada10-yearlifeandwouldcost$1,500toreplaceattoday'sprices.

Areplacementcostpolicywouldpayyou$1,500.Formostpeople,replacementcostcoverageonpropertyisworththeextra10to15percentthatcompaniestypicallychargeforit.

Onceyouhaveaninventory,aninsuranceagentcanhelpyoudeterminethevalueofyourpossessions.Thevalueofpossessionswillgiveyouanideaofhowmuchpropertycoverageyouneed.

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Ifyou'renotusinganinsuranceagent,theinsurancecompaniesyou'reusingorthinkingofusingshouldbeabletoprovideyouwithhistoricalpricerangesforvariouskindsofpersonalproperty.

Propertyofhighorparticularvaluemaynotbefullyinsurableunderstandardhomeownersinsurance.Thesepoliciesusuallysetlimitsofafewthousanddollarsonthingslikejewelryorexpensiveelectronics.Ifyouownthesethings,youmayneedtobuyseparateinsuranceforthem.

Youcanprotectaparticularlyvaluableitemwithafloater.That'sanendorsementtailoredtoaspecificitem;thecoveragefloatswiththepropertywhereveritgoes.

Floaterscanbeusedtocoverjewelry,furs,cameras,computerequipment,musicalinstruments,silverware,stamps,coins,antiques,paintings,orothervaluables.Theycanbewritteneitherasseparatepoliciesorasendorsementstostandardpolicies.

Thepropertyinsuredbyafloatermustbescheduleddescribedintermsofquantity,quality,style,manufacturer,value,andsoforth.Yourpropertyinventorycancomeinhandyintrackingthisinformation.

Inmostcases,aprofessionalappraiser'sreportorabillofsaleisrequired.Floaterscancostfromafewcentstoafewdollarsper$100ofcoverage,dependingontheitemandthecrimerateinyourarea.

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Floaterstypicallyexcludesuchrisksaswar,nuclearaccident,wearandtear,andconfiscationbythegovernment.

Youcanalsobuyadditionalblanketcoverageforaspecificcategoryofprotection.Forexample,insteadofbuyingafloaterforanexpensivewristwatch,youmightwanttoraiseyourcoverageinthejewelrycategoryfrom$1,000to$5,000.

Mostblanketpolicies,however,limittheamountyoucancollectforanysingleitem.Thecellingisusuallybetween$500and$5,000.

CheckOuttheCoverageTermsYourself

Differenthomeownerspoliciesmayapplyvariouslosssettlementtermsincludinganyoftheoneswejustconsideredtodifferentkindsofproperty.Inotherwords,evenifthepolicyoffersfullreplacementvalueforthehouse,itmayofferonlyactualcashvalueforspecifickindsofproperty.

Hereareafewexamples,takenfromactualpolicies:

...Personalpropertyandstructuresthatarenotbuildings(e.g.,aTVantennatower)arevaluedatactualcashvalue(replacementcostlessdepreciation)orthenecessarycostofrepair.

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...Awnings,carpeting,etc.,mightbeconsideredasbuildingitemsbutaretobevaluedatactualcashvalueandnotreplacementcost,whichistheusualsettlementbasisforbuildings.

Youneedtobecarefulofthesesortsofshiftswhenyou'rebuyinghomeownersinsurancethatyouthinkcoversfullreplacementvalue.Infact,youshouldbecarefulofpromisesorassurancesthatagentsgiveyouaboutpoliciesthatcoverfullreplacementvalue.Thistermisusedfreelybutitonlyappliesinrelativelyfewpolicies.

Inthe1992caseDonaldRayFreev.RepublicInsuranceCo.,etal.,theCaliforniacourtofappealsheldashiftyagentaccountableforpromisingmorethanapolicycoulddeliver.

RepublicInsuranceissuedFreeahomeownerspolicyin1979.Thatyearandeveryfollowingyearuntil1989Freecontactedtheagentwho'dsoldhimthepolicytoaskwhetheritscoveragelimitswerestilladequatetorebuildhishome.Eachyear,hewastoldtheywere.

In1989,anewagencytookoverFree'saccountfromtheonewhichhadsoldhimtheoriginalpolicy.ThenewagencyalsotoldFreethatthecoveragelimitsonhispropertywereadequatetorebuildhishouse.

InOctober1989,Free'shomewascompletelydestroyedbyfire.Whenhemadehisclaim,hediscoveredthatpropertyvaluesinhisareahadincreasedsubstantiallyinthetenyearssincehisoriginalpolicy

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wasissuedandthatits$141,000limitwasinsufficienttorebuildhishome.

HesuedRepublicandbothagencies,chargingthattheyhadacontractualdutytoprovidehimwithaccurateinformationandthattheybreachedthisdutybytellinghimhiscoveragewassatisfactorywhentheydidn'tactuallyknowwhatitwas.

ThecourtruledthatneithertheagentsnortheinsurancecompanywererequiredunderthegeneraldutyofcaretheyowedFree(oranyclient)toadvisehimaccuratelyregardingthesufficiencyofhiscoveragelimitsorthereplacementvalueofhisresidence.

Thecourtcitedanothercourtrulingthatheld:

Neitheraninsuranceagentnoranyoneelsehastheabilitytoaccuratelyforecasttheupperlimitofanydamageaward....Toimposesuchaduty...wouldineffectmaketheagentablanketinsurerforhisprincipal.Wefailtoseewheresoundpublicpolicywouldrequiretheimpositionofsuchadutyupontheagent,unlessthelatterhasbyanexpressagreementoraholdingoutundertakenthatobligation.

However,thelastbitofthatquoteappliedtoFree'scase.Heappealedthetrialcourt'sdecisionandtheappealscourtadmittedthatoncetheagents''electedtorespondtohisinquiries,aspecialdutyaroserequiringthemtousereasonablecare."Theydidn'tevendeclinetoofferanopinion,astheycouldhave.

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Instead,theyassuredFreehiscoveragewassufficient."Underthecircumstances,defendantsmustbedeemedtohaveassumedadditionalduties,which,ifbreached,couldsubjectthemtoliability,"thecourtconcluded.

TheappealscourtsentthecasebackforajurytoconsiderandawardedFreethecostsoftheappeal.Republicsettledthecase,ratherthantakingitschanceswithajury.

EventhoughDonaldFreewonhiscase,youshouldstilldomorethanjusttakeanagent'swordforwhetheryouhaveenoughinsurance.Iftheagentiswrong,heorshemaybeliablebutyou'llprobablyhavetosufferthroughyearsoflawsuitstogetyourmoney.

LiabilityCoverage

Mosthomeownersdecidehowmuchinsurancetheyneedbasedonthecostofreplacingthehouseanditscontentsincaseoffireorotherdisaster.Theyoftenoverlookwhetherthepolicyprovidesenoughliabilitycoverage.

Theliabilityportionofthehomeowners'policyisdesignedtoprotectassetsifyouaresuedbysomeone.

Example:Asalesmanbreakshisarmwhenhetripsonthejaggedfrontstepsyouneglectedtofix.Liabilityinsurancewouldpickupyourlegalbillsandanydamagesacourtrulesthatyoumustpay,uptothepolicylimit.

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Thelastmainpointtoconsider:Howmuchliabilitycoveragedoyouneedonyourhomeownerspolicy?Thepolicywillonlyprotectyouagainstliabilitiesuptothevalueofthehouseitselfbutmostpeopleusetheirhomeownerspolicyastheirmainprotectionfromcivillawsuits.

So,theissueofhowmuchliabilitycoverageyouneedhasalottodowithyourfinancialconditionandtheequityvalueinyourhouse.

Mosthomeownerspoliciespayupto$100,000eachtimesomeonemakesalegitimateliabilityclaimagainstyou.Iftheliabilityclaimagainstyouismorethan$100,000,youwouldhavetopaythedifference.

Anyonecansueyouanangryneighbor,theguywhoboughtyour'69Plymouth,theparentsofakidontheLittleLeagueteamyoucoach.Ifthepersonsuingyouwinsajudgmentincourt,youeitherhavetoreachacashsettlementorfacethecourtplacingalienagainstwhateverequityyouhaveinyourhouse.

Theclaimsagainstyoudon'tevenhavetoholdupincourttohurtyoufinancially.Thecostofhiringanattorneytodefendyouinacivillawsuitcaneasilyreach$10,000.Thisisanotherreasonliabilityinsuranceisvaluableitcoversthecostsofmountingyourlegaldefense.

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So,itprobablymakessensetouse$100,000asthelowendoftheliabilityinsuranceyoubuy.Inmanycases,yourhomemaybeworthmorethan$100,000.Youcanbuyhigherliabilitycoveragelimitstheyarearelativelyinexpensiveandworthwhileadditionalinsurance.

But,ifyou'regoingtobuymorecoverage,howmuchmoreshouldyoubuy?

Thereareseveralwaystogaugethevalueyoushouldprotectfromliability.Somepeopleinsureagainstthenon-mortgagedequitytheyowninahome;othersinsureagainstthetotalassessedvalue.Thelatteristhesaferstrategy;andit'susuallyavailable.

Ifyourhouseisworthseveralhundredthousanddollars,youhavealargeenoughinvestmentthereandprobablyelsewhere,toothatitneedsasmuchcoverageasyoucanbuyatareasonableprice.

Youcanalsobuystand-aloneliabilityinsuranceseparateofyourhomeownerspolicy.Toprotectyourselfagainstliabilityclaimsthataregreaterthan$100,000,youmaywanttobuyanumbrellaliabilitypolicy.Theumbrellapolicypaysuptothepredeterminedlimit(usually$1million)forliabilityclaimsmadeagainstyouoryourfamily.

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Evenifyoudon'thavemillionsofdollarsinvestedinstocksandbonds,youprobablydohavesomemoneyputawayinapensionfund.WhetherthisinvestmentisanindividualaccountlikeanIRAorKeoughoragroupaccountslikeatraditionalpensionplan,401(k)orESOP,itisanasset.Youshouldprotectit.

Pensionbenefitsaren'tusuallyexposedtolegaljudgments.Buttheyhavebeencalledintoquestion,occasionally,whencalculatingdamagesleviedagainstsomeone.Forthisreason,youshouldprobablyincludepensionbenefitswhencalculatingyourinsurablenetworth.

Inordertodecidewhetheryouneedhigh-limitliabilityinsurance,youneedtocalculateyourinsurablenetworth.Theeasiestwaytocalculatethisnumberistoadduptheequityvalueyouhaveinyourhouse,anyotherpropertyyouown,majorpersonalpossessionslikejewelryorcollectiblesandanysavingorliquidinvestmentsyouhave.Thefollowingchartshouldhelpyoureviewtheseassets.

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Listmostrecentcomparablevalueorinsuredvaluefromothercoveragesformarketvalue.

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Debtsandrestrictionsincludemortgages,liensandotherencumbrancesonrealestateproperty.Theywouldalsoincludemarginloansoncapitalinvestmentsandliquidationcostsorpenaltiesonaccessiblepensionfunds.

Art,jewelryandothercollectiblesmaybecoveredseparately.Ifso,youmaychoosetokeepthemoutofthiscalculation.

Thetotalvalueofallthesethingsevenifyoucouldn'traiseitbysellingeverythingtomorrowiswhatyouneedtoprotect.

Conclusion

Thischapterhasshownyouhowtocalculatehowmuchhomeownersinsuranceyouneed.Beforemakingadecisionaboutthetypeofcoverageyoushouldbuy,youshouldexaminetheimportanceoftheliabilityportionofahomeownerspolicy.Thenextchapterofthisbookexpandsfromthislasttopic:Whyliabilityissuchamajorissue.

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Chapter3WhyLiabilityisSuchaMajorIssueManyhomeownersdecidehowmuchinsurancetheyneedbasedstrictlyonthecostofreplacingthehouseanditscontentsincaseoffireorotherdisaster.

Oftenoverlooked:Whethertheirhomeowners'insuranceprovidesenoughliabilitycoverage.

Theliabilityportionofthehomeownerspolicyisdesignedtoprotectassetsifyouaresuedbysomeonewhoisinjuredphysically,mentallyorotherwisewhileonyourproperty.

Ifanaccidentoccursonyourproperty,anyonewhoishurtcanholdyoufinanciallyliablefortheinjuriestheysuffer.Mosthomeownerspoliciesofferyouliabilityprotectionforbodilyinjuryandpropertydamage.Thiscoverageappliestotheinjuredperson'sclaimandthecostofdefendingyouifyouaresued.

Thestandardpolicy'sliabilityprotectioncoversinju-

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riesordamagecausedbyyou,amemberofyourfamily,orapet.Itappliestoinjuriesthatoccuronyourpropertyoranywhereintheworld.

Mosthomeownerspoliciesprovide$100,000inliabilityinsurance,butsomecompaniesoffer$200,000or$300,000incoverageaspartoftheirbasicpolicy.Ifyourpolicyprovidesonly$100,000inliabilityprotection,youcanraiseitto$300,000inexpensivelyusuallyforlessthan$20ayear.

Earlierinthiscentury,governmentalregulationspreventedpropertyinsurancecompaniesfromsellingliabilityinsurance.(Bythesametoken,liabilityinsurancecompaniescouldn'tsellpropertyinsurance.)So,ahomeownerhadtopurchasetwoormorepolicies,oftenfromdifferentinsurancecompanies,toobtaintotalinsuranceprotection.

Startinginthe1940s,theseregulationswerechanged.Now,theHomeownersPolicyProgramprovidesliabilityautomaticallyinadditiontothepropertycoverages.Thecombinationoftwoormoretypesofcoverageintoonepolicyiscalledapackagepolicy.

Bycombiningpropertyandliabilitycoverages,theinsurancecompanyisabletoreduceprocessingcosts,determinelossesmoreaccurately,andpassthesesavingsontotheconsumerintheformoflowerpremiums.

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Theliabilitiescoveredbyhomeownersinsurancearisefromcivilnotcriminallaw.Criminallawdealswithconflictsbetweenanindividual'sbehaviorandthestate.Civillawprovidesameansbywhichonepersonorinstitutioncansueanotherinordertoprotectprivatepropertyorarightwhichonepartyfeelshasbeenviolatedbytheother.

TheJargonofLiabilityIssues

Aninsuredincludesthenamedinsured,aspouse,andrelativeswhoresideinthehousehold,asdefinedonthespecificpolicy.

Inaddition,aninsuredincludesanypersonororganizationlegallyresponsibleforanimalsorwatercraftownedbyaninsuredhouseholdmember.

Ifthenamedinsuredorthespousedies,coveragecontinuesforlegalrepresentativesbutonlywithrespecttothepremisesandpropertyofthedeceased.Untilalegalrepresentativeisappointed,atemporarycustodianofthenamedinsured'spropertywouldalsobecovered.

Allhouseholdmemberswhoareinsuredatthetimeofthenamedinsured'sdeathwillcontinuetobecoveredwhiletheycontinuetoliveattheresidencepremises.

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Who'sinsuredunderthepolicyisanimportantdefinition.Inastandardpolicy,theinsurancecompanypromisestopayanydamagesandprovidelegaldefenseforanyinsured.Theseareimportantbenefits.

Bodilyinjurymeansharm,sickness,ordiseaseandincludesthecostofrequiredcare,lossofservices,ordeathresultingfromtheinjury.Thisisoneofthemainkindsoflossthatconstituteacivilliability.

Propertydamagemeansinjurytoordestructionoftangiblepropertyandincludeslossofuseoftheproperty.Thisisanotherkindoflossthatconstitutesacivilliability.

Occurrencemeansanaccident(includingcontinuousorrepeatedexposuretoconditions)whichresultsinbodilyinjuryorpropertydamageneitherexpectednorintendedbyaninsuredperson.Asituationmustbedeemedanoccurrencebeforeinsurancewillapply.

TwoMainLiabilityCoverages

Therearetwokindsofcoverageprovidedundertheliabilitysectionofahomeownerspolicy.Theseareidenticalonallhomeownerspolicyformsthoughtheywillappearindifferentlocationsofspecificpolicies.

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Homeownerspolicies,likemostkindsofinsurance,organizethespecifickindsofcoveragetheyofferwithalettersystemCoverageAthroughCoverageZ,iftherearethatmany.Butthere'snotmuchconsistencybeyondthat.Onepolicy'sCoverageAmightbethesameasanotherpolicy'sCoverageC,etc.Whenyoucomparepolicies,lookforthenameofthecoverageinquestiondon'tbeconfusedbylettersthatdon'tmatchup.

Thefirstliabilitycoverageispersonalliabilitycoverage.Thispaysaninjuredpersonusuallyathirdpartyforlosseswhichareduetothenegligenceoftheinsured,andforwhichtheinsuredisliable.

Example:Macktakeshisdogoutforawalkwithoutaleash.Fornoapparentreason,Mack'sdogattacksEthelbert,whohappenstobejoggingnearby.TheattackresultsininjuriestoEthelbertthatcost$10,000inlostincomeduringrecovery.MackispersonallyliabletoEthelbertforthis$10,000.

Thesecondliabilitycoverageismedicalpaymentstoothers.Thiscoversnecessarymedicalexpensesincurredwithinthreeyearsofanaccidentcausingbodilyinjury.Anaccidentiscoveredonlyifitoccursduringthepolicyperiod.

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Medicalexpensesincludereasonablechargesformedical,surgical,x-ray,dental,ambulance,hospital,professionalnursing,prostheticdevicesandfuneralservices.

Thiscoveragedoesnotapplytomedicalexpensesrelatedtoinjuriesofthenamedinsuredoranyregularresidentoftheinsured'shousehold,exceptresidenceemployees.

Attheinsuredlocation,coverageappliesonlytopeoplewhoareontheinsuredlocationwiththepermissionofaninsuredperson.Awayfromtheinsuredlocation,coverageappliesonlytopeoplewhosufferbodilyinjurycausedby:

aninsuredperson,ananimalownedbyorinthecareofaninsured,aresidenceemployeeinthecourseofemploymentbyaninsured,oraconditionintheinsuredlocationorthewaysimmediatelyadjoining.

Insomecases,thesecostsaresimplydetermined;inothercases,thefactsmaybeunclearandtheinsuredpersonmayormaynotbelegallyliable.Inthesecases,theinsurancecompanywilloftenpaymedicalcostsasagoodwillgesturetoavoidanylegalaction.

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AvisitortoMack'shomeslipsandfallsonthefrontsteps.Theseinjuriesresultinmedicalexpensestothevisitorintheamountof$275.Later,thevisitorsuesMackfor$10,000,claimingdamagesfornegligence.Aninsurancecompanywillpaythe$275quickly,inhopesofpreventingthelargerlawsuit.

Theinsurancecompanyhasplentyofincentivetoavoidlawsuits.Underthestandardhomeownerspolicy,itwillprovidealegaldefenseagainstclaimseveniftheclaimsaregroundless,falseorfraudulent.Thecompanymayalsomakeanyinvestigationorsettlementdeemedappropriate.

Allobligationsoftheinsurancecompanyendwhenitpaysdamagesequaltothepolicylimitforanyoneoccurrence.Butlegalcostscanaddupquicklyinthemeantime.

Bothpersonalliabilityandmedicalpaymentscoverageshavelimitsmedicalpaymentsisusuallymuchlowerthanpersonalliability.Unlessyouaskotherwise,you'llgetthebasiclimitsofthesecoverages,whicharetheminimumamountswritten.Asever,higherlimitsofliabilitycanbepurchased.

Personalliabilityinsuranceappliesseparatelytoeachinsuredperson,buttotalliabilitycoverageresultingfromanyoneoccurrencemaynotexceedthelimitstatedinthepolicy.

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IfMackandhissisterarebothwalkingthedogwhenitbitesEthelbert,theybothmightbenamedinalawsuit.However,theirhomeownersinsurancewillonlycoverthemuptothesinglelimit.IfMackwasinvolvedinonedogbiteandhissisterwasinvolvedinanother,theinsurancewouldcovereachuptothelimitseparately.

AdditionalCoverages

Thepersonalliabilitycoverageprovidesthreekindsofinsuranceinadditiontothestatedlimitsofliability:

claimexpenses,firstaidtoothers,anddamagetothepropertyofothers.

Claimexpensecoverageincludesthecostsofdefendingaclaim,courtcostschargedagainstaninsuredpersonandpremiumsonbondswhicharerequiredinasuitdefendedbytheinsurancecompany.

Expensesincurredbythecompany,suchasinvestigationfees,attorney'sfees,witnessfees,andanytrialcostsassessedagainstyouwillbecoveredbythepolicy.

Ifanybondsarerequiredofyouinthecourseofalawsuit,suchasreleaseofattachmentorappealbonds,thecompanywillpaythepremiumforsuchbondsbutisundernoobligationtofurnishthebonds.Thatisyourresponsibility.

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Whentheinsurancecompanyrequeststheassistanceofaninsuredpersonininvestigatingordefendingaclaim,reasonableexpensesoftheinsuredincludinglossofearningsupto$50perdayarecovered.

Claimexpenseinsurancealsocoverspostjudgmentinterestwhichaccruespriortoactualpayment.Ifajudgmentisrenderedagainstyou,thereusuallyisatimelapsebetweentherenderingofthejudgmentandthepaymentofthedamagesawarded.Thecompanywillpayanyinterestchargesaccruingonthedamageawardduringthistimeperiod.

Expensesforfirstaidtoothersarecoveredwhenthechargesareincurredbyaninsuredpersonandwhenthechargesresultfrombodilyinjurywhichiscoveredbythepolicy.Expensesforfirstaidtoaninsuredpersonarenotcovered.

Youareauthorizedbytheinsurancecompanytoincurexpensesforfirstaidtoaninjuredthirdpartywhenthereisbodilyinjurycoveredbythepolicy.ItwillcoveryourattemptstobeagoodSamaritan.

Ifdamagetothepropertyofothersiscausedbyaninsuredperson,thepolicywillprovidereplacementcostcoverageonaperoccurrencelimit.

Thisadditionalcoveragewon'tpayfor:

damagecausedintentionallybyanin-

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suredwhoisatleast13yearsofage(therehastobesomecut-offageotherwise,thiswouldcovertheintentionalactsofinsuredadults);propertyownedbyyou,becausethiscoverageisdesignedtocoverpropertyownedbyothers;propertyownedorrentedtoatenantorapersonwhoisresidentinyourhousehold.

Example:Youborrowacamerafromyourneighborandaccidentallydropitinyourswimmingpoolwhiletakingpictures.Thiscoveragewillprovideupto$500toreplacethecamera.

MiscellaneousLiabilityConditions

Theliabilitycoverageinahomeownerspolicyincludesanumberofotherconditions,whichcanlimititsapplicability.Theseconditionsinclude:

Thebankruptcyofaninsuredpersondoesnotrelievetheinsurancecompanyofitsobligationsunderthepolicy.Personalliabilitycoveragewillbetreatedasexcessoveranyothervalidandcollectibleinsuranceunlesstheotherinsuranceiswrittenspecificallytobetreatedasexcessoverthepersonalliabilitycoverage.

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Yourdutiesintheeventofacoveredoccurrenceincludeprovidingwrittennoticeidentifyingtheinsuredpersoninvolved,yourpolicynumber,namesandaddressesofclaimantsandwitnesses,andinformationaboutthetime,place,andcircumstancesoftheoccurrence.Youarealsorequiredtopromptlyforwardeverynotice,demandorsummonsrelatedtotheclaimand,whenrequested,toassistintheprocessofcollectingevidence,obtainingtheattendanceofwitnessesandreachingsettlement.Youarenotsupposedtoassumeanyobligationsormakeanypayments(otherthanfirstaidtoothersfollowingabodilyinjury),exceptatyourownexpense.Paymentofmedicalcoststoothersisnotanadmissionofliabilitybyyou.Whenmedicalpaymentsaremade,theinsuredpersonorsomeoneactingonthebehalfoftheinjuredpersonhastoprovidewrittenprooftosupportanyclaim.Theinjuredpartymustsubmittoaphysicalexamination,ifrequestedbytheinsurancecompany,andauthorizethecompanytoobtainmedicalreportsandrecords.

Thepolicywillalsopayupto$1,000foryourshareofanyneighborhoodhomeownersassociationorcondominiumlossassessmentmadebecauseofbodilyinjuryorpropertydamageoccurringonjointlyownedproperty.Higherlimitsareavailable.

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However,ifalocalgovernmentmakesachargeagainstyourassociation,yourshareofthelossisnotcovered.

Thiscoveragewouldapplyifyou,asavolunteerofficeroftheassociation,weresuedindividually.

Mosthomeownerspoliciescoverbusinessequipmentandfurnitureinyourhomeforupto$2,500.Buttheyprovidenocoverageforbusinessliabilitywhichyoumightneedif,forinstance,amessengerslippedonyourstepswhiledeliveringabusinesspackage.

Ifyouhaveahomeoffice,youshouldconsiderbuyingadditionalbusinesscoverage.Forabout$20to$30agear,youcanbuy$5,000incoverageforbusinessequipmentandfurniture,plus$100,000inliabilitycoverage.

Somestatesallowcoveragefordomesticemployeesunderthepersonalliabilitycoveragebutthisisnotusuallythecase.Usually,adomesticmustworkaspecifiednumberofhoursaweekorresideonthepremisesinorderforcoveragetobemandatory.

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Example:Yourhousekeeperisdoinggroceryshoppingforyourkidsandslipsinthestore,breakingherarm.Theremaybecoverageunderyourhomeownerspolicy.Ifshe'sshoppingforpersonalreasonswheninjured,thereisnocoverage.

ExclusionstoLiabilityCoverage

Therearethreemajorcircumstancesunderwhichliabilitycoveragedoesnotapply.

Thefirstmajorcircumstance:Businessactivities.

Liabilityassumedunderawrittencontractiscovered,aslongasthecontractispersonalinnature.Thereisnocoverageforbusiness-relatedcontractsoractivities.

Personalliabilitycoverageisnotabusinesspolicyitwillonlycoverpersonalactivitiesandexposures.Thestandardpolicyformitselfstates:

Anyliabilityarisingpurelyoutoftheinsured'soccupationorbusinessand/orthecontinualorpermanentrentalofanypremisestotenantsbytheinsuredisexcluded.

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However,therearesomeactivitieswhichcanbeconstruedasbusinessactivitiesbutarespecificallycoveredunderthepolicyasexceptionstotheexclusion.Amongthese:

...theinsuredmayrentouttheresidenceandbecoveredbythepolicyunderlimitedcircumstances....

...Aportionofaresidencemightbeusedforprofessionalpurposes,suchasabeautyparlororphysician'soffice....thereisnocoverageforprofessionalliabilityarisingoutoftheseactivities.

Thesecondmajorcircumstance:Injurytomembersoftheinsuredhousehold.

Lawsuitsbetweenpeoplecoveredbythesamepolicyareexcluded.

Beforethisexclusionwasaddedtothestandardpolicy,somecourtspermittedfamilymemberstosueotherfamilymembersandcollectdamages.

TheUtahSupremeCourtconsideredexactlythiskindofclaiminits1992decisionBlakettaAllenv.PrudentialPropertyandCasualtyInsuranceCo.

In1981,Allen'shusbandmetwithaPrudentialagenttodiscusshomeownersinsurance.Duringthemeeting,Mr.AllencompletedanapplicationforahomeownerspolicyunderwhichPrudentialwouldinsuretheAllens'homeandprovideliabilitycoverageagainstaccidentsoccurringontheproperty

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TheAllensreceivedthepolicyinthemailapproximatelytwomonthsafterthemeeting.AttachedtothepolicywasanendorsementexcludingmembersoftheAllens'householdfromliabilitycoverage.NeitherAllennorherhusbandreadtheendorsement.

Threeyearsaftertheagreementwentintoeffect,theAllens'two-year-oldsonwasseriouslyinjuredwhenMrs.Allenspilledapotofboilingwateronhim.Aftertheaccident,Mr.AllencontactedthePrudentialagent,seekingrecoveryagainstthepolicyforhiswife'saccidentalinjuryofhisson.Basedonthehouseholdexclusion,Prudentialdeniedcoverage.

Mrs.Allensued,seekingtoinvalidatetheexclusiononthegroundsthattheexistenceoftheexclusionviolatedherreasonableexpectations.Thedistrictcourtdismissedthelawsuit.

Mrs.Allenappealed.Shearguedthatthehouseholdexclusionshouldbeheldunenforceablebecauseitviolatedherreasonableexpectationsofcoverage.

TheUtahSupremeCourt,consideringthisargument,classifiedreasonableexpectationsclaimsintothreegroups:

constructionofanambiguoustermintheinsurancecontracttosatisfytheinsured'sreasonableexpectations;refusaltoenforcethefineprintofaninsurancecontractbecauseitlimitsmoreprominentprovisionsgivingrisetotheinsured'sexpectations;andrefusaltoenforceaninsurancecontract

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provisionwhenitwouldfrustratethereasonableexpectationsofcoveragecreatedbytheinsureroutsideofthecontract.

Thecourtdidn'tfindanyoftheseapplicabletotheAllens'case.ThePrudentialpolicyhadstatedclearlythatcoveragewasexcludedfor''anyInsuredunder...thedefinitionofInsured."ItthendefinedInsuredas"residentsoftheNamedInsured'shousehold,hisspouse,therelativesofeither,andanyotherpersonundertheageoftwenty-oneinthecareofanyInsured."

TheexceptionclearlymeantnomedicalpaymentscoveragefortheAllen'sson.

Thehomeownerspolicyisnotmeanttobeasubstituteforaccidentandhealthinsuranceandthisexclusionmakesitclearthatthereisnocoverageforaninjurysufferedbythenamedinsuredorotherfamilymemberswhoresideinthesamehousehold.

Thethirdmajorcircumstance:Intentionalactsofaninsuredpersonoractswhichcanbeexpectedtoproducebodilyinjuryorpropertydamage.

Ifyoumeantohurtsomeone,yourhomeownersinsurancewon'tcoverdamages.

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Inearly1991,ArielHessingsoughtcoverageunderhisfather'shomeownersinsurancepoliciesforhisformergirlfriend'sclaimsformedicalcostsandotherdamages.Hessinghadpleadedguiltytobeatingthewomanathisfather'sNewJerseyhomein1985.Hercivillawsuitagainsthimwaspending.

NewJerseyStateSuperiorCourtJudgeBurtonIronsondismissedHessing'sclaim,rulingthatthefather'stwoinsurersdidn'thavetoprovidecoveragebecauseHessing'sactwasintentional.

"Thedecisionsendsasignalthatpeoplewholashoutattheirwivesorgirlfriendswillhavetopersonallypayandcannottransfertheresponsibilitytoaninsurancecarrier,"saidJamesRothschild,alawyerforPennsylvania-basedHarleysvilleMutualInsuranceCo.

Inadditiontothethreemajorexclusions,thereareanumberoflessimportantcircumstancesinwhichhomeownersinsurancedoesnotcoverliabilities.Theseincludethefollowing:

warorwarlikeaction(mostpolicieshaveawarriskexclusionlossesduetowararecatastrophicandsimplytoomuchforinsurancecompaniestoprotectagainst),renderingorfailuretorenderprofessionalservices,transmissionofacommunicablediseasebyaninsured,sexualmolestation,corporalpunishment,orphysicalormentalabuse,theuse,sale,manufacture,delivery,

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transferorpossessionbyanypersonofcontrolledsubstances(illegaldrugs),otherthanlegitimateuseofprescriptiondrugsorderedbyaphysician,entrustmentbyaninsuredpersonofanexcludedvehicle,watercraft,oraircrafttoanyperson,orvicariousparentalliability(whetherornotstatutorilyimposed)fortheactionsofaminorusinganyoftheseitems,andanylossassessmentchargedagainstthenamedinsuredasamemberofanassociation,corporation,orcommunityofpropertyowners.

VehicleLiability

Oneofthemostdangerousactivitiesyoucanundertakeisdrivingamotorizedvehicle.Andthedangersposedaren'tjustpersonalvehicleaccidentsarethemostcommoncauseofliabilityclaimsthatmostpeopleface.

Sincehomeownersinsuranceisamajormeansofliabilityprotection,areasonablysmartpersonmightsupposethatvehicleaccidentsandhomeownersinsurancecometogetherinalotofliabilityclaims.Theydo.Infact,theydooften.

Somepeoplebugminimalamountsofautoinsuranceandhopetheirhomeownersinsurancewillcoveranyshortfalls.Insurancedoesn'tworkthatway.

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Homeownersinsurancedoesnotapplytoanyexposureevenliabilitycreatedbydrivinganyvehiclethatisregisteredandtaggedwithastatemotorvehicleadministration.Thereisalsonocoverageforliabilityarisingoutofvehiclesthatyouown,operate,rentorborrow.Thesevehiclesshouldbecoveredbyanautopolicy.

However,thereiscoverageforthevicariousliabilitycreatedwhenamemberofyourhouseholddrivessomeoneelse'svehicle.

Example:Ifyouaresuedfordamagecausedbyyour12-year-olddaughterwhowentjoyridingwithyourcar,thereisnocoverageunderthehomeownerspolicyunderthevicariousliabilityexclusion.Ifsheborrowedaneighbor'scar,though,therewouldbecoverage.

Liabilityinvolvingthefollowingtypesofunregisteredvehicleiscoveredunderastandardhomeownerspolicy:

atrailerwhichisparkedinaninsuredpremises,anoff-roadrecreationalvehiclewhichyourent,borroworownaslongasitisusedonlyataninsuredlocation,damageorinjuriesinvolvinggolfcarts,whenusedforgolfing,andmotorizedlawnmowertractors,electric

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wheelchairsandsimilarvehiclesindeadstoragearecovered.

Thewatercraftexclusionisverysimilartothemotorvehicleexclusion.Largerboatsaremoreappropriatelycoveredbyboatoryachtpolicies.

However,liabilityclaimsinvolvingthefollowingtypesofboatsarecovered:

motorboatswithinboardorinboard-outboardmotorsthatyoudon'town,motorboatswithoutboardmotorsofgreaterthan25horsepowerthatyouhaveownedsincebeforeinceptionoftheinsurancecontractaslongastheinsurancecompanyisnotifiedoftheexposure,motorboatswithoutboardmotorsofgreaterthan25horsepowerthatyouacquireduringthepolicyperiod,sailboatsthatyouownaslongastheyareunder26feetinlength(thestandardhomeownerspolicywillcoverbiggersailboats,aslongasyoudon'townthem),boatsinstorage,regardlessofsize.

Thestandardhomeownerspolicyincludesanaircraftexclusionsimilartotheothervehicleexclusions.Ahanggliderwouldbeconsideredanaircraft,andwouldbeexcludedsinceitisdesignedtocarryaperson.

Ontheotherhand,liabilityinvolvingmodelplanes,includingremote-controlledmodelplanes,iscovered.

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Conclusion

Oneofthemostimportantreasonstopurchasehomeownersinsuranceisforliabilitycoverage.Thiscoveragetakesshapeintwoparts:personalliabilitycoverageandmedicalpaymentscoverage.

Ifdamagewascausedbyyou,yourspouse,children,orpetstoanotherpersonorpersonsonthepremisesofyourhomeyoucanbeheldliable.

Liabilitycoverageisoneofthedistinguishingcharacteristicsofhomeownersinsurance.It'swhatseparateshomeownerscoveragefromdwellingorfirecoverage.Butliabilityinsurancehasbecomesoimportantinthemodernmarketplacethateventhisdistinctionisfading.

Increasingly,liabilitycoverageisaddedtodwellingandfirepolicies.Whenliabilitycoverageisnotattachedtoadwellingpolicydirectly,it'ssometimeswrittenasaseparatepolicy.

Itisimportanttoknowthedifferentdefinitionsofliabilityandhowtheyapplytoyoulegally.Itisalsoimportanttoknowwhenlimitsofliabilityoccurinyourinsurancepolicyandtheinsurancecompany

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stopspaying.Thenextchapterwilldiscussnotonlytheimportantdefinitionsthatapplytoliability,butitwillalsofocusonnumerousdefinitionswhichareimportanttohomeownersinsuranceasawhole.

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Chapter4ImportantDefinitionsHomeownersinsurance,likeanyothertypeofinsurance,hasitsownlanguage.Becauseeachfieldhasaslightlydifferentinterpretationofdefinitionsandpolicies,itisimportanttoclarifythemostbasicconceptsandlanguageinvolvedwithineachone.

Thischapterwillfocusonthemostbasicindividualtermsandpolicylanguageofhomeownersinsurance.

AttachedStructures

Thestandardhomeownerspolicycoversnotonlythehouseonyourpropertybutalsostructuresattachedtoitsuchasanattachedgarage,breezeway,patio,etc.

Thiscoveragealsoextendstobuildingmaterialsandsuppliesyou'reusingtoexpandthehouse,buildafacilitylikeapoolormakerepairstotheexistingstructure.Thismaterialwouldbecoveredintheeventofafire,etc.

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Example:Ifagarageisattachedtothedwellingitself,coverageforlosstothegarageisincludedwiththedwellingcoverage.However,ifthegarageisnotattachedtothedwelling,coverageforlossispartofthecoverageforotherstructures.Mostpoliciescoverthesestructuresforupto10percentofthetotalinsuredvalueofyourhome.

Toqualifyasseparate,astructuremustbeseparatedfromthemainhousebyaclearspace,connectedatmostbyafenceorutilityline.Anystructurethatisconnectedbysomethingmoresubstantial,suchasasharedroof,isnotconsideredseparateandshouldbefiguredintothetotalvalueofthehouse.

BusinessActivities

Businessmeansanytrade,professionoroccupation.Businessactivityisanyagreement,contract,transactionorotherinteractionthatadvancesyouroccupation.Thesetermsareimportantbecause,inmostcases,homeownerspolicieslimitcoverageforbusinessesandbusinessactivities.

Inastandardpolicy,business-relatedpropertyisinsureduptoafewthousanddollars.Business-relatedliabilityisamorecomplicatedissue.Liabilitycoverageforbusiness-relatedactivitiesisstrictlylimited.

Anysignificantbusinessexposureshouldbecoveredunderaseparatecommercialpolicy.

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CivilianAuthorityRisk

Anexampleofcivilianauthorityrisk:Anairplanecrashesinaresidentialneighborhooddamagingordestroyinganumberofdwellings,butleavingyourresidenceundamaged.However,theentireneighborhoodissealedoffbyauthoritieswhileinvestigationoftheaccidentandcleanupworkproceed.

Youandyourtenantsaren'tallowedaccesstoyourresidenceforaperiodoffivedayseventhoughit'sstillinperfectcondition.Youcouldmakeaclaimonyourhomeownerspolicyforyouradditionallivingexpensesandthelossofrentalvalue.

Collapse

Thedictionarydefinitionofcollapseisto"fallintoajumbled,unorganized,orflattenedmass."Despitethissimpledefinition,severalcourtdecisionshaveinterpretedcollapseasthe"lossofstructuralintegrity."Thatlessexactdefinitioncausesanumberofdisputes.

ConcurrentCause

Anexampleofconcurrentcause:Ahurricanecausesagreatdealofsurfacefloodinginyourbackyard.Asaresultofthis,thegroundaroundyourswimmingpoolpartiallygiveswayandyourpoolcracks.Thisisacaseofaweatherconditioncombiningwithanexcludedperilearthmovementtoproducealoss.Itisnotcovered.

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Consideration

Themostimportantelementofacontractisthelegalconceptknownasconsiderationwhichmeans,simply,thatonepartygivessomethingtoanotherpartyinreturnforsomethingorservice.

Inaninsurancecontract,theinsuredpersonmakesapremiumpayment(considerationnow)andpromisestocomplywiththeprovisionsofthepolicy(considerationfuture).Inreturn,theinsurancecompanypromisestopaycoveredclaimswhichoccurduringastatedpolicyperiod.

Contract

Aninsurancepolicyisalegalcontractoragreementbetweentheinsuredandtheinsurancecompany.Ifanythingshouldevergowrongwithapolicyyoubuy,therulesofcontractlawwillapplytoalawsuitorotheraction.Theinsurancecompanyisonepartytothiscontract,andthepersonbuyingtheinsurancebecomestheotherparty.Generally,thetermsofthecontractrequirethepersonwhobuystheinsurance(calledtheinsured)topaymoney(thepremium)totheinsurancecompany(theinsurer)and,inreturn,thecompanyagreestopaytheinsuredforcertainspecifiedlossesovertheperiodoftimetheinsuranceisineffect.

Coverage

Thescopeofprotectionprovidedbyaninsurancepolicyiscalledcoverage.Thepolicyspellsoutmanyagreements,butperhapsmostimportant,itspecifiesthetypeoflossesforwhichtheinsuredwillbereim-

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bursedbytheinsurancecompany.Whenthepolicystatesthattheinsurancecompanywillpayforacertaintypeofloss,thenitiscommontosaythattheinsuredpersonhascoverageforthatloss.

DebrisRemoval

Debrisremovalis,surprisingly,acommonpointofdisputebetweeninsurancecompaniesandpolicyowners.Whenthereisafireorothertypeoflossofanyconsequence,therewillbeacertainamountofdebristoberemovedorcleaningtobedoneaspartoftherepairoperations.

Thesecostsareincludedintheclaimamountaslongasthereissufficientcoveragetopayforthedamagedpropertyplusdebrisremoval.Ifcombinedlossexceedsthepolicylimit,thenanadditionalamountofcoverageequalto5percentofthelimitofliabilitywillbemadeavailablefordebrisremoval.

Deductible

Inordertoavoidnuisanceclaims,insurancecompaniesrequestthatmostpolicieshaveadeductibleaninitialamountaninsuredpersonmustpaybeforetheinsurancecompanytakesover.Formostdwellingpolicies,thisdeductiblewillbeatleast$250anditoftenisraisedto$500or$1,000ormore.Thepolicyownercansometimesbuybackalowerdeductiblebypayingahigherpremiumoraspecialone-timefee.

DutytoDefend

Theinsurancecompanyhastherightandtheoptiontoinvestigateandsettleanylawsuitandclaim.Inthe

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sameprocess,italsoacceptsadutytodefendaninsuredpersoninanyrelatedlawsuitorclaim.But,onceitpaysthelimitofitsliabilitytosettleasuitorclaim,itisnolongerobligatedtoprovideanyfurtherdefense.

Endorsement

Mostinsurancepoliciesareprintedingreatquantitiesasstandardforms.Sincetherearemanyvariationsintheprotectionneededbyindividualconsumers,ameanstoaddordeletecoveragesisnecessary.Wheneverabasicpolicyformischangedinanyway,thischangeisputintoeffectbyanendorsement.Anendorsementofteninvolvesapremiumchange;youwilllearnhowtocalculatethemostcommonlyrequestedchanges.

Entrustment

Whenaninsuredpersonrentsorlendspropertytoanon-insuredpersoninamannerthatmightaffectcoverage,theissueofentrustmentcomesintoplay

Example:Youlendyourcartoyourbrotherwhoisnotinsuredbyyourhomeownerspolicy.Ifhecausesanaccidentandyouaresued,thereisnocoverageunderthepolicy.

Expiration

Theendofthecoverageperioddefinedintheinsurancepolicyistheexpirationdate.Ifthepolicyisnot

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renewedbythisdate,premiumsandcoveragebothstop.However,expirationisnotabsoluteitdoesnotaffectpaymentsforlossofuse.Ifalossoccurredjustbeforetheexpirationdateofthepolicyandcontinuedfortwomonthsafterexpiration,thelosswouldbefullycovered.

Explosion

Explosionscanbecausedbytheignitionofexplosivematerialsuchasnaturalgasorthefumesfromgasoline,usuallyinanenclosedspaceorfromthebuildupofpressurewithinacontainer.Gasfromaleakinglinecanbeignitedbyapilotlight,orfumesfromcleaningclothinginanunairedroomcanexplode.

Internalexplosionmeansexplosionoccurringinadwellingorothercoveredstructure.Itdoesnotincludebreakageofwaterpipesorlossbyexplosionofsteamboilersorsteampipes.Thisperilwillprovidecoverageforanexplosionwhereafiredoesn'tensuebutexplosionsandfiresareusuallycloselyrelated.

FairRentalValue

Fairrentalvaluecoverageappliesonlywhentheresidenceinsuredisyourprincipalresidence.Ifsuchisthecase,youmayelecttocollectthefairrentalvalueofyourresidence,insteadofothervaluations.

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Example:Youhavetwoextraroomsinyourhousewhichyourentout.Aseriousfireoccurswhichmakesyourresidenceuninhabitable,andthetworoomersareforcedtoseekroomselsewhere.Asaresult,youlosetheIncomefromtheserentalsduringthetwomonthsittakestorepairtheresidence.Thecompanywillreimburseyouforthelostrentalslessanyexpensesassociatedwiththerentalsthatdonotcontinue,suchasutilities.

Faultiness

Iffaultyplanning,constructionormaintenancecausesaloss,thestandardhomeownerspolicywillmostlikelynotcoverthese.

Anexampleoffaultyplanning:Cityauthoritiesissueabuildingpermittoacontractorwhoproceedstoerectahomeatasite.Youbuythehouseandinsureit.Aftertwoyears,youdiscoverthewallsandfoundationsarecrackingandthehouseistilting.InvestigationshowsthehousewasbuiltonlandfillImproperlypreparedyearsbefore.Thereisnocoveragebecauseoftheexclusionoffaultyplanning.

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Anexampleoffaultyconstruction:Becausethecompactingofearthbeneathahomewasnotdoneproperly,yourtwo-year-oldhousehasstartedtosink.Thewallsareshiftingandcracking.Thereisnocoverageunderthestandardpolicyforthis.

Anexampleoffaultymaintenance:Acountyfloodcanalrunsbehindyourproperty.Thiscanaliscloggedwithdebriswhichhasnotbeenclearedoutbythecounty.Astormhitsandwaterinthecanaloverflowsduetothecloggeddebris.Itfloodsyourhouse.Thereisnocoverageunderthestandardpolicyforthis.

Fire

Thereisnodefinitionoffireinthestandardhomeownerspolicy,butitisamajorpointofdisputebetweeninsurancecompaniesandpolicyowners.Firecanbeeitherfriendlyorhostile.Thegasflameofastove,acandle,orafireinthefireplaceareexamplesoffriendlyfires;however,ifthegasflameignitesapotofgrease,oracandletipsoverandsetsfiretocurtains,oranemberpopsoutofthefireplaceandsetsfiretoacouch,theresultingfiresarehostile.

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Intheinsuranceindustry,thereisatechnicalandlegaldefinitionofthetermfire:aproductofcombustionwhichproducesflame,lightandheat.

Thisdefinitionhelpstodeterminewhetherdamagehasbeencausedbyfireorotherperils,suchasexplosionorsmoke;thisisimportantbecausethesecoveragesarenotalwayspurchasedtogether.

Form

Aninsurancepolicy,sometimescalledaform,isthewrittenstatementofacontractofinsurance.Legally,apolicyisacontractbetweentheinsurancecompanyandthepersonbuyinginsurance.

Freezing

Understandardpolicyterms,lossesresultingfromfreezingarecoveredwhilethedwellingisunoccupiedaslongasheathasbeenmaintainedinthebuildingorthewatersupplyhasbeenshutoffandtheplumbingsystemandapplianceshavebeendrained.Lossescausedbyfreezingwhilethedwellingisoccupiedareusuallycovered.

ImpliedCo-Insurance

Ifyoudon'tinsureyourhomeforitsfullassessedvalue,theinsurancecompanymayonlypayyouacomparableportionofanylossthatdoesoccur.Thiscommonpracticecalledimpliedco-insurance

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incentivizeshomeownerstoinsureatleast80percent(anindustrystandardthreshold)ofthefullvalueoftheirproperty.

Example:Ifyour$100,000houseisinsuredforonly$60,000,youhaveonly75percentasmuchinsuranceastheinsuranceindustrythinksyoushould($60,000is75percentof$80,000).Sothecompanywouldpayonly75percentofa$10,000claimfollowingasmallfirethat's$7,500.

InherentVice

Inherentviceisn'tacharacteristicofWashington,D.C.It'stheabilityofsomethingtodestroyordamageitselfwithouttheinterventionofoutsidehelp.Milkwillsourinasealedcontainerandunderrefrigeration.Homeownersinsurancedoesn'tcoversuchlosses.

Ontheotherhand,mostlossescan'tbeattributedtoinherentvice.Therustingofmetalisnotinherentvice,sinceitistheproductofaferrousmetalbeingexposedtoair(outsidehelp).Mechanicalbreakdownisrelatedtowearandtearandwouldbeconsideredamaintenanceloss,notinherentvice.

Injury

Intheliabilitysectionsofahomeownerspolicy,bodilyinjuryisdefinedassomethingdifferentthanpersonalinjury.Itmeansphysicalinjury.Thedefinitionalso

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includestheresultingexpenseswhichmightoccurasaresultofthephysicalharm,sicknessordeath.

Personalinjuryincludesbodilyinjuryandalsonon-physicalinjurieslikeslander,libelorillegaldiscrimination.

InnocentSpouseDoctrine

Somestatesapplyaninnocentspousedoctrinetoinsurancepolicies.Thisdoctrineholdsthat,ifonespouseisnotinvolvedinandunawareofactivityinwhichtheotherspousehasengagedthatnullifiesaninsurancecontract,theinnocentspousemustremaininsured.

Someinsurancecompanieswillwritetheirpoliciestostatespecificallythatthemisconductofanyinsuredbarsrecoverybyanyotherinsured.Courtsfrequentlybackuptheinsurancecompaniesinthesedisputes.

InsurableInterest

Aninsurableinterestisthefinancialinterestofapersonororganizationinthepropertywhowouldbeprotectedunderthepolicybytheuseofamortgageorlosspayableclause.

Example:Ifyouhavea$100,000mortgageonahouseappraisedat$200,000,yourmortgagecompanyhasaninsurableinterestintheinsuredvalueofyourhouse.

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Theinsurableinterestconditionprovidesthatthecompanywillnotpayanamountgreaterthantheinsured'sinterestinthepropertyortheamountofcoverageunderthepolicy.

Insured

Aninsuredisapersongrantedcoverageunderthepolicywithoutactuallybeingnamed.Insuredsinclude:thenamedinsured,spouse,relativesespeciallyminorsresidentinthehousehold,andothersasdefinedbythepolicy.Thecompanypromisestopayanydamagesandprovidelegaldefenseforanyinsured.

Thestandarddefinitionofinsuredappliestovariousliabilitycoverages.Itisextendedtopersonsororganizationsasrespectsanimalsorwatercraftcoveredunderthepolicy.

Example:YoulendyourhorsetoalocalserviceorganizationtopullawagoninaFourthofJulyparade.Duringtheparade,thehorseboltsandinjuresaspectator.Thispolicywillcoveryouasthenamedinsuredandtheserviceorganizationforanyliability.

Anadditionalinsuredisapersonwhoisnamedunderthepolicybyendorsement,usuallybecauseheorshehasaninsurableinterestorlegalliabilityrelatedtotheproperty.

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Example:Youownapropertyjointlywithsomeone,butyoudon'tliveonthepremises.Youmightwanttobelistedasanadditionalinsured.

InsuredLocation

Insuredlocationisasweepingdefinitionwhichfrequentlyappliestoliabilitycoverages.Itincludesallofthefollowing:

theresidencepremises,thatpartofanyotherpremises,otherstructuresandgrounds,usedbythenamedinsuredasaresidencewhichiseithershowninthedeclarationsoracquiredduringthepolicyperiod,anypremisesusedbythenamedinsuredinconnectionwiththeresidencepremisesoranewly-acquiredpremises,anypartofanon-ownedpremiseswhereaninsuredpersontemporarilyresides,vacantlandownedbyorrentedtoaninsuredperson(butnotfarmland),individualorfamilycemeteryplotsorburialvaultsofanyinsuredperson,andanypartofapremisesoccasionallyrentedtoanyinsuredpersonforotherthanbusinessuse.

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IntentionalLoss

Themeaningofintentionallossisthesubjectofmanyargumentsbetweeninsurancecompaniesandpolicyowners.Thestandardhomeownerspolicydoesnotcoverintentionallosses(insurancepoliciesofanykindusuallydon't).Thisexclusionmakesitclearthatthepolicyisnotdesignedtocoverdamagecausedintentionallybyaninsuredperson.Todosowouldcreateamoralhazardanincentivetocausealoss.

Interest(Financial)

Prejudgmentinterestmeansanadditionalamountofdamagesawardedtoaplaintifftocompensateforthedelaybetweenthetimeofinjuryordamageandthetimeajudgmentismade.Becauseliabilityclaimsmaytakemonthsoryearsuntilanawardismade,thisamountisdesignedtoreplacetheamountofinteresttheplaintiffwouldhaveearnedhadthedamagesbeenawardedatthetimeofinjuryordamage.

Postjudgmentinterestapplieswhenadecisionismadeinfavoroftheplaintiff,butanappealdelayspaymentofdamages.Postjudgmentinterestismoneytheplaintiffwouldhaveearnedifthejudgmenthadbeenpaidatthetimeofthefirstjudgment,beforetheappeal.

LiabilityLimit

Theliabilitylimitonthepolicyisthemaximumamountwhichwillbepaidforanyoneoccurrence.(Anoccurrenceisdefinedasanaccidentoranexpo-

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suretosubstantiallythesameconditionsoveraperiodoftimewhichcausesaninjury.)

Thepolicylimitofliabilityisnotincreasedbecausethereismorethanoneinsuredperson,norisitincreasedbecausethereismorethanoneclaimorclaimantasaresultofasingleoccurrence.

Liberalization

Inastandardhomeownerspolicy,theinsurancecompanyagreestoapplyautomaticallyanychangesinitsstandardtermsthatexpandcoverage.

Example:Shortlyafteryoubuyahomeownerspolicy,thespeciallimitsoncertaintypesofpersonalpropertyarebroadened.Forinstance,thelimitapplyingtotheftofjewelryitemsisincreasedfrom$1,000to$2,000.Youautomaticallygetthe$2,000limitofprotectioneventhroughyourpolicyreads$1,000.

LimitsofLiability

Everyhomeownerspolicystandardorcustomizedwillincludethemaximumamountsthattheinsurancecompanywillpaytocovervariouskindsofloss.Thesearethepolicy'slimitsofliability.

Thelimitswillusuallyapplyonaperoccurrencebasis,whichmeanstheyfocusoneachlossratherthanhowmanyinsuredpersonsorclaimantswereinvolved.

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Thelimitsdon'tnecessarilydescribetheabsolutelimitofcoverageprovidedbythepolicy.Ifseveraloccurrencesfallinagivencoverageperiod,thepolicywillcoveruptothelimitseveraltimes.

MedicalPayments

Medicalpaymentsareaformofliabilitycoverage.Paidtopeopleinjuredbyaninsuredperson,theyareprovidedwithaperpersonlimitwhichisthemaximumamountpayabletoonepersonarisingoutofoneoccurrence.Thereisnolimitonthenumberofclaimsarisingoutofanoccurrence,noristhereanaggregatelimitontheamountpayable.

Misrepresentation

Whenanypartytoaninsurancecontractmisstatesamatteroffact,ithasmadeamisrepresentation.Thiscanbegroundsfornullificationofthepolicyordamagesinexcessofpolicylimits.

Example:Anapplicantwhohasbeencanceledbypreviouscarriersforexcessiveclaimsanddoesnotshowthisontheapplicationismakingamaterialmisrepresentation,sincethecarrierwouldprobablynotissueapolicyifthisinformationwasknown.Insuchcases,thecontractcouldbevoidedbythecompanyandanyclaimdenied.

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NamedInsured

AnamedinsuredisthepersonorpersonswhosenameornamesappearontheinsurancepolicyformsuchasJohnSmithandMarySmith,husbandandwifeasjointtenants.

Aspousewhoisaresidentinthesamehouseholdisautomaticallyanamedinsured,evenifnotnamedspecifically.Thenamedinsuredenjoysalloftheprotectionsotherinsuredpersonsdobutheorshealsoretainscertainrightsandprivileges,mostlyhavingtodowithchangingpartsofthepolicy.

Occurrence

Anoccurrenceisusuallydefinedasanaccident,oranexposuretosubstantiallythesameconditionsoveraperiodoftime,whichcausesdamageorinjury.

Example:Waterleakingfromyouroutsidepipessoftensthegroundunderyourneighbor'sgarage,eventuallycausingapartialcollapseofit.Thiswouldbeconsideredasingleoccurrence.

Payattentiontothewayinwhichoccurrenceisdefinedinanypolicyyousign.Insurancecompaniesthatdon'twanttopayhomeownersclaimswillsometimesmaketortuousargumentsthatwhateverwentwrongdoesn'tqualifyasanoccurrence.

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Peril

Theactualcauseofalossiscalledaperil.Fire,ifitcausesaloss,isaperil.Insurancepoliciesdistinguishbetweencoveredperils(alsocalledperilsinsuredagainst)andnon-coveredperils.

PersonalProperty

Personalpropertyispropertyotherthanrealpropertysuchasfurniture,linens,drapes,clothing,appliances,andallotherkindsofhouseholdgoods.Personalpropertyofguestsandresidenceemployeesmaybecoveredattheinsured'srequest.

Inastandardhomeownerspolicy,theinsurancecompanywillcoverthepersonalpropertyofanyinsuredunderthepolicy.Byreferringbacktothedefinitionofinsured,youwillseethataninsuredisanyrelativeoftheinsuredresidentinthehouseholdincludingpersonsunderage21whoareinthecareofaninsured.

PropertyDamage

Propertydamagemeansinjurytoordestructionoftangiblepropertyandincludeslossofuseoftheproperty.Note:Thisisbroaderthandirectdamageordestructionbyacoveredperil,becauseitalsomeanslossofuse.

ReasonableRepairs

Intheeventthatalosscoveredbythepolicycausesdamagesinsuchawayastoexposepropertycovered

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bythepolicytofurtherdamage,theinsuredisallowedtomakereasonablerepairsortotakeotherstepstoprotectthatproperty

Residence

Residencepremisesmeansthedwelling,otherstructuresandgrounds,orthatpartofanyotherbuildingwherethenamedinsuredlives,andwhichisidentifiedastheresidencepremisesinthedeclarations.Inthecaseofatwo-,three-orfour-familydwelling,thenamedinsuredmustresideinatleastoneofthefamilyunits.

Incertaincasestheresometimesexistsalackofclarityindeterminingtheplaceofresidence.Ifyouownasecondresidence,suchasasummerhouseoraskilodge,itmustbeshowninthepolicydeclarationsatthebeginningofthepolicyterm.Ifyouacquiretheadditionalresidenceafterthepolicy'seffectivedate,youwillbeprovidedautomaticcoverageontheadditionalresidenceforthebalanceofthepolicyterm.

ResidenceEmployee

Residenceemployeemeansanemployeeofanyinsuredwhoperformsdutiesrelatedtothemaintenanceoruseoftheresidencepremises,includinghouseholdordomesticservices,orwhoperformssimilarduties.Aresidenceemployeecanbeafull-timeemployee,suchasalive-inmaid.Itcanalsobeapart-timeemployee,suchasacleaningladywhocomesbyonceaweek.

Acaveat:Employeesworkinginconnectionwitha

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home-basedbusinessarenotresidenceemployees.Ifyouhiresomeonetocleanyourbasementoffice,thatpersonisn'tcoveredunderyourhomeownerspolicy.

ScheduledProperty

Scheduledpropertyissimplypropertythathasbeeninventoriedandlisted.

Whenthevalueofpropertyisnotlistedpriortoaloss,itiscalledunscheduledpersonalproperty.Thismakesinsurancecompaniesnervous.Ontheotherhand,scheduledpersonalpropertyreferstopropertyspecificallydescribedinthepolicy.Thislistofdescribedpropertyisreferredtoastheschedule.Thismakesinsurancecompanies...well,lessnervous.

Typicallythetypesofpropertythatwillbescheduledareexpensivethings:jewelry,watches,furs,finearts,silverware,sportsequipment,cameras,collectionsandhomecomputers.Theyarescheduledbecauseoftheirvalueandtheneedtoobtainbroadercoveragethanisprovidedtounscheduledproperty

Severability

Severabilityofinsurancemeansthateachinsuredpersonasdefinedinthepolicyhasthesamerightsandobligationsthatwouldexisthadaseparatepolicybeenissuedtoeach.However,thisseverabilitydoesnotincreasethelimitsofliabilityunderthepolicy.

TemporaryLivingAllowance

Temporarylivingallowancepaysforextraordinary

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expenseswhichoccurwhenyouhavebeendisplacedfromyourhome.Theseexpensesmightincludeboardingapetinakennel,rentingfurnitureorpayingtostorefurniturethatsurvivedalossandeatingatrestaurantswhileyou'reinahotelormotelwithoutkitchenfacilities.

Theft

Thewordtheftisbroadlydefinedasthewrongfultakingofpropertyandwouldincludeburglary,holdup,orstealing.Youdiscoveratelevisionsetmissingfromyourhomeandnosignsthatthehousehasbeenburglarized.Itwouldbepresumedthatthisisatheftsincethepropertycouldnothavejustbeenlostormisplaced.Thecircumstancessurroundingthelossofpropertymustbesuchthattherecanbepresumptionoftheft.

There'snocoveragefortheftofmaterialsorsuppliestobeusedforconstructionofadwelling.

Theftbyamemberofyourhouseholdisnotcoverednorispropertystolenfromaroomyourentout.So,beforeyouhandoverthekeystoyoursummerhousetofriends,checkthispartofyourpolicy.

VacantLand

Thevacantlandcoverageinastandardhomeownerspolicyisprettybasic:Ifyoubuyfiveacresoflandinthecountryandhavenoimmediateplanstodevelop

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it,itwillbecoveredbythepolicy.Thismayseeminconsistentwithotherlanguagethatexcludescoverageforthelandonwhichyouownahousebutthisitemrelatesmostlytoliabilityissues.

Vandalism

Vandalismandmaliciousmischiefincludedamagedonetopropertyasamatterofspiteorsimplytoinflictdamagewithoutpurpose.Vandalismasapracticalmatteristhesameasmaliciousmischief.Butthesedefinitionscanbedifficult.Theyarecoveredonlyundercertaincircumstancesinastandardhomeownerspolicy.

VicariousLiability

Vicariousliabilityiscreatedbyaminororotherdependentforwhomaninsuredpersonactsasguardian.Inmostcases,theguardiancanbeheldliablefortheminor'sbehavioreventhoughtheguardianplayednodirectroleintheloss.Vicariousliabilityisacomplicatedinsurancematteritrequiresnodirectconnection.

Example:Youaresuedfordamagecausedbyyour12-year-olddaughterwhowentjoyriding.Ifsheusedyourcar,thereisnocoverageunderyourhomeownerspolicy;ifsheborrowedaneighbor'scar,therewouldbecoverage.

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Conclusion

Moredefinitionswilloccurthroughoutthebooktoprovideyouwithmoreinformationonhomeownersinsurance.Theobjectofthischapterwastotackleafewofthemostbasicdefinitionsthatapplytohomeownersinsurancecoverage.

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Chapter5Fires,FloodsandEarthquakesSomeperilsaregenerallynotcoveredorcoveredsufficentlybystandardhomeownersinsurancepolicies.Chiefamongthese:fires,floodsandearthquakes.Inthischapter,wewillconsiderhowhomeownerscandealwitheachofthesedisasters.

Bywayofillustration,we'llexamineindetailthemostcommonformofspeciallyfireinsurance:TheNewYorkStandardFirePolicy.

But,first,somebackground.

TheFederalEmergencyManagementAgency(FEMA)estimatesthatasmanyas11millionbuildingsmaybeatriskoffloodingbutonly2.6millionarecurrentlyinsuredagainstrisingwaters.Anestimated90percentofthehomesdamagedintheMidwesternfloodsof1994and1995werenotinsuredforflooddamage.

Mostcommercialinsurancecompaniessimplydon'twritefloodinsurance;manywon'twriteanyinsuranceforhomesinfloodplains.Theeasiestwayfor

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homeownersintheseareastobuyinsuranceisthroughoneofseveralfederally-administeredfloodinsuranceprograms.

Homeownerswhomightbetemptedtowaituntilafloodalertsoundstakenote:There'safive-daywaitingperiodbetweenthetimeyoupurchaseafloodpolicyandwhenitbecomeseffective.

Residentsofareaspronetocrime,fires,andwindstormsmayalsofindinsurancecompaniesunwillingorunabletosellthempolicies.Inmanysituations,agenciesofthefederalorstategovernmentoperatetaxpayer-subsidizedinsuranceprogramsforhomeownerspronetounusualrisks.Whilethismaynotmakesensefromabudgetaryperspective,it'sagreatdealforthosewholivedangerously.

So,forownersofhigh-riskhomes,therearesomeoptions.Herearejustafew:

Floodinsurance.TheNationalFloodInsuranceProgram,administeredbyFEMA,offersfloodinsurancethroughtheFederalGovernmentandsome85privateinsurers.Toqualify,homeownersmustliveinoneof18,300flood-pronecommunitiesthathavetakenspecifiedstepstocontrolflooddamage.Ratesvaryaccordingtothestructureofthehouseanditsvulnerabilitytoflooding.

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Windstorminsurance.Mostpoliciesincludeinsuranceforwindstormdamage.However,companiesmayexcludecoveragefortheperilifahouseisunusuallyvulnerabletowindstormsbyvirtueofitslocation.Sevencoastalstatescurrentlyadministerbeach-andwindstorm-insuranceplanstopickupwheretheregularpoliciesleaveoff.Thosestatesare:Alabama,Florida,Louisiana,Mississippi,NorthCarolina,SouthCarolina,andTexas.High-riskpolicies.Insurersmayrefusetosellfullreplacement-costcoverageforhomestheydeemtobeparticularlyvulnerabletofire,crime,orotherperils.Unsafewiring,unrepairedstructuraldamage,orahistoryofvandalismmaymakeahomeuninsurableatsomecompanies.Earthquakeinsurance.Mostinsurancecompaniesofferearthquakecoverageasanendorsementonstandardhomeownerspolicies.Premiumscanrunashighas50percentofahome'sregularcoverage,butratesvaryaccordingtothevulnerabilityofthehouse.Wood-framehomes,whichtendtowithstandquakesbetterthanbrick,costmuchlesstoinsure.Earthquake-causeddamagetoautomobilesisnotcoveredonanearthquakeinsurancepolicy,butitwillbecoveredundermostautomobilepolicies.

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MoreonEarthquakeCoverage

Homeownersinsurancedoesnotautomaticallycoverlossescausedbyanearthquakebutearthquakecoveragefortheresidence,otherstructuresandpersonalpropertymaybeattachedbyendorsement.

Severalearthquake-pronestatesmostnotablyCaliforniarequireanyinsurancecompanythatwriteshomeownerscoveragetoalsowriteearthquakecoverage.Thisdoesn'tmeanthesecompanieshavetopublicizeearthquakecoverage.Moststayquietaboutit.Buttheyhavetogiveyouinformation,ifyouask.

Specifically,theCalifornialawmandatingearthquakeinsurancesays:

Nopolicyofresidentialpropertyinsurancemaybeissuedordeliveredor,withrespecttopoliciesineffectontheeffectivedateofthischapter,initiallyrenewedinthisstatebyanyinsurerunlessthenamedinsuredisofferedcoverageforlossordamagecausedbytheperilofearthquakeasprovidedinthischapter.Thatcoveragemaybeprovidedinthepolicyofresidentialpropertyinsuranceitself,eitherbyspecificpolicyprovisionorendorsement,orinaseparatepolicyorcertificateofinsurancewhichspecificallyprovidescoverageforlossordamagecausedbytheperilofearthquakealoneorincombinationwithotherperils.

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Whenearthquakecoverageispurchased,anadditionalchargeismadeforthecoverage.Andthiscanbeexpensivesometimesasmuchastheunderlyingbasichomeownerscoverage.

Thetypeofconstructionofthestructureisasignificantfactorinearthquakerates.Differentratesapplytoframebuildings(wood,orstucco-coveredwoodstructures)andtothoseclassifiedasmasonry(brick,stone,adobeorconcreteblock).

Forearthquakecoverage,masonryratesareusuallysignificantlyhigherthanframerates.Forordinarypropertycoverages,thereverseistruemasonryratesarelowerthanframerates.Thissituationexistsbecauseofthenatureoftheexposure:woodenbuildingsaremorevulnerabletofirethanstoneorbrickbuildingsare;butstoneorbrickbuildingsaremorevulnerabletoearthquakesthanwoodenbuildingsare.

Becauseit'ssoexpensive,earthquakeinsuranceisusuallysoldwithhighdeductiblesmakingit,appropriately,acatastrophiccoverage.Anythingshortofmajordamagetoyourhousewon'tbecovered.

Ifyoudon'thaveearthquakeinsuranceandsuffersubstantiallosseswhentheBigOnehits,youcanclaimaso-calledcasualtylossonyourtaxesbutonlyifyouhaveunreimburseddamageinexcessof10percentofyourannualincomeplus$100.

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Example:Ifyouearn$50,000ayear,youcanwriteoffdamagesonlyinexcessof$5,100.

Onceanareahasbeenofficiallydesignatedafederaldisasterareainthewakeofanearthquake,FEMAandotheragenciesmakevariousformsoflow-interestandno-interestloansavailableforrebuilding.Manypeoplesimplycountonthesesubsidizedloansastheirearthquakeinsurance.

Anothertaxtip:Whenanareahasbeendeclaredadisasterarea,residentshavetheoptionofclaimingtheircasualtylossonthepreviousorcurrentyear'staxreturn.

Afinalcaveat:Earthquakesareongoingdisasters.Theyrequiresomeeven-temperedmanagement.Ifyouhavesubstantialdamagetoyourhome,includingexposuretooutdoorweather,yourinsurancecompanywillexpectyoutosealitoffsorainwillnotcausemoredamage.

Ifyoudohaveearthquakecoverage,youmaywellendupmakingrepairstwoorthreetimesbecauseaftershockscandamagetherepairsinprocess.Theinsurancecompanywillusuallypayforthesemultiplerepairs,aslongasaftershocksoccuratleastfourdaysapart.

Thebeststrategyforbuyingearthquakeinsuranceistotakethecoveragewithadeductibleequalto20to

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50percentofthecostofrebuilding.Thatwillkeepthepremiumslowandifthingsgetshakenupbadlyenoughtoneedthecoverage,youcangetacheapFEMAloanforthedeductible.

Thisistheoppositeofthebestplanforfloodinsurancewhichis,simply,buyasmuchofthesubsidizedFEMAcoverageastheFedswillsellyou.

InsuringagainsttheFlames

Floodandearthquakeinsurancebothremainspecializedenoughthattheirtermsandconditionsdon'tapplytomostcircumstances.Theonecatastrophetowhicheveryonecanrelateisfire.

Here'swhatastandardhomeownerspolicydoesanddoesnotcoverwhenitcomestofiredamage:

Structure.Thehouseiscoveredtothelimitsofthepolicy.Fireinsurancecoversreplacementoftheexactstructureofyourhouse,includingthewalls,roof,plumbing,wiring,wall-to-wallcarpeting,molding,windows,etc.Valuables.Finethingsareusuallycoveredforamaximumofacoupleofthousanddollars.Ifyouhavejewelry,furs,camerasandgunsworthmore,youneedaninsuranceridertocoverthemseparately.Landscaping.Brushesandshrubsareusuallycoveredtosetlimits,usually5percentofthestructurecoverage.Some

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insurancecompanieslimitthiscoveragetoaspecificdollaramount.Contents.Aswe'veseenelsewhere,thiscoverageisusuallylimitedto50percentofthestructureamount.Furniture,appliances,clothesanddishesareallcovered.Temporarylivingexpenses.Yourhotelroom,rentonahouseorapartment,mealsandallotherextraordinaryexpensescausedbydisplacementarereimbursable.Theseexpensesaregenerallylimitedbyadollaramountortime.Codeupgrades.Rebuildingyourhousetomeetcurrentrulesandregulationsisusuallynotcovered.Ifrebuildingaccordingtocurrentbuildingcodesismoreexpensivethanitwouldhavebeenundercodesexistingwhenyourhousewasbuilt,youmayhavetopayfortheupgrades.

Iftherearespecificaspectsofyourhomeownerspolicythatyouwanttoadjust,it'susuallymostcost-effectivetodothiswithspecificendorsementsthatraiseorchangefirecoverages.

TheNewYorkStandardFirePolicy

Inmanycircumstances,peoplebuyfireinsuranceinsteadofhomeownersinsurance.Thisispossiblebecausethereareenoughstand-alonedwellingandfirepoliciestocreateaseparatemarket.Thismarketallowsustoexplorehowtheinsuranceindustrydealswithaspecificcatastrophe.

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Historically,theNewYorkStandardFirePolicy(SFP)hasbeenoneofthemostwidelyusedfireinsurancecontracts.StandardprovisionsandexclusionsfromtheSFPhavebeenincludedinmanyotherpolicyforms.

Withtheintroductionofmoderncommercialpropertyforms,theSFPhaslargelybeenreplaced.Onlyafewstatescontinuetorequireitsuse.However,becauseofitshistoricalsignificance,theSFPremainsausefuldocumentbecauseithasinfluencedthelanguageofsomanypropertyinsurancepolicies.

OneoftheuniquethingsabouttheSFPisthatitistheonlyinsurancepolicytohaveitswordingstandardizedbylaw.Atonetime,46statesmadeuseoftheNewYorkStandardFirePolicymandatorywithmostfireinsurancecontracts.MostrequireduseoftheNewYorkformverbatim.

TheSFPwasneveracompletecontract.Itisalwaysissuedwithattachmentswhichdescribethepropertycoveredandshapethecoverage.Differentversionswereusedtoinsuredwellings,mercantilebuildings,warehouses,andothertypesofproperty.

Endorsementswereusedtoalterthecoverage,byaddinginsuranceagainstlossbyadditionalperilsandprovidingcoveragefordifferenttypesoflosses.

The1943SFPconsistsoftwoprintedpages.Thedeclarationsandinsuringagreementarefoundonthe

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firstpage.Theconditionsandexclusionsarecontainedinthe165numberedlinesofprintfoundonpagetwo.

FormsandendorsementsattachedtoaSFPcontributetothedesignoftheinsurancecontract,butthedeclarationsmakeeachpolicyunique.Informationfoundinthedeclarationsidentifiesaspecificrisk,thepartiestothecontract,andinsuranceamounts.

YouwillfindspaceforthefollowinginformationinthedeclarationssectionoftheSFP:

policynumber,nameandaddressofinsurer,nameandaddressofinsured,nameandaddressofagent,policyterm(inceptionandexpirationdate),amountofinsuranceandratesandpremiumsforeachperilcovered,descriptionandlocationofthepropertycovered,itemizedlistofallformsandendorsementsattachedtothepolicy,andthepremiumcharges,nameandaddressofmortgagee(ifany),andagent'ssignatureandthesignaturedate.

Otherpartsofthecontractmayelaborateuponandhelptodefineentriesfoundinthedeclarations.For

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example,theinsuringagreementstatesthatthenamedinsuredincludesthelegalrepresentativesoftheinsured.Thismeansthat,ifthenamedinsureddiesorbecomesincapacitated,anylosscoveredbythepolicycouldbepaidtotheestateortoaguardian.

Theinsuringagreementstatesthatthepolicytermbegins(inceptiondate)andends(expirationdate)at12:01A.M.standardtimeatthelocationofthepropertyinsured.Insomestates,thepoliciesarewrittentobeginandendatnoon,standardtime.Ineithercase,pinpointingthetimetoanexactminuteandlocationismorespecificthanthetermstatedinthedeclarations.

Theinsuringagreementalsoincludesanassignmentclause,whichsupportstheconceptofapersonalcontract.Ifthepropertyissold,thepolicymaynotbeassignedtothenewowner''exceptwiththewrittenconsentoftheCompany."

TheinsuringagreementoftheSFPlimitscoveragetothepropertyactuallydescribedinthepolicy.Usually,coverageappliesonlyatthelocationorlocationsdescribed.However,ifdescribedpropertyisremovedfromtheoriginallocationtoprotectitfromtheperilsinsuredagainst,thepolicywillautomaticallycoverthepropertyforfivedaysatanotherlocation.

AlthoughtheSFPidentifiescoveredproperty,itdoesnotdefinetheproperty.Thisiswhyatleastoneadditionalformdefiningthetypeofproperty(suchasadwellingform)mustbeattachedtocompletethecontract.

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Certainkindsofpersonalpropertyincludingbullionormanuscriptsmaybecoveredonlyifspecificallynamedonthepolicyinwriting.Inotherwords,thesespecialitemscannotautomaticallybecoveredaspartofageneralpropertyclass,suchasabuilding'scontentsorapolicyowner'spersonalproperty.

TheSFPexcludescoverageforaccounts,bills,currency,deeds,evidencesofdebt,moneyorsecurities.

Theseitemsareeasilyconcealedorremoved,andtheirvaluemaybedifficulttodetermine,sotheyarenotconsideredtobesuitablesubjectsforordinaryfireinsurance.

TheSFPisanamedperilscontract,anditonlycoverstheperilsspecifiedinthepolicy.Also,itonlycoversdirectlossescausedbythenamedperils.Directlossmeansactualphysicaldamageto,ordestructionof,theinsuredproperty.Inthecaseofremovalcoverage,directlossincludesthetheftordisappearanceoftheproperty.

Theinsuringagreementstatesthatthepolicycoversdirectlossresultingfromanyofthreecausesfire,lightning,andremovalfrompremises.Whenaspecificperilistheproximatecauseofaloss,courtshaveheldthattheperilinquestioncausedtheloss.

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Example:Lossfromwaterdamage,chemicals,firefightersbreakingdownadoor,orsmokemaybedirectlosscausedbyfireifanuninterruptedchainofeventsexistedbetweenthefireandtheloss.

Removalisactuallyasituationratherthanaperil.TheSFPcoversdirectloss"byremovalfrompremisesendangeredbytheperils(fireandlightning)insuredagainst."Thepolicyrequirestheinsuredpersontomakeallreasonableeffortstosaveandpreservecoveredpropertyatthetimeoflossandfollowingaloss.

Sinceitwouldbeillogicaltopenalizeaninsuredpersonfortryingtominimizealoss,theremovalcoverageisextremelybroaditis,ineffect,allriskcoverage.Ifaninsuredpersonremovescoveredfurniturefromaburningbuildingandsomeofitisstolenordamagedbyrain,theSFPwillcoverthefurniturelossasaremovallosseventhoughthepolicyexcludestheftanddoesnotcoverraindamage.

Wheneverfireorlightningthreatencoveredproperty,removalcoverageappliesautomaticallyforfivedays.Afterthattime,anyextensionofcoveragewouldhavetobearrangedwiththeinsurancecompany.

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BecausetheSFPisanamedperilscontract,itdoesnotcoveranyperilsotherthanthosenamedintheinsuringagreement.Variousformsandendorsementsmaybeaddedtoincreasethenumberofperilscovered.

AdditionalAttachments

BecausetheSFPisnotacompletecontract,ataminimumanadditionalformmustbeattachedtodefinethetypeofpropertycovered.Inmanycases,morethanonepropertyformwillbeattached.

NumerousotherformsandendorsementsmayalsobeattachedtotheSFPtoalterthenatureofcoverage.Suchattachmentsareusuallyusedtoaccomplishoneormoreofthefollowingpurposes:

todefinethetypeofpropertycovered,tocoveradditionaltypesoflosses,toincreasethenumberofperilscovered,andtoalterthebasisofrecovery.

Thepossiblecombinationsprovidedgreatflexibilityintheformationoffirepoliciesdesignedtomeetadiverserangeofspecificneeds.However,italsomeantthatinsurersandagentshadtodealwithanenormousportfolioofdifferentforms.

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Inrecentyears,amodernizationprogramhasreplacedmanyoftheolderformsandhasstandardizedmanytypesofcoverageoptions.Asaresult,thenumberofformsinusehasbeenreduceddrastically.

FormsIncreasingCoveredLosses

TheSFPandmanyofitsattachmentsprovideinsuranceagainstdirectpropertylossescausedbycoveredperils.Sometypesofdirectloss,suchassprinklerleakagedamage,areexcludedbybasicpolicyforms.

Ontheotherhand,indirectlossessuchasthelossofearningsresultingfrombusinessinterruptionarenotcoveredbyfireinsurance.

CoverageforsprinklerleakagedamageandavarietyofindirectlossescanbeprovidedbyattachmentstotheSFP.Manyofthesecoveragescanalsobewrittenunderseparatepolicies.

FormsIncreasingCoveredPerils

Attachmentswhichincreasethenumberofperilsinsuredagainstdonotincreasetheamountofinsurance,butmerelybroadenthecoverage.

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Anextendedcoverage(commonlyabbreviatedasEC)isapackageofadditionalcoveredperilswhichareinsuredasagroup.Itisarelativelyinexpensivepackageanditisthemostcommonadditiontofirepolicies.

Windstormandhaildamagetobuildingexteriorsiscovered,butlosscausedbyfrost,snow,orsleetisnotcovered.Damagetobuildinginteriorsandcontentsiscoveredonlywhenwindorhailfirstcreateanopeninginthewallsorroof,orcausesprinklersorpipestoleakorburst.Oncewindorhailcreateanopening,damagecausedbyrain,snow,sandordustenteringthebuildingiscovered.Explosiondamageiscovered,includingdirectlossresultingfromexplosionofaccumulatedgasesorunconsumedfuelwithinthefireboxorcombustionchamberofanyfiredvessel.Explosionswithinthefluesorpassageswhichconductgasesfromacombustionchamberarealsocovered.However,theexplosionperildoesnotcoversteam-relatedexplosionofpipesorequipmentthattheinsuredowns,leases,oroperates,nordoesitcoversonicbooms,electricarcing,ruptureofrotatingmachineparts,orburstingofwaterpipes.Riot,riotattendingastrike,andcivilcommotioncoverageprovidesriotinsurancefordirectphysicaldamage.Lootingandpillageduringariotiscovered.

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Suddenandaccidentaldamagefromsmokeiscovered,butnotfromsmokeresultingfromagriculturalsmudgingorindustrialoperations.Aircraftdamageresultingfromactualphysicalcontactwithanaircraft,oranobjectfallingfromanaircraft,iscovered.Damageresultingfromdirectphysicalcontactwithavehicleiscovered,butvehiclesownedoroperatedbytheinsuredoranytenantarenotcovered,anddamagetofences,driveways,andwalks,ortoanyoutsidelawns,trees,shrubs,orplantsisnotcovered.

Inrecentyears,ECprovisionshavebeenincludedonanumberofpropertyformsasanoption,adevelopmentwhichofteneliminatestheneedforaseparateendorsement.OptionalECcoverageisactivatedbyshowingtheECpremiumchargeinthepolicydeclarations.

EConadwellingformexcludessmokefromfireplacesaswellascertainagriculturalandindustrialsources,andexcludesvehiclesownedoroperatedbyanyresidentinsteadofthoseownedoroperatedbyanytenant.Underwindstormandhailcoverages,bothcommercialanddwellingformsexcludeawnings,signs,radioortelevisionantennasandtheirwiring,masts,ortowers.

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TheECendorsementhassomegeneralexclusions,whicheliminatecoverageforwarrisks,nuclearrisks,floodsandothertypesofwaterdamage.Thesearecommonexclusions,andonformswhereECperilsarelistedasanoptiontheseexclusionsusuallyappearelsewhereontheform.

Avandalismandmaliciousmischief(commonlyabbreviatedVMM)endorsementbroadenscertainECcoveragesandisonlysoldwhenEChasbeenpurchased.AseparateVMMendorsementmaybeaddedtotheStandardFirePolicy,ortheVMMsectionofaformwhichalsoincludesECmaybeactivated.Ineithercase,VMMcoverageappliesonlywhenpremiumsforbothECandVMMareshownonthepolicy.

VMMcoverstheinsuredagainstwillfulandmaliciousdamagetoordestructionofthecoveredproperty,andthatistheextentofthecoveragestatement.MostoftheVMMendorsementisdedicatedtowhatitdoesnotcover:

glass(otherthanglassbuildingblocks)partsofabuilding,structure,orsignarenotcovered;pilferage,theft,burglaryorlarcenyarenotcovered(butdamagecausedbyburglarswhileenteringorleavingiscovered);explosionofsteampipesorsteamequipmentowned,leased,oroperatedbytheinsured,theruptureofmovingmachineparts,andlossesresultingfromachangeintemperatureorhumidity,ordeteriorationarenotcovered.

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TheVMMcoverageissuspendedifadwellinghasbeenvacantformorethan30days.Vacantmeansabuildinghasneitheroccupantsnorcontents.(Buildingsunderconstructionarenotdeemedtobevacantorunoccupied.)

DeductiblesandEndorsements

ManyofthecoverageformswhichmaybeattachedtotheSFPincludeadeductibleclause.Formanyyears,thestandarddeductiblewas$100peroccurrence,anditappliedseparatelyto:

eachbuildinganditscontents,thecontentsofeachbuildingforwhichthereisnobuildingcoverage,andanypersonalpropertyleftoutintheopen.

Ifyouwantsomeotherdeductibleamounttoapply,anendorsementmaybeusedtoputadifferentdeductibleintoeffect.SpecialdeductibleformscanbeattachedtotheSFPandendorsementsmaybeusedtoalterthestandarddeductiblefoundonanypreprintedform.

Deductibleshelptoreduceinsurancepremiums,becausetheyeliminatesmallnuisanceclaimsandrelatedpaperwork.Standarddeductiblesapplytodirectlosscausedbyanyoftheinsuredperils,butdonotapplytoindirectlosses.Thestandardclausestatesthatthedeductibledoesnotapplytocoverageforbusinessinterruption,tuitionfees,extraexpense,additionallivingexpense,leaseholdinterest,rentorrentalvalue.

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Althoughmostfireinsuranceiswrittenonanactualcashvaluebasis,theSFPandotherbasicformscanbeendorsedtoprovidereplacementcostcoverage.Whenthecoverageapplies,lossesaresettledonthebasisoftheactualreplacementcostatthetimeoflosswithoutanydeductionfordepreciation.

Mostpolicieswillpayreplacementcostonlyifthepropertyisactuallyrepairedorreplaced.Ifitisnot,thelosswillbepaidonanACVbasis.Thepoliciestypicallyrequirethatthepolicyownermaintainaminimumamountofinsurance(usually80percentofthecurrentreplacementcostvalue)inorderforreplacementcostcoveragetoapply.

Localbuildingcodesmayimposespecialrequirementsfornewlyconstructedbuildings.Forownersofdamagedolderbuildings,theserequirementscanpushcostswellbeyondnormalreplacementcost.Allriskformsexcludecoverageforcostsrelatedtotheenforcementofanylaw,andsuchadditionalcostsarenotpartoftheACVorreplacementcostsettlementprovidedbyfireinsurance.Theinsuredwhofacestheexposurecanbeprotectedbypurchasinganincreasedcostofconstructionendorsement.

Aspecificamountofcoveragemustbepurchased.Uptothecoverageamount,theinsurancewillcoveronly"theincreasedcostofrepair,rebuildingorconstruction"ofbuildingsduetothe"minimumrequirementsofanystateormunicipallaw."

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Forthiscoveragetoapply,theoldbuildingmustfirstbedamagedordestroyedbyacoveredperil,thenewconstructionmustbeonthesamesite,beforlikeoccupancy,andbeofthesameheight,style,andfloorarea.

Theendorsementexcludescoverageforthecostofdemolitionofanyportionoftheoldbuilding.

Thespecialcostofthedemolitionofanypartofadamagedbuilding,inordertocomplywithstateormunicipallaw,canbecoveredbyademolitioncostendorsement.Ifacoveredbuildingisdamagedordestroyedbyanyperilinsuredagainst,thisformprovidescoverageforthecostofdemolishinganyundamagedpartofthebuildingandthecostofclearingthesite.Aspecificamountofinsurancemustbepurchased,andcoveredcostswillbepaiduptobutnotexceedingtheamountstatedontheform.

Conclusion

Thischapterexploredthepossibilitiesthatareavailableforownersofhigh-riskhomes.ItalsoexaminedindetailtheNewYorkStandardFirePolicy,whichhasbeenaninfluenceonmanystandardhomeownersinsurancepolicies.

Therearespecialoptionsavailableforhomeownersthatliveinareasthatareconsideredforhigh-riskoffire,earthquakes,floods,andevenwindstorms.Ifyourinsurancecompanyrefusestocoveryouunderabroadcoverageformoneofthesehigh-riskpoliciesmayberightforyourlocationandyourhome.

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Chapter6CoverageforCondosandOtherDwellingsInsomecases,yourinsuranceneedsmaynotbeasbroadasthecoveragesthatthestandardhomeownersinsurancepackageoffers.Youmaynotneedliabilityorpersonalpropertyinsuranceespeciallyifyouareinsuringasecondhomeorcertainkindsofinvestmentrealestate.Inthesesituations,youmayprefertobuythemorelimitedbutlessexpensivedwellinginsurance.

Acommonalternativetotraditionalhomeownershipandthereforetraditionalhomeownersinsuranceneedsiscondominiumownership.Youngpeoplemakingtheirfirstrealestateinvestmentsometimesstartwithacondominium;ontheotherhand,manypeoplechoosetobuycondosassecondhomes.

Theinsuranceissuesthatfollowfromowningacondominiumaredistinctenoughthattheinsuranceindustryhascreatedseparatepoliciesforthismarket.

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Inthischapter,wewilllookattheinsurancepoliciesandcoveragesthatapplytothevariousotherkindsofhomeownershipfrequentlyavailabletopeople.Wewillcomparethesecoveragestostandardhomeownerspolicies,specificallywithregardtocoverageissues.

CondominiumsCollectiveExposure

Oneofthereasonsthatcondominiumsareattractiveasfirstinvestmentsorsecondhomesisthattheyrequirelessday-to-daymaintenancethansingle-familyhomes.

Condosusuallytaketheshapeoftownhousesormostoftenapartmentflats.

Whenyoubuyacondo,youbuyanapartmentandjoinacondominiumassociation.Theassociationmaintainsthefacilitymanagingthesalesofcondounitsandtheupkeepoftheapartmentbuildingandattachedgrounds.

Whencondominiumsfirstbecamepopularinthelate1960sandearly1970s,insurancecompanieswrotepoliciesforcondominiumassociationswithwide-rangingcoveragebecausethenumberofclaimswerefewandfarbetween.Recently,aslawsuitsbetweencondoassociationsandindividualunitownershavebecomecommon,insurancecompaniesdefinecoveragemorenarrowlytoreducetheirexposure.

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Ifyouownorarethinkingofbuyingacondominium,yourprimaryinterestshouldbeininsuringyourselfandyourunit.Becausecondoassociationsmakedecisionsbycommittee,theyoftenunderinsureliabilityandotherrisks.

Mostcondoscarryfireandcasualtycoveragefortheassociation'srealpropertyandliabilitycoverageonthecommonareasofthecondominiumaswellasfortheirboardsofdirectors,officersandemployees.

ThisD&Oliabilityisimportantintheeventthatsomeoneparticularlyanyoftheunitownerssuestheassociationforfailingtoperformitsdutiesproperly.However,somecondoassociationsfocusonthisliabilitysomuchthattheyunderinsureotherrisks.

Inacondoassociation,thereisindividualresponsibilityorownershipforsomepartsofthebuildingwithintheunit(suchasfixturesorcabinets).Theownershipandinsuranceresponsibilitiesaredefinedintheassociation'sMasterDeedorBylaws.

TheHO-6insurancepolicyform,whichcoversco-opandcondominiumowners,providescoverageforliabilityandpersonalproperty.Whileinsurancepurchasedbytheco-oporcondominiumassociationcoversmuchoftheactualdwelling,individualowners

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whowantcoverageforimprovementstotheirunitsmustwritethemintoaseparatepolicy.

Example:Ifyouaddaporch,you'llneedanendorsement(anadditiontoyourpolicythatexpandsitscoverage).

TheHO-6formworksbestasalayerofinsuranceabovewhatyourcondoassociationhas.Itautomaticallyprovidesonlyafewthousanddollarsofbuildingcoverage.Otherwise,theHO-6formisverysimilartotheHO-4form,whichinsurespersonalpropertyagainstlossbybroadformperils.

TheHO-6formtakesintoaccountthefactsthat:

condominiumownersownonlyaportionofthebuildinginwhichtheirunitsarelocated;asamemberoftheassociationofunitowners,eachindividualunitownerhassharedownershipinthebuildingstructure;anddisputesoversharedliabilitycanresultinlargelegaljudgmentsagainstindividualowners.

Often,buyersandownersofothercommon-interestcommunities,suchastownhousesandclusterhomes,havetodependonincorporationarticles,bylawsandregulationssetbytheirresidents'association.Thiscanleaveroomforalotofproblems.

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Forinstance,ifafirestartedbyyourneighbordamagedyouradjoiningcondo,yourneighbor'sinsurancecompanymightrefusetopayforyourdamage,claimingthatyourinsuranceshouldpay.Theresultcouldbethatyouandyourneighbor,bothinsurancecompaniesandacoupleofattorneyswouldsquareoffincourt.

Inmostcases,toavoidtheseproblems,condoownersbuyinsurancetocoverthecontentsoftheirunitandcondominiumassociationsbuycoverageontherealproperty.

Still,problemsremain.Onecommonproblemisthatcondominiumpoliciesoftendon'tincludebroadwaterdamagecoverageforproblemslikeseweranddrainbackup.High-risebuildingsalsohaveproblemswithwind-drivenrainthoughmostcondoassociationsaren'tcoveredforthat.

Example:Youbuyathirtieth-floorcondoforitsexcellentviewsoftheresortareawhereyouplantoliveafewmonthseachyear.Youcomebacktothecondosixmonthslater,tofindyourfurnituresoakedandthewallscoveredwithmildew.Aseriesofstorms,whichdidn'tdomuchseriesdamageontheground,causeddrivingraintoseepthroughthepicturewindowsintheunitsseveralhundredfeetup.Unlessyourcondoassociationhasspecificcoverageforthisrain,youmaynotbeinsured.

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Claimsmadebyunderinsuredcondoownersareabigissuebetweencondoassociationsandtheirinsurancecompanies.Ifproblemsoccurandtheassociationfindsitdoesn'thaveadequatecoverageforthedamage,unitownersoftenwillsuetheboardoftheassociationforneglectingitsfiduciarydutytoprotectmembers.

Somestatesrequirethatcondoassociationsprovidecomprehensiveorblanketcoverageforallmembersbutmanystatesdon't.Condoownerslivinginbuildingsthatdon'thaveblanketcoverageagainstliabilityandpropertydamageusuallyhavetoprovidetheirowncoverage.

The1994CaliforniaappealscourtcaseMarinaGreenHomeownersAssociationv.StateFarmFireandCasualtyCo.setseveralprecedentsrelatingtocondoinsurance.

MarinaGreenwasanassociationformedtomanagean18-unitcondominiuminSanFrancisco.In1986,theassociationenteredintoacontractwithStateFarmforresidentialpropertyinsurancecoveringthecondominiumstructure.StateFarmdidnotofferMarinaGreenearthquakecoverageatthattime.

InJanuary1988,MarinaGreenaskedStateFarm'sagenttorenewthepropertyinsuranceandtogetaquoteforaddingearthquakeinsurancetothepolicy.TheagenttoldMarinaGreenthatStateFarmwouldnotprovideearthquakecoverageforthecondominium.

InOctober1989,thecondowasseverelydamagedbyanearthquake.TheassociationfiledaclaimwithStateFarmforthedamage.Whenitsclaimwasdenied,

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MarinaGreenaskedthattheinsurancepolicybereformedtoprovideearthquakecoverage.

Reformationisaprocessbywhichaninsurancepolicyisrewrittentoaddanomittedcoverageretroactively.It'sanunusualmeasure,mostoftenhappeningbycourtorderafteralawsuit.

StateFarmrefused,quotingCaliforniastatelawwhichheldthataninsurancecompanyhadnoobligationtoofferearthquakecoverage''toacondominiumassociationforabuildingofoverfourdwellingunits."

MarinaGreensuedStateFarm,allegingbreachofdutytoprovideearthquakeinsurance.ThetrialcourtgrantedsummaryjudgmentinfavorofStateFarm.MarinaGreenappealed.

Onreview,theappealscourtagreedwiththelowercourtthatStateFarmdidnothavealegaldutytoofferearthquakeinsurance.Theappealscourtwentontowritethat:

Theissueinthiscaseiswhetheraninsurancecompanyowesanydutytoahomeownersassociation,orthemembersthereof,toprovideearthquakeinsurancecoveringacondominiumstructure,asopposedtotheairspacecomprisingeachindividualcondominiumunitwithinthatstructure.

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EachcondominiumownerintheMarinaGreenprojectwasthesoleownerofaunitandacommonownerofthestructure.Therefore,theappealscourtconcluded:

Inspecifyingthatinsurancebeofferedtocovercondominiumunits,[thestatelaw]onitsfacereferstointerestsinthespacesinsidethecondominium'sstructure.Thefurtherspecificationthatinsurancebeofferedtocoverindividuallyownedunitsisconsistentwiththedifferentiationbetweenthatinterestwhichcanbeownedseparately,i.e.,units,andthatinterestwhichonlycanbeownedjointly,i.e.,thestructure.

Itfollowsthat...theterm"policyofresidentialpropertyinsurance"isdefinedasincludingapolicycoveringtheinterestofanindividualinthespaceofeachunit,andpresumablyinthecontentsandfixtures,etc.,withinthatspace,butnottheinterestofthejointownersinthestructure.

So,MarinaGreen'sassetsasacondominiumassociationdidnotcountasaresidenceandStateFarmdidnothavetomaketheearthquakecoverageavailable.

DwellingPolicies

Alternativeresidentialinsuranceneedsincludemorethanjustthecomplexissuesraisedbycondominiumassociations.Infact,themostcommonvariationonhomeownerscoveragethatmostpeoplebuyisthegroupofcoveragesthatinsurancecompaniesrefertoasdwellinginsurance.

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Thisinsuranceappliestothedwellingstructurethatislistedinthedeclarationsofyourinsurancepolicyandtoallofitsattachedstructuresonyourproperty.

Themaindistinctionbetweendwellinginsuranceandhomeownersinsuranceisthatdwellingismorelimited.Itdoesnotincludeliabilitycoverageandsometimesdoesnotincludecoverageforpersonalproperty.

Acompletedwellingpackagewillusuallyconsistofthefollowingcoverageelements:

adeclarationspagethatidentifiesspecificdata,termsandconditions(mustbeincluded),adwellingpropertycoverageform(mustbeincluded),anoptionaltheftcoverageendorsement,anoptionalpersonalliabilitysupplement(personalliabilitycoverageandmedicalpaymentstoothers),andvariousothersupplementsorendorsements(similartocoverageoptionsunderthehomeownersprogram).

Adwellingpolicywhichincludestheftandpersonalliabilitycoveragesisverysimilartoastandardhomeownerspolicy.Manyofthecoveragesandthebasiclimitsofinsuranceareidentical.However,theappealofthedwellingpackageisthatitprovidestheflexibilitytoincludeonlypropertycoverage.

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DwellingpolicyformsfiledbytheInsuranceServicesOffice(ISO)areinuseinnearlyeverystate.Standardformsaregenerallyissuedandendorsementsareusedtoadjustthecoveragewhererequiredbylaw.

WhoisInsured?

Justasinahomeownerspolicy,animportantpartofthedwellingpolicyisdistinguishingwhoisandisnotcoveredunderthepolicy.Generally,becausethedwellingpackagedoesn'tincludeliabilitycoverage,itscoverageextendstofewerpeople.

Insuranceonthedwellingandanyotherstructuresisprovidedforthenamedinsured,andforthenamedinsured'sspouseifaresidentofthesamehousehold.

Ifpersonalpropertyisinsured,thenamedinsuredandallmembersofhisorherfamilyresidingatthedescribedlocationarecoveredforpropertywhichtheyownoruse.Thepersonalpropertyofguestsandservantsmaybecoveredattherequestofthenamedinsured.

Ifthenamedinsureddies,coveragecontinuesforhisorherlegalrepresentatives.Untilalegalrepresentativeisappointed,atemporarycustodianoftheestatewouldalsobecovered.

ThreeDwellingForms

Threedwellingpropertyformsareavailable.Thedifferentformsprovidedifferentdegreesofcoverage,and

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thenamesgiventotheformsreflectaprogressiveexpansionofboththeperilsandlossescovered.Thethreeformsare:

thebasicformwhichinsuresagainsttheperilsoffire,lightning,and(limitedformsof)internalexplosion(apackageofoptionalcoveragescanbeaddedforanadditionalpremium);thebroadformwhichinsuresallofthestandardandoptionalperilsavailableonthebasicformandexpandsseveralofthose;andthespecialformwhichinsuresagainstanyriskswhicharenotexcluded.

Manyinsurancecompaniesofferthesamethree-levelvariationintheirhomeownerspolicies.Thebasicformwhichmaynotbethefirstpolicytheinsurancecompanyofferswillusuallycost20to30percentlessthantheothers.

Dwellingformsincludeotherconditionswhicharecommontopropertyinsurancecoverages.Allthreedwellingformshaveprovisionsregardingabandonment,appraisal,assignment,concealmentorfraud,legalaction,insurer'soptiontorepairorreplace,insured'sdutiesintheeventofloss,waivers,mortgageeandsubrogationclauseswhicharesimilartothosefoundonotherpersonalandcommercialpropertyinsuranceforms.

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Ifyoubuythebasicform,youcanandprobablyshouldpurchasetheextendedcoverage(EC)andvandalismormaliciousmischief(VMM)supplements.

TheECpackagecoversdamagecausedby:

windstormorhail(interiordamagecoveredonlyifwindorhailfirstmakesanopening);explosion(aslightlybroadertermthaninternalexplosion);riotorcivilcommotion;aircraft,includingself-propelledmissilesandspacecraft;vehicles(notincludingvehicledamagetofences,drivewaysandwalksordamagecausedbyanyvehicleownedoroperatedbythenamedinsuredoranyhouseholdmember);smoke,meaningsuddenandaccidentaldamagefromsmoke(butnotsmokefromfireplacesorfromagriculturalsmudgingorindustrialoperations);andvolcaniceruptionotherthanlosscausedbyearthquake,landshockwavesortremors.

VMMmaybepurchasedonlyifECispurchased.WhenVMMiscovered,itdoesnotcover:

glasspartsofabuildingotherthanglassbuildingblocks,

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lossesbytheft(butbuildingdamagecausedbyaburglariscovered),damagebyvandalsafterthebuildinghasbeenvacantfor30consecutivedaysormore.

Thebroadformexpandscoverageforexplosions,vehicledamageandvandalismormaliciousmischief.Italsoaddscoverageforthefollowingperilsnotcoveredbythebasicform:

damagetocoveredpropertycausedbyburglars,butnottheftofproperty(thebasicformonlycoversbuildingdamagebyburglars);damagecausedbyfallingobjects(damagetoabuilding'sinteriororitscontentsiscoveredonlyifthefallingobjectfirstdamagestherooforanexteriorwall);damagetoabuildingoritscontentscausedbyweightofice,snow,orsleet;accidentaldischargeoroverflowofwaterorsteamfromaplumbing,heating,airconditioningsystemorfireprotectivesprinklersystem,orfromahouseholdappliance(butnotdamagecausedbyfreezingorcontinuousseepage);suddenandaccidentaltearingapart,cracking,burning,orbulgingofasteamorhotwaterheatingsystem,anairconditioningorautomaticfireprotectivesprinklersystem,oranapplianceforheatingwater;

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freezingofaplumbing,heating,airconditioningorautomaticfireprotectivesprinklersystem,orofahouseholdappliance;suddenandaccidentaldamagefromartificiallygeneratedelectricalcurrent(butnotdamagetoatube,transistor,orsimilarelectricalcomponent).

Theburglaranddischargeoroverflowperilsaresuspendedwheneverthedwellinghasbeenvacantformorethan30consecutivedays.

Thefreezingperilissuspendedwheneverthedwellingisvacant,unoccupied,orbeingconstructed,unlessreasonablecarewastakentomaintainheatinthebuilding,ortoshutoffthewatersupplyanddrainsystemsandappliances.

Thespecialformprovidesthemostcompletecoverage.Coveragesforthedwellingandotherstructuresareprovidedagainstanyriskswhicharenotexcluded.Personalpropertyisinsuredagainstallthebroadformperils.

Ifanyexcludedlossisfollowedbyalosswhichisnotexcluded,theadditionallossiscoveredbythespecialform.

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Example:Ifyouexperiencealossthatinvolveswaterdamagefromafireprotectivesprinklersystem,thepolicywillcoverthelosscausedbywaterandthecostoftearingoutandreplacinganypartofabuildingnecessarytorepairthesprinklersystem.Butitwillnotcoveranydamagetothesystemitself.

Minimumamountsofinsuranceareusuallyrequiredforthebroadandspecialforms.Thisisbecausepeoplesometimeschooseverysmallamountsofcoveragefordwellinginsurance.(Sincethepoliciesonlycoverthevalueofbuildingswhichusuallyaren'tprimaryresidencesminimizingdwellingcoveragecanmakesense.)

PropertyandLossesCovered

Thereareinsuringagreementsandexclusionsforthetypesofpropertyandlossesthatarenotcoveredunderadwellingpolicy.

Atotaloffiveinsuringagreementsarefoundondwellingforms.Threedescribepropertycovered,andtwodescribespecifictypesofcoveredlosses.Theavailablecoveragesare:

CoverageADwellingCoverageBOtherStructuresCoverageCPersonalProperty

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CoverageDLossofFairRentalValueCoverageEAdditionallivingexpense(notincludedonthebasicform)

Dwellingcoverageappliestothedwellingdescribedinthedeclarationsandtoallattachedstructuresandservice-relatedbuildingequipmentatthedescribedlocation.Thiscoveragealsoinsuresmaterialsandsuppliesonoradjacenttothedescribedlocationforuseintheconstruction,alteration,orrepairofthedwellingorotherstructures.

Otherstructuresonthedescribedlocationwhichareseparatedfromthedwellingbyaclearspace,orconnectedonlybyafence,utilityline,orsimilarconnection,maybeinsuredunderCoverageB.

CoverageCappliestopersonalpropertywhichisatthedescribedlocation,usualtodwellingoccupancyandownedorusedbyyouormembersofyourfamily.Ifpersonalpropertyismovedtoanewlyacquiredprincipalresidence,thiscoveragewillautomaticallyapplyatthenewlocationfor30daysbutnotbeyondthepolicyexpirationdate.

CoveragesDandEprovideinsuranceforindirectlosses.

CoverageDpaysthefairrentalvalueofthatpartofthedescribedlocationrentedtoothersorheldforrentalatthetimeofdamage.

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Fairrentalvaluemeanstherentalvalueminusexpenseswhichdonotcontinue(suchasheatandelectricity)whilethepropertyisunfitforuse.

CoverageEpaysadditionallivingexpensesincurredbytheinsuredwhilethepropertyisunfitforuse.

Additionallivingexpensemeansanynecessaryincreaseinlivingexpenses(suchasrentforalternativehousing)incurredsothatthehouseholdcanmaintainitsnormalstandardofliving.

Ifacivilauthorityprohibitsuseoftheinsuredpropertybecauseaperilinsuredagainsthasdamagedaneighboringlocation,dwellingformslimitpaymentsunderCoveragesDandEtoamaximumperiodoftwoweeks.

Allthreeofthedwellingformsincludeothercoverages,whichareextensionsofthemajorcoverages.Thebasicformincludeseightothercoverages.Thebroadandspecialformsmakesomemodificationstothesecoveragesandincludethreeadditionalcoverages.Theextensionsofcoverageare:

thecostofremovingpersonalpropertyfromalocation;

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damagetootherstructuresatthelocation;debrisremovalexpense;tenant'simprovements,alterations,andadditions;worldwidepersonalpropertycoverage;rentalvalueorcombinedrentalvalueandadditionallivingexpense;reasonablecostforrepairs;firedepartmentservicecharges;lawns,trees,shrubs,andplants(broadandspecialformsonly);collapseofabuilding(broadandspecialformsonly);breakageofglassorsafetyglazingmaterial(broadandspecialformsonly).

Allthreedwellingformsexcludecoverageforthefollowingitems:

accounts,banknotes,bills,bullion,coins,currency,deeds,evidencesofdebt,goldotherthangoldware,lettersofcredit,manuscripts,medals,money,notesotherthanbanknotes,passports,personalrecords,platinum,securities,silverotherthansilverware,ticketsandstamps;aircraftandparts,otherthanmodelorhobbyaircraft;animals,birds,orfish;

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boatsotherthanrowboatsorcanoes;creditcardsandfundtransfercards;data,includingdatastoredinbooksofaccount,drawingsorotherpaperrecords,electronicdataprocessingtapes,wires,recordsorothersoftwaremedia;intentionallossarisingoutofanyactcommittedbyoratthedirectionoftheinsured,oranypersonororganizationnamedasanadditionalinsured,withintenttocauseloss;land,includingthelandonwhichthedwellingorotherstructuresarelocated;lossescausedbyneglectoftheinsuredpersontouseallmeanstosaveandpreserveproperty;lossescausedbyordinanceorlaw;lossescausedbyperilshavingcatastrophicpotential(thepoliciescontaincommonexclusionsforlossescausedbyfloodandsurfacewaters,earthmovement,nuclearhazardsandactsofwar);lossescausedbypowerfailure;motorvehicles,otherthanmotorizedequipmentwhichisnotsubjecttomotorvehicleregistrationandwhichisusedtoservicethedescribedlocation,orisdesignedtoassistthehandicapped;motorvehicleequipmentandaccessories,andanydeviceforthetransmitting,recording,receivingorreproductionofsoundorpictureswhichisoperatedby

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powerfromtheelectricalsystemofamotorizedvehicle,includingtapes,wires,discs,orothermediaforusewithsuchdevice,whileinoruponthevehicle;structuresrentedorheldforrental(exceptasaprivategarage)toanypersonwhoisnotatenantofthedwelling;structuresusedinwholeorinpartforcommercial,manufacturing,orfarmingpurposes;undercoveragesforfairrentalvalueandadditionallivingexpense,anylossorexpenseduetocancellationofaleaseoragreement.

MiscellaneousDwellingEndorsements

Althoughdwellingsunderconstructionareeligiblefordwellingpolicycoverage,anendorsementmustbeattachedtomodifysomeofthepolicyprovisions,particularlyprovisionsconcerningtheamountofinsuranceandthepremium.

Theamountofinsuranceshownforadwellingunderconstructionisaprovisionalamount,usuallybasedontheexpectedcompletedvalue.Theamountofcoverageactuallyineffectonanygivendateisapercentageoftheprovisionalamount,basedontheproportionthattheactualvalueatthetimebearstothecompletedvalue.

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Normally,adwellingpolicywouldcovertheactualcashvalueorreplacementcostofdamagedproperty.Itwouldnotcoveranyadditionalexpensesresultingfromtheenforcementofbuildingcodesthatrequiretheuseofimprovedmaterialsorsafetysystemsthatwerenotrequiredwhentheoriginalstructurewasbuilt.

Foranadditionalpremium,anendorsementmaybeattachedtoadwellingpolicytocovertheadditionallossthatmayresultfromanyordinanceorlawregardingtheconstruction,repairordemolitionofproperty.

Undertheearthmovementexclusion,thereisnocoverageforearthquakeorotherformsofearthmovement,includingearthsinking.

Foranadditionalpremium,coverageforsinkholecollapsemaybeattachedtothepolicy.

Lossbysinkholecollapsemeansactualphysicaldamagecausedbysuddensettlementorcollapseoftheearthsupportingtheinsuredpropertyresultingfromundergroundvoidscreatedbytheactionofwateronlimestoneorsimilarrockformations.

Anendorsementmaybeattachedtocovervariousbuildingitemsownedbycondominiumunitowners.

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Alimitofinsurancemustbeshownforthiscoverageandanadditionalpremiumwillbecharged.

Coveredunit-ownerbuildingitemsmayincludepropertywhichyouareresponsibleforinsuringunderanyagreementswithotherpropertyowners.

Foranadditionalpremium,anendorsementmaybeattachedtoprovidecoverageforlossescausedbywaterwhichbacksupthroughsewersordrainsorwhichoverflowsfromasumppump,evenwhencausedbymechanicalbreakdownofthepump.Normallytheselosseswouldbeexcluded.

Avarietyofotherendorsementsmaybeusedtoprovidespecialcoveragesandtomodifypolicyprovisionsinwaysthatmeettheneedsofparticularinsureds.

Conclusion

Thischapterdiscussedandprovidedyouwiththemodificationsofpolicylanguageandstructurethatarenecessaryforinsuringaresidencenotcoveredundertraditionalhomeownersinsurance.

Thenextchapterwilldiscussthemodificationsnecessaryforpoliciesthataremadetocovernon-ownersofdwellings,orrenters.

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Chapter7CoveragesandIssuesforRentersYoudon'thavetoownafive-bedroomGeorgianhomeintheleafysuburbsorahalf-milliondollarco-opinahipurbanenclavetoneedinsuranceontheplacewhereyouliveandthethingsthatyouown.Evenifyou'rejustrentingyourfirstapartmentoutofschool,youmayhavethingsyouneedtoprotectcomputers,TVsandVCRs,stereoequipment,sportsequipmentandsoon.Thesethingscanbeworththousandsortensofthousandsofdollars.

So,it'ssurprisingthatlessthanhalfofallrentersintheUnitedStatesbothertoprotecttheirpersonalbelongingsandfurnishingswithinsurance.Peopleunder40areparticularlyremiss.

TenantadvocacygroupsandotherslikeIllinois-basedCondominiumInsuranceSpecialistsofAmericaestimatethatasfewasoneinfourrentersintheirtwentiesandthirtiesbuyinsurance.Thenumberremainsloweventhoughrentersinsuranceisrelativelycheapandeasytoget.

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TheHO-4insurancepolicyformcalledtherenterspolicyintheinsuranceindustryisavailablefrommostpropertyandcasualtyinsurancecompanies.Someconfusioncomesfromthefactthatthecoverageiscalleddifferentthingsbydifferentcompaniesthecontentsbroadform,broadtheftcoverageortenantsinsurancebut,whateverit'scalled,thecoverageisinexpensiveenoughforjustaboutanyrenter.

TheMechanicsofRentersInsurance

AllpersonalpropertyisinsuredagainstlossbythebroadformperilsunderanHO-4policy.

Thepolicyispurchasedmostoftenbyrentersofapartments,dwellingsorcondominiumswhodonotrequirethecompleterangeofcoveragesliabilitycoverage,dwellingstructurecoverage,etc.providedbytheotherstandardhomeownersforms.

Arenterdoesn'tusuallyneedtoinsurethebuildinginwhichheorshelives.Andrenterswhodon'twanttopayforliabilityprotectioncanoptforapolicythatcoversonlypersonalproperty.

TheImportanceofCoverage

Landlordswillsometimesrequirethattheirtenantscarrysomeformofrentersinsurance.(Thisusually

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appliestoluxuryapartmentsor,conversely,rent-controlledunits.)Instateswithlargeurbancenters,insuranceandhousingregulatorshaveoutlawedtheserequirementsinthenameofconsumerprotection.

Unfortunately,theseprohibitionssendthemessagetomanypeoplethatrentersinsuranceisarip-off.That'sunfortunatebecauserenterspoliciescanbeabargain.

Example:Inthemid-1990s,USAAtheTexas-basedinsurancecompanythatspecializesincoveringmilitaryandformerservicepersonnelandtheirfamiliesofferedatenantprotectionplanthatcost$169ayearinNewYorkCityandinsured$20,000worthofbelongings,witha$100deductible.Thepolicyalsoprovidedreplacementcostcoverageand$100,000ofpersonalliabilitycoverage.

Rentersinsurancecaneitherbewritteninacomprehensiveformforallrisksthataren'texplicitlyexcludedorfornamedperilsonly.Namedperilscoverageaveragesabout20percentlessexpensive,becausethelossesitcoversaremorelimited.

Eveninsurancewrittenonanamedperilsbasisshouldcoverfire,theftorwaterdamage.Theseareprimaryhazardsthatrentersface.

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Althoughitdoesn'tcoverthebuildingitself,anHO-4policydoesprovidealimitedamountofcoverageforbuildingadditionsandalterations.(Thiscoverageisalsoknownasleaseholdimprovementinsurance.)Inshort,thismeansthatifyouspendmoneytoimprovetheapartmentorhouseyou'rerentingandhaven'tbeenreimbursedbyyourlandlordtherentersinsurancewillcovertheinvestmentsyou'vemadeintheplace.

Howmuchcoverageyouneeddepends,ofcourse,onthevalueofyourbelongings.YoumaywanttorefertoChapter2ofthisbookfortheassetsinventory.Onceyou'vecalculatedthevalueofthethingsyouown,yousimplyhavetoaskyourselfhowmuchofthisyoucouldstandtolose.

Ifyoudon'townmorethanafewhundreddollarsofanyspecifickindofpersonalproperty,youprobablydon'tneedrentersinsurance.But,ifyoucareenoughaboutahobby,activityorotherexperiencetoinvestthousandsofdollarsinrelatedequipment,youprobablydowanttoinsurethosethings.

InsuringagainstTheft

Onereasonthatrentersinsuranceissoattractiveisthatitcoverspersonalpropertyagainsttheft.

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Bycomparison,basicdwellingpoliciesdonotprovideanytheftcoverageforpersonalproperty.Abroadtheftcoverageendorsementhastobeaddedtoadwellingpolicyatadditionalpremiumtoprovidesuchcoverage.

Formanyinsurancecompanies,thebroadtheftcoverageendorsementsoldinaslightlydifferentversionasstand-aloneinsuranceisrentersinsurance.

Theftcoverageprovidesinsuranceagainstlossbythefollowingtwoperils:

theft,includingattemptedtheft,andvandalismandmaliciousmischiefasaresultoftheftorattemptedtheft.

Acaveat:Thevandalismcoveragewon'tapplyifyourresidencehasbeenvacantformorethan30consecutivedaysimmediatelybeforetheloss.Inmostcases,though,thislimitwon'tbeanissueforrenters.

Broadtheftpolicies(orendorsements)containthreedefinitionsthataffectthecoverage:

businessmeansanytrade,professionoroccupation;insuredpersonmeansthenamedinsuredandresidentsofthenamedinsured's

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householdwhoareeitherrelativesofthenamedinsuredorundertheageof21andinthecareofanyinsuredperson;residenceemployeemeansanemployeeofanyinsuredwhoperformsdutiesrelatedtomaintenanceoruseofthedescribedlocation,includinghouseholdordomesticservices,orsimilardutieselsewherewhicharenotrelatedtothebusinessofanyinsuredperson.

Propertyusedforbusinesspurposesisn'tconsideredpersonalpropertyand,therefore,isn'tcovered.

Onlypropertythatbelongstoaninsuredpersoniscoveredso,ifthe$2,000camerayou'rekeepingforafriendgetsstolenfromyourtrendydowntownloft,youmayhavesomeexplainingtodo.

Finally,propertyofresidenceemployeesiscoveredonlyifyouasktheinsurancecompanytoaddlanguagesayingso.Thismayraiseyourpremiumthoughmanycompanieswilladdthecoveragefornoadditionalcost.

Alimitofliabilitymustbeshownforon-premisescoverage.Thislimitisthemosttheinsurerwillpayforanyonecoveredlossatthedescribedlocation.On-premisescoverageapplieswhilethepropertyis:

atthepartofthedescribedlocationoccupiedbyaninsuredperson;inotherpartsofthedescribedlocationnotoccupiedexclusivelybyaninsuredperson,ifthepropertyisownedorused

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byaninsuredpersonoracoveredresidenceemployee;placedforsafekeepinginanybank,trustorsafedepositcompany,publicwarehouse,oroccupieddwellingnotowned,rentedtooroccupiedbyaninsuredperson.

Thistypeofinsurancelimitscoverageeitherwithonegeneraldollarlimitorarangeofdollarlimitsapplicabletodifferenttypesofpersonalproperty.Inthefirstcase,apolicywouldinsureallyourpropertyregardlessoftypetoalimitof$20,000.Inthesecond,apolicywouldinsurecomputerequipmentupto$5,000,stereoequipmentto$2,000,sportsequipmentto$1,500,etc.

Althoughlimitsofliabilityareshownforthemaximumamountofinsuranceforanyoneloss,specialsub-limitsofliabilityusuallyapplytospecificcategoriesofinsuredproperty.Eachlimitisthemosttheinsurerwillpayforeachlossforallpropertyinthatcategory.

Anexampleofthespeciallimitsofliabilitymightbe:

$200formoney,banknotes,bullion,goldandsilverotherthangoldwareandsilverware,platinum,coinsandmedals;$1,000forsecurities,accounts,deeds,evidencesofdebt,lettersofcredit,notesotherthanbanknotes,manuscripts,passports,ticketsandstamps;$1,000forwatercraftincludingtheirtrail-

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ers,furnishings,equipmentandoutboardmotors;$1,000fortrailersnotusedwithwatercraft;$1,000forjewelry,watches,furs,preciousandsemipreciousstones;$2,000forfirearms;$2,500forsilverware,silverplatedware,goldware,goldplatedware,andpewterware,includingflatware,hollowware,teasets,trays,andtrophies.

Limitssimilartothesearefoundonhomeownerspolicies.Theintentofthepoliciesistoprovidebasiccoverageforspecialitemsofvaluewhichmaybesubjecttotheftlosses.However,somepeoplecollectparticularitemsandmayhavedisproportionateexposuresnotcontemplatedinaverageinsurancerates.Mostpolicieswillnotallowthefulllimitofliabilitytobeappliedtoaspecifickindofproperty.

Ifyouhavegreaterexposures,higherlimitsmaybeavailableforanadditionalpremiumcharge,oraseparatepersonalpropertyfloatermaybepurchased.

Insomecases,off-premisestheftcoverageisavailable.Off-premisescoverageapplieswhilethepropertyisawayfromthedescribedlocationifthepropertyiseither:

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ownedorusedbyaninsuredperson,orownedbyaresidenceemployeewhileinadwellingoccupiedbyaninsured,orwhileengagedintheemployofaninsured.

Example:Ifyourideyour$2,000mountainbikefromthehouseboatyou'rerentingtothemountainsnorthofSeattleandsomeonestealsitwhileyou'rewaitingtopayforacafelattetheinsurancecompanywillgetyouanewbike.

Anumberofconditionsapplytooff-premisescoverage:

youcanonlybuyitifyou'veboughton-premisescoverage,aseparatelimitofliabilitymustbeshownforoff-premisescoverage(thislimitusuallylowerthanon-premiseslimitsisthemosttheinsurerwillpayforanyoneloss),off-premisescoveragedoesnotapplytopropertythatyoumovetoanewlyacquiredprincipalresidence.

Thatlastpointisaconsiderableissueinrentersinsurance.

Oneofthewaysinwhichinsurancecompaniesshieldthemselvesfromthevolatilitythatsometimesaccom-

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paniestherenter'slifestyleisbylimitingthetransferabilityofarenterspolicyfromonelocationtoanother.

Ifyoumoveduringthepolicytermtoanewprincipalresidence,thelimitofliabilityforon-premisescoveragewillapplyateachresidenceandintransitbetweenthemforaperiodof30daysafteryoubegintomovetheproperty.Whenthemovingiscompleted,on-premisescoverageappliesatthenewdescribedlocationonly.

PropertyNotCovered

Broadtheftcoveragedoesnotapplytothefollowingtypesofproperty:

aircraftandparts,otherthanmodelorhobbyaircraft;animals,birds,orfish;businesspropertyofaninsuredpersonorresidenceemployeeonorawayfromthedescribedlocation;creditcardsandfundtransfercards;motorvehicles,otherthanmotorizedequipmentwhichisnotsubjecttomotorvehicleregistrationandwhichisusedtoservicethedescribedlocation,orisdesignedtoassistthehandicapped;motorvehicleequipmentandaccessories,andanydeviceforthetransmitting,recording,receivingorreproductionofsoundorpictureswhichisoperatedbypowerfromtheelectricalsystemofa

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motorizedvehicle,includingtapes,wires,discs,orothermediaforusewithsuchdevice,whileinoruponthevehicle;propertyheldasasampleorforsaleordeliveryaftersale;propertyoftenants,roomersandboardersnotrelatedtoaninsuredperson;propertyseparatelydescribedandspecificallyinsuredbyanyotherinsurance;propertywhileatanyotherlocationowned,rentedtooroccupiedbyanyinsuredperson,exceptwhileaninsuredpersonistemporarilyresidingthere;propertywhileinthecustodyofanylaundry,cleaner,tailor,presserordyerexceptforlossbyburglaryorrobbery;propertywhileinthemail.

Youmayrecognizesomeoftheseexclusionsfromstandardhomeownersanddwellingpolicies.Anumberoftheserecurthroughallthevariousformsofhouseholdinsurance.

Thebroadtheftformaddstwoconditionsthatcaninfluencewhetherornotproperty(whichwouldotherwisebecovered)iscovered:

inadditiontostandarddutiesafterloss,theftcoveragerequirestheinsuredpersontonotifythepolicewhenatheftlossoccurs;theotherinsuranceconditionthatap-

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pliestostandardhomeownersanddwellingformsischangedslightlyifatheftlossiscoveredbyotherinsurance,theinsurancecompanyisonlyobligatedtopaytheproportionofthelossthatthelimitofliabilityunderthetheftendorsementbearstothetotalamountofinsurancecoveringtheloss.

WhenYou'retheLandlord

Ofcourse,rentersaren'ttheonlypeoplewhomayneedinsuranceinarentalsituation.Ifyou'rerentingoutanapartmentorhouseyouown,youhavesignificantexposurestofinancialloss.However,youmayfindyourselfinanawkwardplacelostbetweenthelimitsofastandardhomeownerspolicyandthetechnicalcomplexityofcommerciallandlordcoverage.

Fortunately,youcanprotectyourselfagainstsomerentallosses.Withsomemodifications,acombinationofdwellinginsuranceandbroadtheftcoverageshouldmeetyourneeds.

Protectionagainsttenanttheftdeservesparticularattention.Eveninacasewhereyoufeelthatyouknowtherenterswell,there'sthepossibilitythatsomeofyourpossessionsmightdisappearduringtheirstay.Ifso,thechancesaregoodthatyouwon'tcollectonabasicdwellingpolicywhichinsuresthehouseandcontentsagainsttheftanddamagefromfire,wind,smoke,vandalism,andotherhazards.

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Ifitturnsoutthatyourtenantsarethethieveswhichdoeshappensometimesyou'llneedmorecoveragethanastandarddwellingpolicy.You'llneedthesametheftcoveragethattherentersthemselvesshouldbebuying.

Therecanalsobeproblemsifarenter'slackofconcernaboutyourpropertyleadshimtoforgettodouble-latchthedoororsecureawindowmakingthingseasyforaburglar.

Ifyourinsurancecompanylearnsaboutthis,itmightresistpayingforsomestolenitemsonthegroundsthatthelowpremiumratesforitsstandardcoveragearebasedontheassumptionthatyouwillbearoundtohelpkeepthehomeandcontentssafe.Atbestinthissituation,thecompanymightpayforsuchthingsasastolentelevisionsetandfurniturebutnotformissingjewelry,furs,silver,coins,andwatches.

So,youneedtolookagainatyourhomeownersordwellingpolicybeforeyouacceptarenter'sdepositcheck.Inparticular,youneedtolookintheexclusionsorconditionssectionforaclausethatreadssomethinglike:

periloftheftdoesnotincludeanypartoflosswhenthepropertyisrentedbytheinsuredtoanotherparty.

Ifyourpolicyhaslanguagelikethis,youmaywanttoconverttoanall-riskhomeownerspolicyorbuyanendorsementbroadeningyourtheftcoverage.

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Aswe'venotedbefore,youcanexpecttopayasmuchas20percentmorethanthecostofabasicpolicyforall-riskcoveragethatprovidesmoreprotection.Theendorsementtotheftcoveragewillusuallycostlessthanthisbutstill10to20percentmorethanastandardtheftpackage.

Ifyourentyourhomefrequently,youmayneedanevencostlierspecialmulti-perilpolicy.Thiskindofinsurancewhichisactuallyacommercialpolicyisdesignedforprofessionallandlords.Itcoversjustabouteveryexposurealandlordfacesandcanbemodifiedtoinsureagainstvariousparticularrisks.But,ifyou'rejustrentingonehouseorapartment,you'llprobablydobesttouseendorsementstomakeastandardhomeownersordwellingpolicywork.

Somepart-timelandlordsmaybetemptedtoavoidtheextrainsuranceand,ifthere'saninsurableloss,simplyfailtomentiontotheinsurancecompanythattheincidentoccurredwhilethepropertywasrented.Thismaywork.Thefactthatinsurancecompaniesdon'tliketotalkaboutitsuggestsitdoeshappen.Butthiskindofclaimcanprogressquicklyfromwhitelietooutrightfraud.

Formostpeoplewhohaveenoughassetstoinsure,it'sbettertotellthewholetruthandpayaslightlyhigherpremium.

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The1994NewYorkstatecourtdecisionStuartD.Wechslerv.UnitedServicesAutomobileAssociationconsideredthedetailsofsomeonewho'drentedouthishouseandthentriedtomakeaclaimunderastandardhomeownerspolicy.

WechslersuedUSAAwhenitdeniedaclaimunderhishomeownerspolicyforpropertystolenwhiletheentirepremiseswasrented.InFebruary1993,astatetrialcourtgrantedsummaryjudgmentinfavorofUSAA.Wechslerappealed.

Theappellatecourtheldthatthepolicyunambiguouslyexcludedfromcoverageforpropertystolenwhiletheentirepremiseswasrented.Itconcluded:

The[trial]courtproperlydeterminedthattheplainlanguageofthehomeownerspolicyexclusionfortheftlossfor''thatpartoftheresidencepremisesrentedbyaninsuredtootherthananinsured"wasunambiguousinexcludingfromcoveragepropertystolenwhentheentirepremiseswasrented.

ExchangingHomes

Thepracticeofexchanginghomesyoustayinanotherfamily'splacewhiletheystayinyoursduringvacationscanpresentadifferentkindofproblemwhentheexchangeincludesuseofthefamilycar.Whatifsomeoneusingyourhomehasanaccidentwithyourvehicle?Orifyouhaveacollisionasyoudriveanunfamiliarcarinaforeigncountry?

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IntheU.S.andCanada,yourcarinsurancecollisionandliabilityautomaticallyremainsineffectaslongasthedriverhasyourpermissiontogetbehindthewheel.It'snotalwayslikethatelsewhere.

Youmaywanttoconsiderincreasingyourpersonalliabilityinsurancetosafeguardyourassetsjustincase,forexample,arenterwho'sunfamiliarwiththatlowcellardoorwaysuffersaconcussionanddecidestosue.

Ifyou'rethinkingaboutturningyourhouseovertoguestsofanysortformorethanafewdays,youprobablywanttoexpandyourhomeownersordwellingpolicy.Typically,anall-riskhomeownerspolicyprovidesfor$2millionworthofliabilityinsuranceyoumayneedthisifthehouseyou'reswappinghasaswimmingpool,saunabathorotherpotentiallydangerousamenity.

Thebroaderprotectioncanalsobeusefulinsomeunusualsituations.Oneinsurancebrokertoldanationalbusinessmagazineaboutaclientwhosealcoholicrentersdestroyedanexpensivesofabyspillingdrinksanddroppingcigarettesonitduringtheirstay.

Damagecausedbyrentersorpeoplewhouseyourhouseinanexchangewillusuallybeconsiderednormalwearandtearandnotbecoveredbyabasicpolicy.Inthesecases,anall-riskorspecialformpolicymaybeworththeextrapremiumcost.

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Finally,youmaywanttomanagesomeriskswhenyouloanyourhouseorjoinanexchangeprogram.Ifpossible,trytocontrolthekindofpeoplewhowilluseyourplace.Peoplewhohavetravelledorexchangedhomesbeforewillusuallybebettergueststhanpeoplewhoarenewtotheprocess.Familieswitholderchildrenwillbelessinclinedtowarddangeroussituationsthanfamilieswithtoddlers.

Conclusion

Overlookinginsurancewhenitisnecessarycanbeabigmistake.Evenifyouarenotahomeowneryouprobablyhavebelongingsofvalue(atleasttoyou).Fortunately,therearepoliciesavailableforrenterstoinsureprotectioninthecaseoftheftandmore.

Rentersinsuranceisonekindofcoveragethatmostpeopleagreeisabargainforconsumers.

Nomatterwhattypeoflivingarrangementyouhave,thepriceofahousehold'sinsuranceisanimportantissue.Chapter8willdiscusshowinsurancecompaniesgoaboutpricingtheirhomeownerscoverages,aswellasshowyouhowtocomparethepricesandlevelofserviceamongcompetingcompaniestoselectthepackagethat'srightforyouandyourhome.

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Chapter8HowInsuranceCompaniesPriceHomeownersCoverageWhenyou'reshoppingforhomeownersinsurance,it'simportanttounderstandthemethodsandconceptsofhowinsurancecompaniessettheindustrytermisratetheirpolicies.

Inordertogettherightprice,youneedtounderstandhowinsurancecompanieslookatyouandhowtheylookatyourhome...andapplythosetotherulesofthehomeownerspolicyforms.

Inthe1990s,significantcoveragelosseshavecausedinsurancecompaniestoreassesstherelationshipofhomeownersinsurancetotheirbottomlines.Traditionallyalucrativeproduct,homeownerscoveragehasnotproducedaprofit,onaveragefortheindustry,sincethelate1980s.

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Intheyearsbetween1988and1994,NorthAmericaexperiencedsevenofthe10costliestproperty-damagedisastersinitshistory.Taxwrite-offsandinvestmentincomeoffsetmuchoftheimpactofthoseclaims,butinsurancecompanieshavespentmostofthe1990slookingforotherwaystolimittheirlosses.

MarketTrends

Theinsuranceindustryiscontinuallychangingtosimplifyprocedures,clarifypolicylanguage,improveefficiencyandincreasecompetition.Someofthesechangescomefromtheindustryitselfothersareinfluencedbylaws,regulatorsandconsumers.

TheindustrystandardforpricingrulesandpolicyformshastraditionallybeentheInsuranceServicesOffice(ISO)orMutualServicesOffice(MSO)ratingbureaus.However,inthewakeofthelate1980swaveofdisasters,manyinsurancecompanieshavedevelopedtheirownmanuals,ratesandpolicyformsforcoveragessuchasthestandardhomeownersanddwellingprograms.

Onerecentdevelopmentinpolicyratingplansistheconceptoflosscostrating.Sincemostcompanieshadstarteddevelopingtheirownpersonallinesinsurancemanuals,ratesandformsinthe1980s,manypeoplehaven'tnoticedanydifference.Butthereisanimportantone.

Theindustry-standardmanualschangedaslosscostratingwasimplementedacrossthecountry.Traditionally,ISOadvisoryratesreflectedindustryaveragesofmemberinsurancecompanies.Thesewerebasedon

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statisticalinformationsuppliedbythememberinsurancecompanies.Thedatasuppliedandusedtodevelopadvisorybaseratesincludefourbasiccomponents:

actualclaimspaymentstopolicyowners,lossadjustmentexpenses(includingclaimsdepartmentoverhead,legalexpenses,etc.),underwritingexpenses(includingcommissions,acquisitioncosts,overhead,taxes,fees,etc.),underwritingprofit(includinginvestmentincome,capitalcosts,surplusrequirements,underwritingportfolioandmarketconditions).

Theclaimspaymentsandlossadjustmentexpensecomponentsarecalledtheprospectivelosscosts.Thesecanbedifficultforindividualinsurancecompaniestocalculatewithsufficientcredibilityiftheyuseonlytheirownlossinformation.

Bycalculatingthisdatafortheentireindustry,agrouplikeISOcansupplymorereliableestimatesbecauseofthelargeamountsofdatathancanbeobtainedfromthehundredsofmembercompanies.

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Underthetraditionalratingsystem,insurancecompanieswouldusetheadvisorybaseratesasthestartingpointforsettingpremiumsforhomeownersinsurance.Tothesebaserates,thecompanieswouldaddfactorstakingintoaccountspecificdatalikethelocationofthehome,itssizeandassessedvalue.

ProspectiveLossCosting

Crediblelossprojectionsarenecessaryforthecompanytochargetheproperpremiums.

Sincethetraditionaladvisoryrateswereindustryaverages,astandardratemightbemuchhigherormuchlowerthanaparticularcompany'sactualexpenses.Anindividualcompany'sclaimsmanagementphilosophiesandfinancialstrategieswerenotfullyconsideredwhenusingaverageratesprovidedbyISO.

In1989,ISObeganatransitionfromprovidingadvisorybaseratestoaprogramwhichwouldprovideonlytheprospectivelosscosts.

Underthisprogram,eachindividualinsurerwoulddevelopratingfactorstoreflectitsownunderwritingexpenseandunderwritingprofitcomponents.Itcanthenadaptindustry-wideratingnumbersasastartingpointforcalculatingpremiums.

Iftheinsurancecompanydoesnotdevelopitsownnumbers,ithastoprovideitsstaffandsalespeoplewith

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instructionsforuseofaspecificlocation'sindividualratingfactorsandtheISOindustry-averageprospectivelosscosts.Thiscanmakecomparingpoliciesdifficult.

Havingabasicunderstandingoftheapplicationofrulesunderthetraditionalratingprocedureswillmakeiteasierforyoutofollowmarketchanges.Aknowledgeoftheoryisoftenasimportantastheknowledgeofpracticalapplication.

NewRatingsLeadtoSomeRateHikes

Intheearly1990s,StateFarmMutualInsuranceCo.scrappedwiththeCaliforniaInsuranceDepartmentoverachangingratingsystemthateffectivelyraisedpremiumswithoutregulatoryapproval.

ThestateregulatorscomplainedthatStateFarmincreasedonaregularyearlybasistheestimatedassessmentvaluesofhomesitinsured.Thisraisedpremiumsaswellasthedeductibleamountoncertainspecialendorsements(likeearthquakecoverage).

Atthesametime,StateFarmwaspetitioningthestatetoallowittoeliminatetheguaranteedreplacementcostcoverageinitshomeownerspolicies.

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Withguaranteedreplacement-costcoverage,someonewhosehomeisdestroyedcanhaveitreplacedatfullvalue,regardlessoflimitsstatedinthepolicy.Ifahouseisinsuredfor$250,000butcosts$350,000toreplace,theinsurancecompanypays$350,000.

StateFarmaskedforacoveragelimitof120percentofanystatedpolicylimit.Thiswouldhaveforcedpolicyownerstobuyhighercoveragelimitsinordertoguaranteereplacementcost.

ThestandardCaliforniapolicyratingrulestated:

Todeterminetheamountofinsurancerequiredtoequal80percentofthefullreplacementcostofthebuildingimmediatelybeforetheloss,donotincludethevalueof:

(a)Excavations,foundations,piersoranysupportswhicharebelowtheundersurfaceofthelowestbasementfloor;

(b)Thosesupportsin(a)abovewhicharebelowthesurfaceofthegroundinsidethefoundationwalls,ifthereisnobasement;and

(c)Undergroundflues,pipes,wiringanddrains.

Incalculatingordeterminingthefullreplacementcostofthebuildingimmediatelypriortotheloss,thecompanywasallowedtoexcludefromthecostthevalueofthelisteditemsintheaboveclausesuchas

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thecostofexcavations,foundations,piers,etc.Thesecanadduptoanappreciableamount.

Theexclusionswouldreducethereplacementcost,therebyloweringtheamounttheinsurancecompanywouldhavetopayunderaguaranteed-replacement-costpolicy.

ThisprocedurewaswhattheCaliforniainsuranceregulatorstookexceptionwith.

Inthestandardguaranteed-replacement-costpolicyform,theinsurancecompanystates:

Wewillpaynomorethantheactualcashvalueofthedamageuntilactualrepairorreplacementiscomplete.Onceactualrepairorreplacementiscomplete,wewillsettlethelossaccordingtotheprovisions[described]above.

However,ifthecosttorepairorreplacethedamageisboth:

(a)Lessthan5percentoftheamountofinsuranceinthispolicyonthebuilding;and

(b)Lessthan$2500;

wewillsettlethelossaccordingtotheprovisions[described]abovewhetherornotactualrepairorreplacementiscomplete.

Thestandardpolicyformcontainsthisconditionsothattheinsurancecompanycanbecertainthattheinsuredbuildingisactuallyrepairedwhenalosshasoccurred.

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Intheeventoflosstoacoveredbuilding,thepolicywillfirstpaythelossonanactualcashvaluebasis.Atthetimetherepairsarecomplete,thepolicywillpaythebalanceoftheclaimtobringtheamountuptofullreplacementcost.

Thepolicyprovisionsmentionedinthesepassagesrefertothestandardpolicy's80percentcoinsuranceclause;itmustbemetfortheconditiontooperate.

Iftheamountofthelossislessthan5percentoftheamountofthebuildingcoverageandunder$2,500,thepolicywillpaystrictlyonthebasisofreplacementcost.

StateFarm'sprocesswouldhaveallowedapolicyownerwitha$250,000policyonahouseworth$350,000togetonly$300,000.Toensurefullreplacementvalue,thatpolicyownerwouldhavetoaskforanincreaseinthepolicylimittoabout$290,000.That,inturn,wouldmeanhigherpremiums.

RatesandPremiums

Aswe'venoted,ratesforhomeownerspoliciesarebasedonanumberoffactorswhichmayormaynotincreasethechancesofcertainoccurrences.Thefollowingareafewofthefactorsthatinsurancecompaniesusetoadjusttheirprospectivelosscostbases:

Location.Companieskeeprecordsoftheclaimsthey'vehadtopay,dividingter-

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ritorybycities,zipcodes,andevenneighborhoods,todeterminetheriskofinsuringhomes.Residentsofareaswithtraditionallyhighlossesfromcrime,fires,ornaturaldisasterscanexpecttopaymorethanresidentsoflow-lossareas.Fire-protectionclass.Howcloseisyourhometothenearestfirestation?Howwell-trainedarethefirefighters?Thecloseryouareandthebetterthey'retrained,theloweryourpremiumsshouldbe.ISOassignseveryneighborhoodintheU.S.afire-protectionclass,basedonthequalityoffireprotectionandthedistanceofhomesfromawatersource.(Somelargeinsurancecompaniesusetheirownratingsystems.)So,aruralhomemilesfromafirestationmaycostmoretoinsurethananurbanhomeinahigher-crimeareabutaroundthecornerfromafirehouse.Typeofbuilding.Woodenhousesgenerallycost5to10percentmoretoinsurethanbrickones,whichbetterwithstandfire.(Earthquakeinsurance,however,costsconsiderablylessforwoodenhomes.)Ageofhome.Companiesmaychargeupto20percentlesstoinsurenewhomesthantoinsureolderones,whichmaybemoresusceptibletodamageinstormsandfires.Outdatedbuildingstandardsandoldwiringcanalsomakeolderhomesriskiertoinsure.

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Constructioncosts.Thecostforbuildingmaterialsandlaborvarygreatlyfromonepartofthecountrytoanother.Themoreitwouldcosttheinsurertorepairorrebuildyourhome,thehigheryourpremiumislikelytobe.Numberofunits.Companiesmaychargemoretoinsureapartmentsorcondominiumsinlargebuildingsthaninsmallonesbecausetheriskoffireincreaseswiththenumberofoccupants.

Otherfactorscanalsocontributetothefinalpremiumquoteaninsurancecompanygivesyou.

Usuallyalltheinsuranceonahomeiswritteninonepolicy.However,occasionally,acompanymaynotwishtowritetheentireamountdueperhapstoahighvaluedwellingandcontentswithasevereexposuretofireloss.Insuchcases,morethanonecompanywillsharetherisk(onecompanycoveringthedwellingpart,onetheliabilitypart).Ifthereisaloss,specialclausesprovidefortheproportionatesharingofthelosspaymentaccordingtotheamountwrittenbyeachcompany

Homeownerspoliciesaresoldwithdeductibles,thepartofthelossyoumustpayoneachclaimbeforeyourinsurancecompanykicksin.Ifyouhaveapolicywitha$250deductibleandyousuffera$700loss,youpay$250andyourinsurerpays$450.

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Thehigheryourdeductible,theloweryourpremium.Ifyouraisethedeductiblefrom$250to$500,youmaybeabletotrimmorethan10percentoffyourpremium.Raiseitto$1,000andyoucouldsavemorethan25percent.

EarthquakeCoverageASteepPrice

Earthquakescanwreakseriousfinancialdamage,whetheryouownorrent.Insuringagainstearthquakedamagecanbedifficult,becauseeventhoughtherearestandardpolicyformsinsurancecompanieshavesignificantlatitudeinhowtheypricethecoverage.

Afteranearthquake,mostinsurancecompaniesputa10-to60-daymoratoriumonissuanceofnewquakecoverage.Otherthingsyoushouldknowaboutearthquakeinsurance:

Premiumsarebasedonpropertyvalue,typeofconstructionandlocation.Thecostforwood-frameconstructionrangesfrom$1.50to$3.00per$1,000ofcoverage,dependingonlocation.Lowerratesapplyinthecentralpartofthestate;higherratesinthecoastalcountiesandthosealongfaultareas.Coverageistypicallywrittenwithadeductibleof10percentoftheinsuredvalueofthedwellingandcontents.Earthquake-causedfiresaretypicallycoveredunderhomeownerspolicies.

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Coverageofaftershocksvariesbycompany.Aftershockstiedtoanearthquakearecoveredundertheinitialclaimsothatthedeductiblewouldnotapplyagain.Butwhentwotofourdaysseparatetheaftershockfromtheinitialtremor,itbecomesmorequestionablewhetheritisanaftershockoranewquake.Askbeforeyoubuy.Renterscanaddearthquakeinsurancetoanexistingfireorrenters'packagetocoverdamagetohouseholdcontentsandpersonalbelongings.

Ina1994hearinginSanFrancisco,California,insuranceregulatorsagainsparredwithStateFarm,thistimeaccusingthebiginsurancecompanyofusingquestionabletacticstoboostitsearthquakeinsurancepremiums.

Astateadministrativelawjudgeconsideredtheregulators'broadchallengetoStateFarm'sratestructureandbusinesspracticesinahearingpromptedbyStateFarm'sapplicationforan8.3percentincreaseinitspremiumratesforhomeownersinsuranceanda23.2percentincreaseinpremiumsforpersonal-liabilityumbrellainsurance.

TheCaliforniaDOIarguedthat:''StateFarm[is]usingquestionabletacticstoeffectivelyincreasepremiumswithoutobtainingofficialpermission."

Tosupportitsargument,theDOIcitedthecompany'spracticeofannuallyincreasingtheestimatedvaluesofhomesitinsures.Thisraisesnotonlypremiums,

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butalsothedeductibleamountonearthquakeinsurance.

StateFarmhadstoppedtryingtogrowinCaliforniaatleastinhomeownersinsurance.StungbysuchdisastersastheLomaPrietaandNorthridgeearthquakesandtheOaklandHillsandSouthernCaliforniafiresthecompanystartedturningdownnewapplicantsinthestate.

"AprospectivepolicyholdernowmustwaituntilanoldonedropsoutbeforebeingallowedtosignupwithStateFarm.Thecompanycallsthisexposuremanagement,"theCaliforniaDOIcomplained.

However,therealityofthemarketplaceworkedagainsttheregulatorsargumentsandinfavorofStateFarm's.

Conclusion

Changesinhowinsuranceindustrytradegroupscalculatebasicratinginformationhashadtheunintendedthoughnotunforeseeneffectofallowinginsurancecompaniesgreaterfreedomtousediscretioninpricingpolicies.Asoneindustryreportconcluded:

Aspartoftherecentmodernizationofthedwellingprogram,generalrulesandratingruleswhichwerecommoninmoststateshavebeenconsolidatedintoexpandedcountry-widerules.Asaresult,thenewISOmanualforthedwellingpolicyprogramnowincludesfewerstateexceptionpages.Additionally,ratinghasbeensimplifiedandfewerstepsare

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involvedincalculatingpremiumsfordwellingpolicies.

Theresult:Comparingcoveragesofferedbydifferentcompaniesismoredifficultthanbeforebutmoreimportantthanever.

Insurancecompaniesusetheratingprocesstodeterminehowmuchtochargedifferenthomeownersfortheamountandtypeofcoveragetheyneed.Becausethebaseratesthatserveasastartingpointhavebecomemoregeneric,mostofthepricingprocessnowfocusesonaspecificinsurancecompany'sexperience.

Whileinformationsuchaslocation,buildingmaterials,ageofbuilding,etc.,areessentialtoaninsurancecompanywhengeneratingapremiumquote,othersubjectivefactorssuchasthecompany'sclaims-payingproceduresandinvestmentincomeplayagrowingroleinthequote.

Thesechangesmakethefinancialstrengthoftheinsurancecompanywhichhasalwaysbeenimportantmoreimportantthanever.

Thischapterhasgivenyouthebasicinformationneededtounderstandtheseratingproceduresandtodeterminewhattypeofcoveragewillbebestforyou.

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Chapter9Assigned-RiskProgramsandAlternativeMarketsInthewakeoftheriotsintheLosAngelesareaafterthefirstRodneyKingpolicebrutalitytrial,manypeoplewholiveinbigcitiesaroundthecountrystartedcheckingtheirhomeownersinsurancepoliciesforriotcoverage.Mostdidn'tlikewhattheyfound.

Untilthemid-1960s,riotcoverageforhomeownerspropertylosseshadbeenwidelyavailableaspartofstandardpackages.Theoutbreakofcivildisordersinurbancentersduringthemid-andlate-1960schangedallthat.Insurancecompaniesbegantoexcluderiotdamagefromstandardpoliciesandsomestoppedwritinghomeownersinsuranceatallinurbancenters.

Inadditiontoconcernabouttheriotrisk,insurerswereincreasinglyunwillingtoinsurepropertyinneighborhoodscharacterizedbycongestionanddeterioration.Innercityhomeownersandbusinessownerssoonfoundthatpropertycoveragewasbecomingunavailableorunaffordable.

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Unfortunately,theabsenceofinsuranceusuallyacceleratestheprocessofeconomicdecline.Banksandotherlendersrequireinsurancecoveragetoprotecttheirloans.Wheninsuranceisnotavailable,lenderswillnotmakeloansformortgagesornewconstruction.Realestatetransactionsthereforecease,constructioncomestoahalt,jobsarelost,andthelocaleconomystagnatesordeteriorates.

Toremedythegrowingurbanproblem,theU.S.Congresscreatedafederalriotreinsuranceprogram.TheUrbanPropertyProtectionandReinsuranceActmaderiotreinsuranceavailablethroughtheNationalInsuranceDevelopmentFund,whichisoperatedundertheDepartmentofHousingandUrbanDevelopment(HUD).

Residentsofhigh-crimeareaswhohavetherequiredsecuritydevicesalsomayqualifyforinsurancewiththeFederalCrimeInsuranceProgram.Thepolicycoversonlylossesduetoburglaryorrobbery.CalltheFederalCrimeInsuranceProgramat(800)-638-8780fordetails.

TheFedsandFairPlans

Bylaw,anyinsurancecompanythatwishestobuyriotreinsurancemustparticipateinaHUD-approvedFAIRplan.ThetermFAIRstandsforFairAccessto

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InsuranceRequirements.Theseplanswerecreatedtomakeessentialpropertyinsuranceavailabletoconsumersinareaswherecoveragehadbecomeunavailable,oratleastextremelydifficulttoobtain,duetoconditionswhicharebeyondthecontrolofpropertyowners.

FAIRplansarestatesupervisedinsurancepoolsthatprovidebare-boneshomeownersanddwellinginsuranceinhigh-riskareas.ThefederalriotreinsuranceisavailableonlyinstatesthathaveacceptableFAIRplans.Theplansareinoperationinapproximately30states.

FAIRplansareoftenreferredtoasassigned-riskprograms.Thisterm,mostoftenassociatedwithautoinsurance,appliestoanystate-runprogramthathelpshigh-riskpropertyownersfindinsurance.

Inadditiontohomeownerscoverageforcondosandseparatecoverageforotherdwellings,riskswhicharenotordinarilyacceptablebyinsurancecompaniesareassignedtoaninsurerthatparticipatesinanAssigned-riskprogram.

Example:ResidenceslocatedinfloodplainsorfirezoneseveniftheyarelargehomesingoodneighborhoodswilloftenhavetouseaFAIRplantogetinsurance.

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Althoughtheyareadministeredbythestates,FAIRplansareoperatedexclusivelybyparticipatinginsurers.InsuranceregulatorswillusuallyrequireinsurancecompaniesthatdobusinessintheirstatetoparticipateintheFAIRplaninproportiontotheamountofstate-widepremiumstheywriteinthevoluntarymarket(thatis,everythingthat'snotassignedrisk).

Example:IfPrudentialwrites10percentofthestandardhomeownersinsuranceinagivenstate,itwillberequiredtowrite10percentofthehigh-riskpoliciesinthestate'sFAIRplan.

ConsumerswhoqualifycanbuyFAIRplaninsurancejustliketheywouldbuyinsurancefromacompanydirectlyorthroughlicensedagentsrepresentingtheparticipatingcompanies.

However,eachstatecanregulateitsFAIRplanasitchooses,sothereareslightvariationsinhoweachplanisrun.

FAIRplansmakecoverageavailableonlyindesignatedareas,whichmayincludeentirecitiesorcounties,ormaybedefinedbyZIPcodeorothergeographicalboundaries.Insomecases,thedesignatedareaincludestheentirestate.

TheCaliforniaFairPlan

BecauseofCalifornia'slargegeographicalarea,andthesizeofdesignatedbrushhazardareas,California

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FAIRPlanbusinessrepresentsasubstantialproportionofallFAIRplanbusinesswritteninthecountry.

Approximately45percentofallFAIRplanbusinesswrittennationwideconsistsofriskslocatedinCalifornia.

TheCaliforniaFAIRPlanAssociationisanindustry-wideassociationconsistingofallinsurerswhohaveCertificatesofAuthoritytowritefireinsuranceinthestate.Informationaboutapplications,inspections,procedures,availablelimitsorotheroperationaldetailscanbeobtainedbycontactingtheFAIRplandirectly.

TheCaliforniaFAIRPlanlikemostsuchplansisintendedtobeaninsureroflastresort.PropertyownersareusuallyrequiredtomakeanefforttoobtaincoverageinthevoluntarymarketbeforesubmittinganapplicationtotheFAIRplan.

Anypersonhavinganinsurableinterestinrealortangiblepersonalpropertyinanofficiallydesignatedareawhohasbeenunabletoobtainbasicpropertyinsurancethroughnormalchannelsfromanadmittedinsureroralicensedsurpluslinebroker,isentitledtomakeanapplicationforcoveragetotheFAIRplan.

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Coveragemaynotberefusedbecauseofenvironmentalconditions(suchasadeterioratedneighborhoodorlocalbrushfirehazard)whicharebeyondthecontroloftheapplicant.However,thepropertymustbeinsurableitmustsatisfytheFAIRplan'sbasicunderwritingcriteria.

AFAIRplancanchangethedesignatedareasinwhichitwillwritecoverage.ChangesindesignatedareasmayonlybemadebytheInsuranceCommissionerandtheDepartmentofInsurance.

Example:FollowingtheNorthridgeearthquakeinJanuary1994,insurersbecomereluctanttowritedwellingandhomeownerscoverageinCaliforniaduetoastatelawthatearthquakecoveragemustbeofferedinconnectionwithresidentialpropertyinsurance.Coveragerapidlybecameunavailableformanyconsumers.Toremedythisproblem,theInsuranceDepartmentexpandedtheFAIRPlanareastoincludeallareasstatewide.

SpecificFairPlanTerms

TheCaliforniaFAIRPlanissuespoliciestocoverdwellingrisks,commercialpropertyrisks,andbusinessownerpropertyrisks.Differentpolicyformsareusedforeachoftheserisksanddifferentmaximumamountsofinsuranceareavailableforeach.Hereareafewofthepolicies:

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DwellingPolicies.Themaximumavailablelimitforallcoveragesunderadwellingpolicyis$1.5millionperlocation.Thisisacombinedmaximumamountofinsurance.Separatepolicylimitsfordwellingcoverage,otherstructures,personalproperty,andanyendorsementsthatprovideadditionalcoveragescannotexceed$1.5millionintotal.CommercialPropertyPolicies.Undergeneralunderwritingguidelines,themaximumavailablelimitforcommercialbuildingsis$3millionperbuilding.Separatelimitsapplytocommercialcontents,andvariouslimits($1.5millionto$10million)areavailable.BusinessownersPolicies.Themaximumavailablelimitforpropertycoveragesunderabusinessownerspolicyis$2millionforthebuildingand$1millionforbusinesspersonalproperty.Theseareseparatelimits.Businessownerspoliciesalsoincludeliabilitycoverages,andofferoptionalburglaryandrobberycoverages.

DwellingandcommercialpropertypoliciesissuedbytheFAIRplanarewrittenwithastandarddeductibleof$250peroccurrence.Higheroptionaldeductibles(suchas$500,$1,000or$2,500)areavailable.Thedeductibleappliestomostofthepropertycoverages.However,ifearthquakecoverageiswritten,aseparate10percentdeductibleappliestoearthquakelosses.

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TipsforFairPlanApplicants

Asisusuallythecase,alicensedagentcanhelpyoudeterminetheappropriateamountsofinsuranceandassistyouinobtainingsupplementarycoverageswhichmaynotbeavailablethroughtheFAIRplan(suchastheftandliabilitycoverages).

AllapplicationssubmittedtothePlanmustbeonabrokeragebasiswhichmeanstheagentorbrokerisalegalrepresentativeoftheapplicantandnottheFAIRplan.

OtherpointsthatconsumersshouldkeepinmindwhenapplyingforFAIRplancoverage:

Allinformationontheapplicationmustbecompleteandcorrect.Incompleteapplicationswillusuallybereturnedunprocessed.Anapplicationmustbesignedbytheapplicantoranagentontheapplicant'sbehalf.Nodepositisrequired,andnopremiumshouldbesubmittedwiththeapplication.FAIRplansarenotusuallyasservice-orientedastraditionalinsurancecompanies.Theywon'tissuequotationsoverthephone.Inmoststates,quotesarepro-

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videdonlythroughthemailafteracompletedapplicationforcoveragehasbeensubmittedandreviewed.Initialquotationsmaybeprovisional,subjecttoterminationiftheriskisfoundtobeuninsurableonthebasisofaninspection,orsubjecttoadjustmentifanadditionalpremiumisrequiredonthebasisofaninspectionandratingreport.Sinceagentsandbrokersarerepresentativesoftheapplicant,theydonotrepresenttheFAIRplan.TemporarycoveragemaybeprovidedonlyiftheFAIRplanissuesaprovisionalquotationandthepremiumispaid.

AcommitmenttocoveragecanonlybemadebytheFAIRplanifitfindsthatasubmittedrisksatisfiesitsgeneralunderwritingrequirements.

Occasionally,anagentorbrokerwillclaimthatheorshecangetyouFAIRplancoverageautomaticallyorimmediately.Thisisn'tusuallytrue.Whileanagentmightbeabletogetinsurancewithatraditionalinsurancecompanythat'seffectiveimmediately(thetechnicaltermfordoingthisisbindingyoutocoverage),that'snotpossiblewithassigned-riskinsurance.

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Animportantnote:TheonlypaymentyouhavetomaketoanagentorbrokeristhestandardcommissionsetbythestateforFAIRplanbusiness.AgentsusuallymaynotchargeadditionalfeesforhandlingFAIRplancoverages.Theyarenotpermittedtochargeanyfeesforinspectingproperty,providingservice,orassistinginthecompletionofFAIRplanapplicationsandforms.

Anyrequiredconsumerrightsdisclosurestatementsshouldbeprovidedconcurrentwiththeapplicationforinsurance.Applicationsshouldbeaccompaniedbyasignedacknowledgementofreceiptofdisclosureforms.

Disclosurestatementsusuallydescribethevariouscoverageoptionsandconditionsavailabletoinsurancebuyers.InCalifornia,thefollowingthreeoptionsareavailableunderpoliciesissuedbytheFAIRplan:

ReplacementCostCoverage.Thiscoverageoptionprovidesdwellingcoverageonareplacementcostbasis.Ifthereisacoveredlosstotheinsureddwelling,theinsurancecompanywillpaytorepairorreplacethepropertywithlikeconstruction,butonlyuptothepolicy'slimitofliability.Therecoverywillbereducedbyanydeductibletheinsuredhasagreedtopay.Tobeeligibleforreplacementcostcoverage,thedwellingmustbeinsuredforatleast80percentofitsreplacement

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costatthetimeofloss.Replacementcostcoverageappliesonlytodwellingbuildingsanddoesnotapplytopersonalproperty.ActualCashValueCoverage.Thisoptionprovidesdwellingcoverageonanactualcashvalue(ACV)basis.Ifthereisacoveredlosstotheinsureddwelling,theinsurancecompanywillpayeitherthedepreciatedvalueofthedamageddwellingatthetimeoflossorthecostofrepairingorreplacingthepropertywithlikeconstruction,butonlyuptothepolicy'slimitofliability.IfACVcoverageapplies,coverageforbuildingcodeupgradesisnotavailable.BuildingCodeUpgradeCoverage.Thisoptionisavailableonlyifthereplacementcostcoverageoptionhasbeenselected.Buildingcodeupgradecoverage,alsoknownasordinanceorlawcoverage,providesupto$10,000ofcoveragefortheadditionalcostsrequiredtobringadamageddwellinguptocurrentbuildingcoderequirements.Withoutthiscoverage,apolicywouldpayonlytheamountneededtorepairorreplacethedamageddwellingtorestoreittotheconditionitwasinpriortotheloss,andwouldnotcoveranyadditionalcostsduetochangesrequiredbycurrentbuildingcodes.

PremiumQuotations

InCalifornia,ifaresidenceappearstobeacceptable

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onthebasisoftheapplication,apremiumquotationwillbeissuedbytheFAIRplan.Allpremiumquotationsaredated.Newbusinessquotationsarevalidforaperiodof60days.

Apolicywillbeissuedifthepremiumispaidwithinthis60-dayperiod.IfthepremiumisnotreceivedintheFAIRplanofficewithin60daysofthedateofthequotation,theofferofcoveragebecomesnullandvoidandanewapplicationmustbesubmitted.

Toexpediteputtingcoverageintoeffect,theFAIRplanissuesprovisionalquotations.Ifthepremiumpaymentismadeontime,provisionalcoveragewillgointoeffect.Ifitislaterdeterminedasaresultofaninspectionthatthepropertyisuninsurable,thecoveragewillbeterminated.

FAIRplanpoliciesareusuallyissuedforatermofoneyear.Fornewpolicies,theeffectivedateofcoveragewillbe:

thedatethepremiumquotationwasissued,ifthepremiumisreceivedbytheFAIRplanwithin15daysofthisdate;thedatethepremiumisreceivedbytheFAIRplan,ifitisreceivedaftertheinitial15-dayperiodbutwithin60daysofthequotationdate;anylaterdatespecifiedbytheapplicantfollowingthepaymentofpremium,pro-

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videdthatitisnotmorethan60daysafterthequotationdate.

Usually,aFAIRplanwillacceptorrejectanapplicationwithin20daysofreceivingit.However,ifthroughnofaultoftheapplicantthePlanfailstoacceptorrejecttheapplicationwithinthattimeperiod,thecoveragerequestedisdeemedtobeeffectiveonthenextdayafterthedatetheapplicationwasreceived.

Inorderforthiscoveragetocontinue,theapplicantmustpayaprovisionaldepositpremiumwithin45daysafterthedatetheapplicationwasreceived.IfthedepositpremiumisnotreceivedbytheFAIRplanwithinthis45-dayperiod,nocoverageisdeemedevertohavebeeneffectiveandanewapplicationmustbesubmitted.

PropertyInspections

WhenaproperlycompletedapplicationisreceivedbyaFAIRplan,thepropertybecomeseligibleforaninspection.Inspectionsareusuallymadewithoutchargetotheapplicant.

Ifanyoneanagent,inspectororotherinsuranceprofessionaltriestocollectaninspectionfeefromyou,callthenearestFAIRplanofficebeforehandingoveranymoney.

AFAIRplanmakesinspectionssolelyforunderwritingpurposestodeterminewhetherthepropertyis

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insurable.Itdoesnotmakerealestateappraisalsorguaranteethatanapplicant'spropertyissafe.

Theinspectionwillusuallyinclude,butneednotbelimitedto:

anexaminationofpertinentstructuralandoccupancyfeatures,andthegeneralconditionofthebuildingandsurroundingstructures.

Whentheinspectioniscompleted,theinspectorwillprepareareportandsendittotheFAIRplanforevaluation.

Youoryourrepresentativehavearighttobepresentduringtheinspection.Youalsohavearighttorequestacopyoftheinspectionreport.

Aninspectionreportwillnoteanyhazardsordeficienciesintheproperty.Ifrepairsareneeded,andcoverageisnotineffect,theofferofcoveragemaybemadecontingentuponmakingtherepairs.Ifcoverageisineffect,theFAIRplanmayextendcoverageforaspecifiedperiodoftimeinwhichthenecessaryrepairsmustbemadeorelsethecoveragewillbeterminated.

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Ifyourpropertyisfoundtobeineligibleforcoveragebecauseofseveredeficiencies,anycoverageineffectwillbecanceledandyouwillbeinformedofwhatrepairsarenecessaryorwhatdeficienciesmustbecorrectedinordertomakethepropertyinsurable.

IfanyinsuranceisrefusedorcanceledbytheFAIRplan,youmaysubmitanewapplicationforcoverageatanytimeafternecessaryrepairshavebeenmadeordeficiencieshavebeencorrected.

YouhavetherighttoappealanyactordecisionoftheFAIRplanwhichaffectsyouadversely.AppealsofanydecisionincludingrejectionofapropertyforcoverageshouldbemadetotheAppealsBoardorGoverningCommitteeoftheFAIRplan.

Cancellations

PolicycancellationsrequestedbyapolicyownerwillusuallybecanceledprorataandwillbeeffectiveonthedatetherequestisreceivedbytheFAIRplan,unlessalaterdateisspecified.

IfaFAIRplanpolicyisreplacedwithtraditionalinsurance,theFAIRplanpolicymaybecanceledproratauponreceiptofproofoftheothercoverage.Flatcancellationispermittedonlyifrequestedpriortothethirtiethdayofcoveragefollowingthepolicyeffectivedate.

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Conclusion

Assigned-riskinsuranceisanimportanttoolinthelivesofmanywholiveinnotonlyhigh-crimeareas,butalsootherareasthataredeemedashigh-riskbyinsurancecompanies.

Throughtheuseofanassigned-riskpoolorFAIRplan,youmaybeabletofindacompanythatwillagreetoacceptyourrisksandprovidecoverageforyourhome.

FAIRplancoverageisusuallymorelimitedthanastandardhomeownersinsurancepackageandthelevelofcustomerserviceisoftennotashighbutit'sawelcomeprotectionforpeoplewhodon'thaveanyotherresidentialinsurance.

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Chapter10HowtoMakeaClaimInsurancecompanieshavefairlybroaddiscretioninpayingclaims.Onetypicalcasefromtheearly1990sillustratesthispoint.

ASanFranciscowomanwhohadahomeownerspolicywithFireman'sFundInsuranceCo.reportedthatburglarsstole$60,000worthofpersonalproperty.TheclaimseemedsuspicioustotheFireman'sadjuster,whoreferredittothecompany'sspecialinvestigationsdepartment.

Justbeforetheclaim,thewomanhadbeennotifiedthatherpolicywasabouttoexpirefornon-paymentofpremium.Sheshowedupatherinsuranceagent'sofficeinpersonontheeveoftheexpirationdatetopay.

Twoweekslater,theagentreceivedareportthatthewoman'shomehadbeenburglarizedthedaybeforeshepaidthepremium.Thewomanclaimedthather

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lossesincludedthousandsofdollarsworthofclothing.

Fireman'sinvestigatorsknewthatburglarsalmostneverstealclothingtheyconcentrateoncash,jewelry,electronicequipmentandotherportableoreasilyresalablegoods.

AFireman'sinvestigatorinterviewedthewomanandcreatedafileontheclaim.However,intheabsenceofclearproofoffraudandwithavalidpolicyineffectitseemedthattheinsurancecompanywouldhavetomakegoodontheloss.

Thechiefinvestigatorrecommendedwaitingafewweeks,sohisstaffcouldlookintotheclaimmorecarefully.ThiskindofdelaywasallowedunderthetermsoftheFireman'sFundpolicy.

AnInsurancecompanyhastherightandtheoptiontoinvestigateandsettleanylawsuitandclaim.Italsoacceptsanobligationtodefendanylawsuitorclaimbutifitpaysthelimitofitsliabilitytosettleasuitorclaimitisnolongerobligatedtoprovideanyfurtherdefense.

Morethanamonthlater,thecasestillwasnotsettled.Theinsurancecompany'sinvestigatorshaddiscoveredafewcomplications.Amongthese:thewomanherselfhadn'treportedtheburglaryarelativehad.Buttherewasalogicalexplanation.ThewomanhadtroublewritingEnglishandneededtherelative'shelp.

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Initsrelevantpoints,herstorycheckedout.''Itlookslikewe'regonnapay[forthestolenclothes],"thechiefinspectorsaid.

Thischapterwilldiscusstheprocessofmakingaclaimforthepaymentsorbenefitsprovidedbythehomeownersinsurancecontractintheeventofanoccurrence.

Intheinsuranceindustry,theprocessofmakingaclaimandgettingitpaidisreferredtoastheadjustmentprocess.Itisanegotiation,inwhichknowingyourrightscanbepivotal.(Thisissomethingthatholdstruethroughouttheclaimprocess.)

Example:Ifyoupresentyourcircumstanceseffectivelytotheinsurancecompany,itsadjustermayallowanemergencypurchasetogounderyourtemporarylivingexpensecoverageratherthancontentscoverage.Thiskindofdistinctiontechnicality,reallycansavelimitedcoverageforcrucial,permanentexpenses.

YourDutiesWhenaLossOccurs

Ifsomethinghappensthatcausesaninsurableloss,thedutiesrequiredofyouasthepolicyownerarequiteexplicit.Thepolicystatesthatyoumust:

providetheinsurancecompanywithimmediatewrittennoticeofloss;

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notifythepoliceincaseoflossbytheftandacreditcardorfundtransfercardcompanyincaseoflossunderCreditCardorFundTransferCardcoverage;protectthepropertyfromfurtherdamageand,ifrepairstothepropertyarerequired,youmust:1)makereasonableandnecessaryrepairstoprotecttheproperty;and2)keepanaccuraterecordofrepairexpenses;separatedamagedandundamagedpersonalpropertyandputitinthebestpossibleorder;furnishacompleteanddetailedinventoryshowingdestroyed,damaged,andundamagedproperty,quantities,costs,ACV,andtheamountoflossclaimed;forwardanylegalpapersreceived,suchasasummons,tothecompanyimmediately,becausethereisusuallyatimelimitforrespondingtosuchdocuments;within60dayssubmitasignedproofoflossstatingthetimeandoriginofloss,theinterestofallpartiesintheproperty,thepresenceofotherinsurance,thevaluesofeachitem,andotherinformationwhichthepolicyrequires.

Also,theinsurancecompanymayrequestthatyouproduceappropriaterecords,exhibitwhatremainsofdamagedproperty,andsubmittoexaminations

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underoath.Youmustcomplywiththeserequests"asoftenasmaybereasonablyrequired."

Yourinsurerwilleithersendyouaproofoflossformtocompleteorarrangeforanadjustertovisityourhome.Ineithercase,youshoulddocumentyourlossasthoroughlyaspossible.Ifyoupreparedaninventorybeforetheloss,thistaskwillbeeasier.

Aproofoflossreportshouldsetforth,tothebestofyourknowledge:

thetimeandcauseofloss;specificationsofdamagedbuildingsanddetailedrepairestimates;aninventoryofdamagedpersonalproperty;otherinsurancewhichmaycovertheloss;theinterestofyouandallotherparties(mortgagecompanies,lienholders,etc.)inthepropertyinvolved;

Lossesareadjustedwithandpaidtoyouunlessthepolicyindicatespaymentshouldbemadetosomeoneelse,suchasamortgageholder.

changesinthetitleoroccupancyofthepropertyduringthetermofthepolicy;receiptsforadditionallivingexpenses

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incurredandrecordsthatsupportthefairrentalvalueloss;andevidenceoraffidavitthatsupportsaclaimundertheCreditCard,FundTransferCard,ForgeryandCounterfeitMoneycoverage,statingtheamountandcauseofloss.

Anadjustermaywanttoseealldamageditems,soavoidthrowingoutanythingafteralosshasoccurred.

Whetheryourinsurancecompanysendsanadjusteroraproofoflossform,it'sagoodideatomakealistofeverythingthat'sbeenstolenordamagedassoonaspossible.Thislistshouldincludeadescriptionofeachitem,thedateofpurchase,andwhatitwouldcosttoreplace(ifyouhavereplacement-cost-coverage).

Someadvanceworkcanheldyoufulfilltheseduties.Anyrelevantreceipts,bills,photographs,orserialnumbersfromhigh-ticketappliancesandelectronicequipmentwillhelpestablishthevalueofyourlosses.

Don'twaitforamajorlosstodothis.Youshouldkeepalistthatincludesthisinformationinasafeplaceatalltimes.

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ThepropertyinventorychartinChapter2ofthisbookshouldserveasausefulguideforassemblingalist.

Accordingtothelosspayableclauseofthestandardpolicy,ifyouprovidetheproofoflossandotherinformationandtheamountoflosshasbeenagreedupontheinsurerwillpayforthelosswithin60days(specificstatelawsmaymodifythistimelimit).

Youmustassisttheinsurancecompanyinmakingsettlements,makingclaimsagainstotherpartieswhomightberesponsiblefortheloss,beavailableforcourttrials,hearings,orsuits,andgiveevidenceasrequired.

PropertyValuation

Propertylossesunderthebasichomeownersordwellingformaregenerallysettledonanactualcashvaluebasis.Allformssupporttheprincipleofindemnity,whichinthiscontextmeansrecoverymaynotexceedthesmallestoffouramounts:

theACVofthepropertyatthetimeofloss,thepolicylimitforthecoverage,theamountnecessarytorepairorreplacetheproperty,theamountreflectingtheinsured'sinterestinthepropertyatthetimeoftheloss.

Whenalossisadjustedonanactualcashvaluebasis,adeductionismadebytheinsurancecompanyforthedepreciationoftheproperty.Thetermdeprecia-

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tionreferstothegradualreductioninthevalueofpropertyasaresultoftimeanduse.

Example:Theoriginalroofonahomeis10yearsoldwhenitisdestroyed.Theroofhasanexpectedlifeof20yearsandhasprovidedtheownerwith10yearsofservicepriortotheloss.Ifthelossisadjustedonanactualcashvaluebasis,thecompanymaypaytheinsuredjusthalfofthecosttoreplacetheroof.

Thebroadandspecialformsprovidereplacementcostcoverageforstructures,butonlyiftheamountofinsuranceonthedamagedhouseis80percentormoreofthefullreplacementcostofthehouseatthetimeofloss.Andfinalrecoverymaynotexceedtheamountactuallyspenttorepairorreplacethepropertyorthepolicylimitforthedamagedhouse.

Replacementcostmeanstoreplacenewuptothelimitsofthepolicy,lessanydeductible,withnoreductionintheamountduetodepreciation.

Example:Followingafireinthekitchenofyourhome,thecosttorestoretheroofabovethekitchentoitsoriginalconditionis$700.Iftheinsurancecompanyassumestheentireamountoftherepaircost(inthiscase$700),thenyouhavehadthelossadjustedonareplacementcostbasis.

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Ifyoufailtocarrycoverageofatleast80percentofthefullreplacementcostofthehouseatthetimeofloss,theinsurancecompanywillpaythelargerofthefollowingamounts(subjecttothepolicylimit):

theACVofthepartofthehousedamaged,oraproportionofthecosttorepairorreplacethedamagedpropertyequaltotheamounttheinsurancecoveragebearsto80percentofthehouse'sreplacementcost.

Ifyouandyourinsurancecompanydon'tagreeaboutthevalueofaloss,yourmethodofappealisoutlinedbythestandardpolicy.Theinsurancecompanystates:

Ifyouandwefailtoagreeontheamountofloss,eithermaydemandanappraisaloftheloss.Inthisevent,eachpartywillchooseacompetentappraiserwithin20daysafterreceivingawrittenrequestfromtheother.Thetwoappraiserswillchooseanumpire.Iftheycannotagreeuponanumpirewithin15days,youorwemayrequestthatthechoicebemadebyajudgeofacourtofrecordinthestatewherethe[house]islocated.Theappraiserswillseparatelysettheamountofloss.Iftheappraiserssubmitawrittenreportofanagreementtous,theamountagreeduponwillbetheamountofloss.Iftheyfailtoagree,theywillsubmittheirdifferencestotheumpire.Adecisionagreedtobyanytwowillsettheamountofloss.

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Fromtimetotime,policyownersbringsuitsagainsttheirinsurancecompanieswhentheyaredissatisfiedoverclaimadjustments.Beforethiscanbedone,youmustcomplywiththepolicyprovisionsconcerningthereportingoftheloss,cooperatingwiththecompanyinsettlingtheloss,etc.andanysuitmustbebroughtwithinoneyearaftertheloss.

The1990LouisianastateappealscourtdecisionDwightandPhyllisSayesv.SafecoInsuranceCo.showshowhotlyalossvaluationcanbedisputed.

InFebruary1988,theSayesespurchasedahomeownerspolicyfromSafecotoinsureahousewhichtheyowned.InMarch,thehousewasseverelydamagedbyfire,althoughnottotallydestroyed.InMay,theSayesesfurnishedaproofoflossformtoSafecowhichtotalled$37,888.61theestimatedcostofrepairingthedamage.

SafecopaidtheSayeses$21,875.53,thedepreciatedoractualcashvalueofthedamagedproperty.Itcontendedthat,underthetermsofthepolicy,thebalanceofthelosswasnotpayableuntilthepropertywasactuallyrepaired.

TheSayesesfiledsuitagainstSafecotocollectthedifferencebetweentheactualcashvalueandthereplacementvalue.

ThetrialcourtagreedwithSafeco'sinterpretationofthepolicy.

TheSayesesappealed,arguingthattheywereentitledtothefullreplacementaswellasattorneyfeesandotherexpenses.Intheirappeal,theSayesespointed

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toasectionofthepolicytitledOptionAHomeReplacementGuarantee.Inthissection,Safecostated:

Wewillsettlecoveredlossestothedwelling...withoutregardtothelimitofliability[if]youagreeto:

1)insurethedwellingto100percentofitsreplacementcostasdeterminedbyus,

2)acceptanyyearlyadjustmentsbyus...reflectingchangesinthecostofconstructionforthearea,

3)notifyusofanyadditionorotherremodelingwhichincreasesthereplacementcostofthedwelling$5,000ormore...and,

4)repairorreplacethedamageddwelling.

TheSayeseshadcompliedwiththeconditions.Theyarguedthat,underthisoptionalcoverage,theywerenotrequiredtorepairthedamageddwellingbeforepaymentoftheestimatedrepaircostwasdue.Theywereonlyrequiredtoagreetomakesuchrepairs.

Thejudgesontheappealscourtruled:

IfweacceptSafeco'sinterpretationofthepolicy,because[theSayeses]havenotyetrepairedthedamageddwelling...theyhavenotcompliedwithOptionA...and,therefore,paymentisnotdueuntilaftertheactualrepairsaremade.Safeco'sreasoningiscircularand,undertheirinterpretationofthepolicy,boththeGeneralConditionsandOptionAwouldrequirethatactualrepairofdamagesbemadebeforepaymentisdueforacoveredloss.

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Wethink,ataminimum,theinsurancepolicyisambiguous.OptionAappliesif[theSayeses]"agreeto...repairorreplacethedamageddwelling."Itdoesnotsaythatitwillonlyapply,if[they]actuallymakerepairstothedamageddwelling....

Becausethepolicywasambiguousastowhethertherepairshadtobemadebeforepaymentorwhethertheycouldbemadeafterward,thepolicyhadtobeinterpretedagainstitsdrafter,Safeco.

Wheneverlanguageinaninsurancepolicyisambiguous,anydisputeovercoverageisruledinfavorofthepolicyowner.Theinsurancecompanyhasitsopportunitytosettermsinthedraftingofthepolicy.

OtherDwellingandPropertyClaimsIssues

Inmostinstances,insurancecompaniessettleclaimsbymakingpaymentstothepolicyowner.However,theyhavetheoptionofrepairingorreplacingproperty.Thiswilloccurwhenreplacementcanbemadeatacosttothecompanywhichislessthanthatwhichtheinsuredcouldnegotiate.

Paymentsknownasup-frontpaymentswhichincludetemporarylivingcostsandotherincidentalcostspaidinadvancearevoluntarytotheinsurancecompany.Acompanycanrequireyoutoincurtheexpensesfirstandbereimbursedlater.

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Example:Afireoccursatyourhomeandthedamageissoextensivethatthehousecan'tbelivedinuntilrepairsaremade.Yourentroomsinamotelandtakeallyourmealsinrestaurants.Servicesyouprovidedforyourself,suchaslaundry,mustnowbeprovidedbyothersatagreatercost.Additionallivingexpensewillpaytheadditionalcostoflivingoverandaboveyournormalcostsforhousing,food,laundry,orotherexpenses.

Thepairandsetclauseinthestandardpolicyrecognizesthatthelossofoneitemfromapairorsetmayreducethevalueofapairorsetbyanamountgreaterthanthephysicalproportionofthelostitemtotheset.Itusuallycomesintoplaywhenitemsofjewelry,fineartsorantiquesareinvolved.

Example:Apairofantiquecandelabraisvaluedat$3,000.Oneofthesticksisstoleninaburglary.Thevalueoftheoneremainingisestablishedat$1,200sothevaluelostis$1,800.Thiswouldbetheamountoftheloss.Ifthemissingcandelabracouldbereplacedfor$1,700,thenthecompanyhastheoptionofmakingthereplacement.

Inmanycitiesthereareordinancesthatrequirethatslidingglassdoorsortubandshowerenclosures,ifbroken,aretobereplacedwithsafetyglass.Ifthat's

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thecasewhereyoulive,theinsurancecompanywillusuallycoveranyadditionalcosttheserulesaddtoaclaim.

Anabandonmentclauseprohibitsyoufromabandoningpropertytotheinsurancecompanyinordertoclaimatotalloss.Althoughthecompanymaychoosetoacquiredamagedpropertywhichcanbesoldforsalvageandmaychoosetopayatotalloss,youcannotinsistthattheinsurertakepossessionofanyproperty.

Example:Youhavealossduetoafireinyourgarage.Mostofthecontentsaredamaged,butsomearenot.Youcan'ttelltheinsurancecompany,''Therewas$4,000worthofstuffinthegarage.Payme$4,000andthecontentsofthegarageareyours."Thecompanywillusuallynotacceptthiskindofapropositionbecauseithastomakearrangementsforhauling,repair,andsaleofthesalvageablepropertyanditdoesnotcaretodothis.

Ifpropertythathasbeenstolenandpaidforbytheinsurancecompanyisrecoveredlateron,youcanelecttotakethepropertyandpaybacktheinsurancecompanytheamountitoriginallypaidfortheloss.Analternativeistokeepthemoneyandletthecompanykeeptheproperty.

Despitethespecifiedamountofinsurance,apolicyowner'sinsurableinterestmaylimittheamountpaidonaclaim.Otherpartiesmayhaveaninsurableinterestinyourpropertyasanowner,mortgageholder,vendor,lienholder,stockholder,jointowner,bailee,orleaseholder.

Onceaninsurancecompanyhaspaidyoufortheloss

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yousustained,itacquiresyourrightsintheclaim.Thistransferiscalledsubrogation.

Example:Yourneighborlosescontrolofhiscarandcrashesintoyourgarage.Yourinsurancecompany,afterpayingyou,nowhastherighttosueyourneighbortocollectfromhimtheamountitpaidtoyou.Onceyoureceivepayment,you"subrogate,"orpasson,yourrightsintheclaimtotheinsurancecompany.

LiabilityClaimsIssues

Medicalpaymentspaidbyyourinsurancecompanytothirdpartiesinjuredwhileonyourpremisesarevoluntaryandarenottobeconstruedasadmittingliabilityshouldtheinjuredpartybringsuitatalaterdate.

Theinsurancecompanycan'tbejoinedinalawsuitagainstyoubyaninjuredthirdparty,sincethecompanyisnotinvolvedintheoccurrencewhichresultsinasuit.Furthermore,thecompanyhasnoobligationtomakeanypaymentunderliabilityuntilafinaljudgmenthasbeenrenderedorthecompanyhasagreedtosettlementoftheclaim.

Ifyoubecomebankruptorinsolvent,thecompanyremainsobligedtoprovidecoverageandtorespondtothetermsandconditionsofthepolicy.

Yourhomeownerspolicymayincludethefollowinglanguage:"Withrespecttothepersonalliabilitycov-

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erage,thispolicyisexcessoveranyothervalidandcollectibleinsurance."

Thepracticalapplicationofthisclausevaries,dependingontheotherinsurance.Duplicationofcoverageoftenendsupwithbothinsurancecompaniescontributingtopaymentofaloss.

Theotherinsuranceclausedoesn'tapplytoso-calledtrueexcessliabilityinsurancelikestandardumbrellaliabilitypolicies.Umbrellapoliciesremainasecondaryformofinsurancetoahomeownerspolicy.

ThingsYouCanDotoStrengthenClaims

Readingyourpolicyisveryimportant.Ifyouknowwhatkindofcoverageyouhave,you'remorelikelytoreceiveallyou'reentitledto.Thefollowingisalistoffactorstodoublecheck:

Keepcarefulrecords.Makecopiesofallinformationyougiveyourinsurerinconnectionwithyourclaim.Andbesuretoholdontoeverythingtheinsurergivesyou.It'salsoagoodideatotakenotesofallmeetingsandconversationsyouhavewithyouragent,insurer,orclaimsadjuster.Theseeminglytrivialdetailsofyourhomeownerspolicyandthewayyou

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handletheinsuranceadjustmentprocesscandeterminewhetheryoucomeoutofadisasterfinanciallywhole.Timeandcoveragelimits,co-insuranceclausesandthevagariesofactualcashvalueversusreplacementvaluecancostyouthousandsofdollars.Don'toverlookanypartoftheclaimsprocess.Verifytheadjuster'sestimate.Beforeyouacceptasettlementforrepairstoyourhome,it'swisetogetawrittenbidfromalicensedcontractortomakesuretheadjuster'sestimateisrealistic.Youcouldalsobringinapublicadjuster(onewhoisnotaffiliatedwithanyinsurancecompany)tomakeanestimate.Thepublicadjusterwouldthennegotiatewiththeinsurer'sadjusterforyou.Publicadjustersmaychargefeesofupto15percentofthefinalsettlement.

Beforeyouenlistthehelpofanyoutsideexperts,becertaintochecktheirqualificationswithyourstatedepartmentofinsuranceorthelocalbuildersassociation.

Don'tsettleforanunfairsettlement.Ifyoucan'treachanagreementwithyouradjuster,contactyouragentortheinsurer'sclaim-departmentmanager.Ifyou'restilldissatisfied,somestateinsurancedepartmentsoffermediationservices.Inaddition,mostpoliciesallowfor

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anindependentappraisalorarbitrationprocesstoresolvedisputesovermoney.Thatdecisionisusuallybinding.

Theamountoftemporarylivingexpenseyoucanexpectusuallydependsonwhatyou'velost.Policiesnormallycoverthecostofrentingacomparablehomeorapartment.Ifyoucanfigureoutwhattherentalvalueofyourhomewas,that'susuallytheamountyoucangetreimbursedforrentinganotherplace.

Temporarylivingallowanceswillalsopayforextraordinaryexpensescausedbyyourdisplacement.Theseoftenincludeboardingapetinakennel,rentingfurnitureandeatingatrestaurantswhileyou'relivinginahotelormotel.

Insurerswon'tpayordinarylivingexpensessuchasgroceries,regulareveningsoutorordinaryutilitybills.

Someinsurerslimittemporarylivingexpensepaymentseitherbyadollaramountoratimeperiod.Someinsurerslimitbybothtimeanddollaramount.Othershavenolimitations.

Ifyouarenotgettingenoughpaymenttocoveryourtemporarylivingexpensesyoucanrequestmore.Butithelpsifyou'repreparedtogivereasons.Forinstance,youknowit'sgoingtocost$3,000topayadepositandthefirstmonth'srentonacomparablehome.Andyoucanreasonablyexpecttospendatleast$1,000replacingenoughclothing,shoesandpersonalitemstogetbyforafewmonths.

Ifyou'reinacrunchforrebuildingmoney,youmaydisregardanyreplacementcostlosssettlementpro-

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visionsandmakeaclaimunderthepolicyforlossordamagetobuildingsonanactualcashvaluebasis(theACVwillusuallybealoweramount).Youcanthenmakeaclaimwithin180daysafterlossforanyadditionallossesaccordingtothereplacementcostprovisions.

Example:Yourhouseisseverelydamagedinacoveredaccident.Youplantorebuild,butyou'regoingtouseadifferentfloorplan.Youcancollecttheactualcashvalueamountaftertheloss.Onceyou'vedecidedexactlywhattherebuildingwillinvolve,youcancollectadditionalamountsonthebasisofreplacementcostsolongasaclaimismadewithin180daysofthedateofloss.

Conclusion

Ifyouhavechosenyourinsuranceeffectively,makingaclaimwillbeprettystraightforward.Ofcourse,thecircumstancethatleaduptomakingahomeownersclaimburglary,fireorotherdisasterscanmakeeventhemostcalmmindnervousandedgy.Thischapterhasfocusedontheeffectivemeasurestotakefromreportinganaccidenttochoosingtherightclaimadjuster.

InChapter11,wewilldiscussthecommonproblemsregardingcoverageandthewaystoavoidtheseproblems.

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Chapter11HowtoAvoidCommonCoverageProblemsManysituationscancauseproblemswithapolicyoraclaimregardinghomeownersinsurance.Whenshoppingforhomeownersinsurance,it'sagoodideatoanticipatetheseproblemsasfullyaspossibleandavoidthem.

Mostdisputesbetweeninsurancecompaniesandpolicyownerscenteroncoverageissueswhetherornotaparticularlossisinsuredbyapolicy.Themainmechanisminsurancecompaniesusetoprotectthemselvesagainstthenegativefinancialimpactofbigclaimsistodenycoverageonsomefundamentalissue.Thisusuallymeansanissuenotrelatedtothespecificsoftheclaim.

Understandingtheconceptsbehindtheseproblemsisanessentialtooltofindingtherightinsurancesolutionforyou.Thischapterwillexplorethecommonproblemsinvolvedwithcoverageandprovideyouwiththeknowledgetoavoidtheseproblems.

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FundamentalCoverageIssues

Onefundamentalcoverageissueisamatterwe'veexploredbeforeinsurableinterest.Thisissuehastodowithwhohastherighttomakeaclaimontheproceedsofapolicy.

Followingthe1994Northridgeearthquake,Californiamortgagelenders,insurancecompaniesandhomeownerswerelockedinabattleoverearthquakeinsuranceclaims.

Manyinsurancecompanies,insteadofpayingclaimsdirectlytohomeowners,makeoutcheckswithmortgagelendersasco-payees.Thelenders,inturn,arereluctanttosignoverearthquakeinsuranceclaimsuntilhomeownersprovethatrebuildinghasbegun.

However,mosthomeownerscouldn'tbegintorebuilduntiltheycollectedmoneyfromtheinsurancecompany.Thiscreatedagridlockthatkeptrebuildingfromproceeding.

TheCaliforniaDepartmentofInsurancewarnedinsurancecompaniesthatforcinghomeownerstogetlenderstosignclaimswasillegal.Butinsurancecompaniesarguedthatmortgagelenderswithaninsurableinterestinaninsureddwellinghadtobetreatedasco-payees.

Someconsumeradvocategroupsarguedthatthecomplicationwasanintentionaltacticusedbyinsurancecompaniestodelaypayingearthquakeinsuranceclaims.

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Asmightbeexpected,insurancecompaniesdeniedanyintentionality.Someindividualcompaniesexpeditedpayments.ButprocessingearthquakeclaimsdidtakelongerinthewakeoftheNorthridgequakethanmanypolicyownersexpected.

Ifacoveredlosscausesdamageinsuchawayastoexposeaninsureddwellingtofurtherdamage,thepolicyownerhasanobligationtomakereasonablerepairsortotakeotherstepstoprotectthedwellingoranyproperty.

Example:Ifawindstormblowsawayaportionofyourroof,thepolicywouldpayforandactuallyrequiretemporaryrepairstotherooftoavoidfurtherdamagetotheinteriorofthestructure.Ifyoudon'tmakethereasonablerepairs,thepolicywon'tcoverthefurtherdamage.

Likewise,thestandardpolicyallowsthepolicyownertomovepropertyfromapremisesthreatenedbyacoveredperiltoaplaceofsafetyforaperiodof30days.Theremovedpropertyiscoveredduringthemovingandattheotherlocationforlossfromanycausewhichexpandscoverageconsiderably.

Ontheotherhand,ifthepolicyownerdoesn'ttaketheopportunitytoremovepersonalproperty,thein-

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surancecompanymightinterpretthisasfailuretoreasonablyprotectpropertyfromdamage.

Disputedrelatedtoissuesoffailuretoprotectadwellingorpropertyusuallyoccurincombinationwithdisputesrelatedtospecificsofaclaim.Youmightnotexpectthiskindofthingtobewhatdeterminesyourdisputebutyoumightbesurprisedwhenyougototrial.Courtsputalotofweightonfailuretopreventfurtherdamage.

Insurancecompaniesthatarelookingforareasonnottopayaclaimmaytrytoexpandadisputeoverpreventionintoadisputeoverpolicyownerneglectwhichisexplicitlyexcludedfromcoverage.

Chargesofneglectquicklyturnbacktothephrasereasonablemeansofprevention.Someinsurancecompaniesinterpretittomeanthatyoushoulddothesamethingstoprotectthepropertythatyouwouldiftherewerenoinsurancecoverageontheproperty.Butnotallcourtsagreewiththisdefinition.

Anotherimportantfactortomanyinsurancecompaniesishowtheexpirationofapolicyaffectscoverage.Theeasiestwaytodenyaclaimistoshowthatthepolicywasn'tineffectwhenthelossoccurred.

Ofcourse,theissuesaren'talwayssoclear.Ifalossoccursjustbeforetheexpirationdateofthepolicyandcontinuesfortwomonthsafterward,theloss

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wouldbefullycovered.However,adisputecouldariseoverwhenexactlythelossfirstoccurred.

Example:Youmakeaclaimthat,becauseofaninsuredflawintheconstructionofyourhouse,aseriesofaccidentsbeganduringapolicy'scoverageperiodandhascontinuedafterward.Iftheinsurancecompanycanshowthatthelossdidn'tbeginandcontinuebutis,infact,severallossesoccurringindependentlyitcanlimititsliabilitytoclaimsthatrelatetoaccidentsthatoccurredduringthepolicyperiod.

Otherissuesthataffectthetermofapolicyand,therefore,anyclaimsmadearecancellationandnonrenewal.

Thestandardhomeownerspolicydescribesatlengthhowandwhenapolicycanbecanceled:

Youmaycancelthispolicyatanytimebyreturningittousorbylettingusknowinwritingofthedatecancellationistotakeeffect.

Wemaycancelthispolicyonlyforthereasonsstatedbelow....

Whenyouhavenotpaidthepremium,wemaycancelatanytimebylettingyouknowatleast10daysbeforethedatecancellationtakeseffect.

Whenthispolicyhasbeenineffectforless

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than60daysandisnotarenewalwithus,wemaycancelforanyreasonbylettingyouknowatleast10daysbeforethedatecancellationtakeseffect.

Whenthispolicyhasbeenineffectfor60daysormore,oratanytimeifitisarenewalwithus,wemaycancel:

Iftherehasbeenamaterialmisrepresentationoffactwhichifknowntouswouldhavecausedusnottoissuethepolicy;or

Iftheriskhaschangedsubstantiallysincethepolicywasissued.

...Whenthispolicyiswrittenforaperiodofmorethanoneyear,wemaycancelforanyreasonatanniversarybylettingyouknowatleast30daysbeforethedatecancellationtakeseffect.

Theinsurancecompanyisonlyallowedtocancelapolicyforafewreasonsinordertopreventitfromcancelingbecauseapolicyownerhasmadeclaims.

Themostcommoncancellationdisputeoccurswhenapolicyownerclaimsthattheinsurancecompanyhascanceledthepolicyunderfalsepretense.Thatis,thecompanypointstooneoftheallowedreasonsbutisactuallycancelingbecauseitdoesn'twanttopayalegitimateclaim.Thisisadifficultchargetoprove.

Thesameissuesareraisedbynonrenewal,whichisa

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slightlylessabruptversionofcancellation.Whenaninsurancecompanyelectsnottorenewapolicy,itsimplywaitsuntilsomeperiod(usually30days)beforetheexpirationdateandinformsthepolicyownerinwritingthatitdoesn'twanttocontinuetheinsurance.

Ifyoureceiveanonrenewalnotice,youshouldgetanotherpolicylinedupassoonaspossibleandbeverycarefulaboutdocumentinganylossesthatoccurduringtheremainingpolicyperiod.Ifyoumakeaclaim,youmayhavesomeproblemsgettingitpaidfully.

Beyondthehandfuloffundamentalissues,mostcoveragedisputesfocusonthreekindsofissuesallrelatedtothespecificdetailsofagivenclaim.Thethreekindsofissuearerelatedto:dwellingsandstructures,personalpropertyandpolicyexclusions.

DwellingandStructureIssues

Withrespecttothedwellingandotherstructures,thestandardhomeownerspolicysaysthatitcoversanydirectloss.Unfortunately,thisdefinitioncanproveproblematic.Forinstance,itdoesn'tapplytocertainlossesthatyoumightthinkofasbeingdirect.Thefollowingaresomeexceptions:

structuralcollapseisonlycoveredtotheextentofcertainprovisions;

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lossesresultingfromfreezingwhileadwellingisunoccupiedarecoveredonlyifanattempthasbeenmadetomaintainheatinthestructureorifthewatersupplyhasbeenshutoffandplumbing,heating,airconditioningandinteriorsprinklersystemshavebeendrained;

Example:YouliveinMaine,butduringtheheightofwintereachyearyouspendseveralmonthsinFlorida.Iftheplumbingsystemburstsduetofreezingandleakagecausesdamagetoyourhouse,therewillbenocoverage.However,ifyoudraintheplumbingandshutoffthewatersupplyoryouprovideheatinthebuildingtherewillbecoverage.

certainoutdoorstructuressuchaspools,decks,gazebos,etc.arenotcoveredfordamagebyfreezing,thawing,pressure,orweightofwaterorice;

However,lossestocertaintypesofpropertyusuallylocatedoutsidethebuildingarecoveredifcausedbycollapse.Example:Afencecollapses,damagingthecesspoolwhichislocatedbeneathit.Coveragewouldapplytothefenceandthecesspool.

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theftofmaterialsorsuppliesusedorforuseinconstructionofadwellingisnotcovered(thisincludessuchitemsaslumberandotherbuildingmaterials;pipe,andfixtureswhetherinstalledornot);thereisnocoverageforvandalismifthedwellinghasbeenvacantforaperiodofover30days.

Vacantmeansthatthereisnooneoccupyingthedwellingandthedwellingisnotfurnished.Adwellingthatisfurnishedbutnotoccupiedtemporarily,suchaswhentheownerisonvacation,isnotconsideredvacant.

Alloftheseissuescanresultinlegaldisputesbetweenpolicyownersandinsurancecompanies.Thebestwaytoavoidthedisputesistobeforewarned.Otherthanthat,you'llneedtoprovethattheexceptionhappenedconcurrentlywithacovereddirectloss.

Mostlocalbuildingcodescontainprovisionsrelatingtothedemolitionandrebuildingofadamagedbuilding.Thesecanrequireanolderhousetoberepaireduptocodethatis,tomodernbuildingstandards.Astandardhomeownerspolicywillonlycovertheadditionalcostofbuildinguptocodeifyoupayanadditionalpremium.

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Example:Ifyourvintage1920svillaispartiallydamagedinacoveredloss,locallawsmayrequireanupgradingoftheelectricalorplumbingsystems.Thismaymeantheuseofcostlierbuildingmaterialsormethods.Theincreasedcostsfortherepairsaren'tusuallycoveredbyabasicpolicy.

Thebestwaytoavoidthisproblem:Ifyouhaveanolderhome,buyadditionalcoverage.

Finally,anumberofconditionscancausedamagetoadwellingbutarenotcoveredsincetheyarecausedbyordinaryorexceptedconditions.Afewoftheseconditionsare:

wearandtear,marring,anddeteriorationcomeunderdepreciationduetoageandarenotcovered;inherentviceistheabilityofsomethingtodestroyordamageitselfwithouttheinterventionofoutsidehelp;

Example:Milkwillsourinasealedcontainerandunderrefrigerationduetobacteriacontainedinthemilk.Rustingofmetalisnotinherentvicesinceitistheproductofaferrousmetalbeingexposedtoair.

rust,mold,dryrot,andwetrotarethe

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resultofpropertybeingexposedtoharmfulconditionsoveraperiodoftimeandcanresultfromlackof,orimproper,maintenanceandthereforearenotthepropertysubjectofcoverage;industrialsmoke,agriculturalsmudgingorsmogcancertainlydamagepropertyoveraperiodoftimebut,ifcoveragewereprovidedforthesemaintenancelosses,manyhomeownerswouldneverhavetopayforhavingtheirhomespainted;settling,crackingorbulgingofpavement,foundation,walls,floorsorceilingsarealsoconsideredmaintenancelosses;damagecausedbybirds,vermin,insects,rodents,ordomesticanimalsisnotcovered.

Animportantelementoftheverminandinsectexclusionisdamagecausedbytermites.Thisisn'tcovered.That'sonereasonwhyit'simportanttocontrolpestsinanyhouseyouown.

PersonalPropertyIssues

Specifictypesofpersonalpropertyandnotalwaysthetypesyouwouldexpectcauselotsofcoveragedisputesbetweenpolicyownersandinsurancecompanies.Thefollowingareafewillustrativeexamplesofthesekindsofpropertyandthedisputestheycause.

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Trees,plants,andshrubsarecoveredunderastandardpolicyonlyagainstafewnamedperilsandonlyiftheyareontheresidencepremises.Thereisaperlosslimitandaperitemlimit.Theperlosslimitis5percentoftheamountofcoverageonthedwellingandtheperitemlimitis$500pertree,plant,orshrub.

Policyownerswillsometimesspendmoreonplantsthantheyinitiallyfigureandtrytomakeabigclaimafteraloss.Ifyouspendmoneyonflora,youmayneedtoconsideranendorsementthatincreasesthiscoverage.

Thehomeownerspolicyprovidesupto$500coverageforlostorstolencreditcardseventhoughfederallawlimitstheliabilityofthecardholderto$50percard.Thepolicyalsocoverstheunauthorizeduseofthecards.

However,coveragedoesnotapplytotheuseofthecardbyaresidentofyourhousehold,apersonwhohasbeenentrustedwiththecard,ortheuseofthecardbyanypersonifyouhavenotcompliedwiththetermsandconditionsofthecardsuchasexceedingthecreditlimitofthecard.

Similarcoverageisprovidedforbankcardsusedwithautomatictellermachinesthataretakenfromthehome.Checkforgeryorforgeryofanynegotiableinstrumentiscoveredunderthisprovision.Thiscanbeanimportantissueifthievesstealblankchecksfromyourhouse.

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Ifyouhavecreditcardtheftorcheckforgeryproblemsinvolvingmembersofyourhousehold,youcan'tmakeclaimsonyourhomeownerspolicy.Somepeopletrythisbuttheyaren'tusuallysuccessful.Ifyoususpectproblemswithfamilymembers,limitaccesstoyourfinancialinstrumentsandhavesystemsinplaceforcancelingcardsandchecksifnecessary.

Otherprovisionsexcludepropertylossesarisingoutofbusinesspursuits.

Commoncoverageproblemsalsoarisefrommembershipinhomeownersorcommunityassociations.

Lossassessmentsagainstindividualmembersofpropertyownersassociationsarenotusuallymadeunlesstheinsurancecoveringthecollectivelyownedproperty(e.g.,theclubhouse,otheroutbuildings)doesnotcoverthelossinvolvedorisnotinsufficientamounttoentirelycovertheloss.

Whenthisoccurs,assessmentscanbemadeifthebylawsoftheorganizationallowthem.Ifthisisthecase,thepolicywillpayupto$1,000perloss.

Acaveat:Lossassessmentsagainstmembersforliabilityclaimsmadeagainsttheassociationarecoveredseparatelyundertheliabilitysectionsofthehomeownerspolicy.

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Astandardpolicywillcoverpropertyownedbyaninsuredpersonandkeptinaseparateapartmentontheresidencepremisesthatisrentedoutonaregularbasis.However,propertyinarentedapartmentoffthepremisesisexcluded.

GeneralExclusionsandOtherIssues

Thegeneralexclusionstoastandardhomeownersordwellingpolicylimitcoveragefortheperilsofordinancesorlaws,earthquake,flood,powerinterruption,neglect,warandinareferencetothedaysoftheColdWarnuclearhazards.

Theseexclusionscausemanydisputesbetweenpolicyownersandinsurancecompaniesespeciallywhenthecompanyinterpretsaclaimasbasedonanexcludedperilandthepolicyownerseesitassomethingelse.

Acomplicatednote:Anexcludedlosswhichiscausedbyacoveredperiliscovered.

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Example:You'reawayfromhomeforaweekofskiing,butyoumaintaintheradiantheatinginyourhomewhileyou'reaway.Squirrelseattheinsulationaroundtheelectricalwiring,whichcausesashortcircuitcuttingofftheelectricity.Asaresult,theplumbingsystemfreezesandburstsinseveralplaces,causingseverewaterdamage.Whilethedamagebyrodentswouldnotbecovered,theresultingdamagebywaterwouldbecoveredbecauseyouhadcompliedwiththerequirementtomaintainheatinthebuildingwhileitwasunoccupied.Thewaterdamagewasanensuingloss.

Thereisnocoveragefordamagetothecontentsofadwellingorotherstructurebyrain,hail,sleet,sand,ordustunlessthedwellingfirstisdamagedbywindorhailallowingrainordusttoenterthebuildinganddamagethecontents.Asimpleleakingroofduetowearandtearisnotcovered.

Likewise,coverageonpersonalpropertywithinastructureisprovidedwiththeconditionthattherooforawallofthestructureisdamagedfirstbyafallingobject.

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Example:Ifautilitypolefallsonyourhouse,smashesthroughtheroofanddestroysyourbrassbed,thebediscovered.

Severestormscancausetheaccumulationofthevariousformsoffrozenwateronaroofandtheweightwilleventuallybecomesogreatthattheroofwillcollapse.Ifthiscausesdamagetothecontents,thosecontentswouldbecovered.

Thedisputesthatarisefromthesesequentiallossscenariosusuallycenterontheinsurancecompanynotbelievingthatthelossoccurredsequentially,asdescribed.Primaryevidenceofthelosssuchasvideotapesorphotographscansubstantiatethiskindofclaim.Anaffidavitfromaneighborwhosawwhathappenedoranyotherwitnesswillalsohelp.

Thereisnocoverageatanotherresidenceowned,rentedto,oroccupiedbyaninsuredpersonunlessthatpersonistemporarilyresidingthere.So,coveragedoesn'tapplytoyoursummerhouseunlessyou'restayingthere.

Peoplewillsometimesbendthetruthinclaimingtheywerelivinginasecondhomewhenalossoccurred.Likeothermisleadingstatements,thiskindofthingcancausemoretroublethanthecoverageitallows.Inmostcases,itmakesmoresensetobuyabasicdwellingpolicyforasecondhome.

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Coverageisprovidedforastudentawayfromhomeifthestudenthasoccupiedthepremisesatanytime45dayspriortotheloss.Anecdotally,manypeopleseemtoclaimtheymeetthisrequirementthatthestudentwho'ssufferedalosshasbeenhomerecentlyevenwhentheydon't.Theyseemtogetawaywithclaimingthis.

Thereisnotheftcoverageforboats,theirequipmentorfurnishings,oroutboardmotorswhileawayfromthepremises.Thereiscoverageforotherpersonalproperty,suchasclothing,ifstolenfromaboat.

Trailersandcampersare,likewise,notcoveredfortheftwhileawayfromtheresidencepremises.

Thedisputesthatusuallyfollowfromtheseclaimsturnontheissueofwheretheboatortrailerwaswhenalossoccurred.Locationcanbedifficulttoestablishwhichusuallyworksforthepersonmakingaclaim.Unlesstheinsurancecompanycanprovethepropertywasn'tonpremises,itwillprobablyhavetopaytheclaim.

Claimsrelatedtotheaccidentaldischargeoroverflowofwaterorsteamfromappliancescancausesomeproblems.Theseclaimsarecoveredunderastandardpolicywiththefollowingexceptions:

thedrainofawashingmachinemalfunctionscausinganoverflowofwaterthedamagedonebytheoverflowtopersonalpropertyiscoveredbutthereisnocoverageforrepairingthewashingmachine;severalroomsofadwellingareclosedoff

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duringthewintertoconserveheatandthelackofheatintheseroomscausesapipetofreezeandrupturethereisnocoveragefortheensuingwaterdamage;apipeonthesideofyourneighbor'shouseburstsandwaterflowsintoyourbasementrecreationroom,damagingthecontentsthereisnocoverage.

SomeadjustersespeciallyintheNortheastandMidwestpridethemselvesonferretingoutabusesofwaterdamageinhouses.Youaremostlikelytohaveaproblemwiththiskindofclaimonlyifyouendupdrawingoneoftheseadjusters.

Severalothercausesofwaterdamagearealsonotcoveredbythestandardpolicy.Theseinclude:

naturalaccumulationsofwaterontheground,overflowofnaturalbodiesofwater,orwaves;backingupofsewersordrainsastheresultofanoverloadofthesewageordrainagesystem,ortheblockageofsuchsystems;andwaterwhichpercolatesorseepsundergroundandusuallyinvolvesdamagetopropertybelowgroundlevelorstructuresonthegroundsuchassidewalksanddrivewaysorconcreteslabs.

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Ifadirectlossbyfire,explosion,ortheftoccursbecauseofwaterdamagelosses,coverageisprovided.So,ifabacked-upsewercausesanelectricalrelaystationinyourneighborhoodtoexplodeandyourhousecatchesfireasaresult...you'recovered.

Thestandardhomeownerspolicyexcludescoveragefordamagecausedbyearthmovementwhichincludesearthquakes,landshockwavesandtremors.Italsoexcludescoverageforvolcaniceruption.

Volcaniceruptionisnotdefinedinthepolicyasclearlyasearthmovementis.However,thetwoperilssharemanycharacteristics.IntheMountSt.Helenseruption,severalthingshappened:Theexplosioncreatedairborneshockwavesandlandshockwaves;therewerevarioustremors;andhugeamountsofdustwereblownintotheairwhichsettledovervastareascausingdamageandcreatingcleanupsituations.

Earthmovementcanoccurinanumberofways,suchasearthquake,minesubsidence,sinkholes,orthecollapseofapalisade.Thisperilisexcludedexceptforresultingdirectlossbyfire,explosion,theft,orbreakageofglass.Andthisexclusionholdsupinmostdisputes.

Thisexclusionisillustratedwellinthe1994caseofaSantaMonica,California,couplewhothoughttheyhadinsuredtheirmultimillion-dollarartcollectionandfiledalawsuitagainstalocalinsuranceagencyandagiantinsurerforfailingtopaya$2.5millionclaimforearthquakedamage.

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GaryandDonnaFreedmanallegedbadfaithandbreachofcontractonthepartofAmericanBusinessInsuranceBrokersLosAngelesInc.,forsellingthemanall-riskpolicyfortheircollectionofpaintingsandceramicsthroughFireman'sFundInsuranceCo.

Afterfifteenpiecesoftheircollection,includinga$2millionRoyLiechtensteinoilpainting,weredamagedduringtheNorthridgeearthquake,theFreedmansmadeaclaim.Fireman'sFunddeniedit,onthegroundsthatthepolicyexcludedearthquakedamage.

GaryFreedmansaidhewasonlytoldbyhisbrokerthatanamendmenthadbeenaddedtohispolicyexcludingearthquakedamageafterhe'dmadehisclaim.AmericanBusinesssaiditdiscoveredacopyoftheamendmenttothe1992policyinitsfilesonlyafterthedisputeerupted.

''Wedon'thavesuchanexclusioninourcopyofthepolicyand,evenifwedid,onewasneverissuedwiththe1994policy,"saidanattorneyrepresentingthecouple.

TheFreedmanswanted$2.5millioninactualdamagesplusanunspecifiedamountofpunitivedamages."You'rethinking,thankgoodnessIhaveinsuranceformyvaluablepossession,"Freedmansaid."Thentobetoldthatyoudon't...it'sabigloss."

Thepurposeofthewarexclusionistoremovefromthepolicyeventhemosttenuouspossibilityofcoverageforanylossduetowarlikeactivityoritsconsequences.However,therelatedexclusionofterroristactionwhichhasbeguntoappearinmostpoliciesinrecentyearsmaycauseagrowingnumberofdisputesinthefuture.

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Unfortunately,ifterroristattacksbecomemorecommonintheUnitedStates,companieswillprobablyexpandtheirexclusionarylanguageforthisrisk.Asapolicyownerconcernedaboutthisrisk,youronlychoicewillbetopaymoreforadditionalcoverage.

Afinalnote:Iflossesresultingfromthegeneralexclusionsoccurwithperilsthatarecoveredunderthepolicyeithertogetheratthesametimeorinapriororlatersequencetherewillbenocoverage.

Example:Ifanearthquakecausespipestoburstandcausewaterdamagetothefurnitureinyourlivingroom,you'renotgoingtohaveaneasytimemakingaclaim.Althoughwaterdamageisordinarilyacoveredperil,becauseitoccursinconnectionwithearthquake(ageneralexclusion),itisnotcovered.

Conclusion

Thepossibilitiesareendlessforproblemsthatoccurinahomeownerspolicyorclaim.Hopefully,we'vegivenyouenoughinformationtoavoidnotonlytheproblemswementioned,butalsotodistinguishandavoidothercommongroundsfordispute.

Knowinghowtoapproachhandlingaclaimandaninsurancecompany'sreactioniskeytoavoidingmisperceptionsandconfusionthatariseinadispute.

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Asmartwaytoavoidtheseproblemsistoreadthepoliciescloselywhendeterminingwhathomeownersinsurancetopurchase.Thenextchapterwillprovidehelpfulhintsforcomparingandpurchasingyourhomeownerspolicy.

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Chapter12TipsforSmartBuyersWhenHurricaneAndrewslammedintotheFloridacoastinAugust1992,BrianPariser'shomewasoneofmorethan135,000damagedordestroyed.Pariserbelievedhishomewasfullycovereduntilacontractortoldhimitwouldcost$165,874torebuild.Thatwas$62,445morethanhisinsurancepolicywouldpay.

"Whatangeredmemost,"Parisertoldalocalnewspaper,"isthatIhadaskedmyagentforthebestpossiblecoverage."

In1981,he'dboughtahomeownerspolicy,thathadbeenanHO-3policy.But,intheyearssince,hisinsurancecompanyhadintroducedguaranteed-replacement-costpolicies.Toaddinsulttoinjury,thesepolicieswereavailabletomanyhomeownersatlowerpremiumsthanstandardHO-3insurance.

Pariser,andotherhomeownerswhoclaimedtheyonlylearnedaboutthebettercoverageafterHurricaneAndrew,complainedbitterlythatguaranteedreplacement-costpolicieswereofferedasamatterofcourse

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tonewpolicyownersbutlong-termcustomerswereleftuninformed.

Infact,agroupofthemfiledsuitagainstseverallargehomeownersinsurancecompanies,arguingthatthecompanieshadbeennegligentinnottellingtheircustomersaboutbettercoverage.

Ofcourse,theycouldhaveaskedtheiragentsorinsurancecompaniesiftherewerenewer,broaderpoliciesavailable.

Bynow,youhaveprobablygatheredaworkingknowledgeofmanyoftheconceptsandproblemsthatgoalongwithyourhomeownersinsurancepolicy.Thischapterwhichbringsthebooktoaclosereviewssomebasicbuyingguidelinesandtipsthatsmartinsuranceconsumerscanfollowtomaintaincost-effectivecoverageontheirhomes.

ComparingPolicyTermsandConditions

It'snobrilliantconclusiontosaythatinsuranceconsumerslikeconsumersofanythingshouldcomparethevariousproductsthey'reconsideringbuying.Theproblemwithinsuranceisthatpeopledon'talwaysknowwheretolook.

Whenconsideringtherightinsurancepolicytobuyit'simportanttoknowthereplacementvalueofyourhomeandhowinsurancecompaniescalculatethisfigure.

Youshouldhaveenoughinsurancetocoverthecost

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ofrebuildingyourhome.Thismaybedifferentthanthemarketvalueorassessedvaluethat'swhythemostpopularpoliciescurrentlyaretheonesthatguaranteereplacementvalue.Theyeliminatethehomeowner'sriskofbeingcaughtshort.

Somehomeownersgetintoautomaticinsurancepackagesthatlimithomeownerscoveragetotheamounttheyoweontheirmortgages.Ifyouhavethatkindofinsuranceandespeciallyifyou'vepaidoffagoodpartofyourloantakesometimetoreviewitscoverage.Itcouldmeanifsomethingbadhappens,yourmortgagecompanywillbepaidoffbutyou'llbeleftwithavacantlotwhereyourhouseusedtobe.

Alwaysbuyinsuranceforatleast80percentofyourhome'sreplacementvalue.Ifyoubuyless,youforfeittherighttocollectthefullreplacementvalueoftheinsuredproperty,evenforapartialloss.

Replacementcostcoverageissubjecttothreepricefactors,whichputlimitsontheamountofrecovery.Itisimportanttoconsiderthesefactorswhenpurchasingyourpolicy:

thelosspaymentshallnotexceedthelimitofinsuranceonthebuilding,thelosspaymentsshallnotcoveranymorethanthecostofsimilarconstruction,and

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innoeventshallthelosspaymentexceedtheactualcostofrepair.

Youcanraiseorlowertheothercoveragesastandardhomeownerspolicyofferstomeetyourparticularneeds.

Mostpoliciescoverpersonalpropertyfor50percentoftheinsuredvalueofthehouse.So,ifyourhouseiscoveredfor$100,000,theinsurancecompanywillpayupto$50,000forlossordamageofitscontents.Forahigherpremium,youcanincreasethatcoverageto75percent.

Mostpoliciesdonotcoverdamagetoorlossofcars,aircraft,orpets.Forsomeitems,therearelimitstocoveragefortheft.Thosevarysomewhatfromcompanytocompany,butthefollowinglimitsaretypical:

$3,000oncomputers;$2,500onsilverware;$2,500onfirearms;$2,500forbusinesspropertykeptathome;$1,000to$2,000onjewelry,watches,andfurs;$1,000onsecurities,deeds,manuscripts,andothervaluablepapers;$1,000onboats;and$200oncoincollections,gold,silver,andcurrency.

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Theselimitsapplytoeachcategoryofitem,noteachitem.Youcanbuyadditionalinsurancetoraisethelimitsonanyofthesecategoriesortoprotectspecificvaluables.

Inflation-guardclauseswrittenintopoliciesostensiblyprotectthehomeowneragainstrisingconstructioncosts,yetmanystormandfirevictimsfindthattheseclausesfailtokeeppacewiththemarket.

Acaveat:Constructionpricescanjumpevenhigherafteramajordisasterlikeahurricaneorearthquakewhenbuildingmaterialsandlaborareinshortsupply.

Ownersofolderhomesoftenfaretheworstwithinflation-guardpoliciesandevenguaranteed-replacement-costpolicies.Theseadjustmentmechanismsdon'tusuallycovertheexpenseofupgradingolderhomestomeetcurrentbuildingcodes.

Anestimated50percentofthehomesdamagedordestroyedintheCalifornia'sOaklandHillsfirewerecode-deficient.Mostofthesepeoplehadtobattletheirinsurancecompaniesforwhattheyconsideredstandardcoverageandbringtheirrebuilthousesuptocode.

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Ifyouownahousethat'smorethan20yearsold,youmayneedtobuyadditionalcoveragethatassuresanyrebuildingwillbringthehouseintocompliancewithcurrentcodesandzoninglaws.

KeepingCostsDown

Premiumsarebasedonpropertyvalue,typeofconstruction,location,etc.Whencomparisonshopping,keepinmindthattherearemanywaystoreducetheamountofpremiumthatyoupayforyourhomeownersinsurancepolicy.

Beforepurchasingyourhomeandtheinsuranceforit,takeintoaccountthetypesofconstructionandyourlocation.Thecostforwood-frameconstructionrangesfrom$1.50to$3.00per$1,000ofcoverage,dependingonlocation.Lowerratesapplyinthecentralpartofthestate;higherratesinthecoastalcountiesandthosealongfaultareas.Residentsofareaswithtraditionallyhighlossesfromcrime,fires,ornaturaldisasterscanexpecttopaymorethanresidentsoflow-lossareas.

Buyacombinationoftwoormoretypesofcoverage,or"packagepolicy."TheHomeownersPolicyProgramprovidesliabilityautomaticallyinadditiontothepropertycoverages.Bycombiningpropertyandliabilitycoverages,theinsurancecompanyisabletoreduceprocessingcosts,determinelossesmoreaccurately,andpassthesesavingsontotheconsumerintheformoflowerpremiums.

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Formosthomeownersforms,aprincipalamountofinsuranceisselectedforthedwelling.Reasonableamountsofcoveragearethenautomaticallyprovidedforothercoveragesbasedonapercentageoftheamountprovidedforthedwelling.

Thesereasonableamountsarenotthemaximumamountsavailable,theyaresimplylimitedamountsofcoveragethatsatisfytheaverageneedsofmosthomeowners.Ifaparticularpersonhasagreaterexposure,greateramountsofinsurancemaybepurchased.

Example:Youhave$10,000ofcoverageforotherstructuresbasedontheamountofinsurancewrittenforyourdwelling.Ifyourfour-cardetachedgaragehasareplacementcostof$30,000,youmayneedtopurchasemoreotherstructurescoverageinwhichcase,anadditionalpremiumwillbecharged.

UnderHO-4andHO-6,theprincipalamountofinsuranceisselectedforpersonalpropertyandareasonableamountofcoverageisautomaticallyincludedforothercoverages,basedonapercentageofthisamount.

Afewothertacticsthatcanhelpkeepdownpremiums:

Raiseyourdeductible.Thehigheryourdeductible,theloweryourpremium.Ifyouraisethedeductiblefrom$250to$500,youmaybeabletotrimmorethan10percentoffyourpremium.Raiseitto$1000andyoucouldsavemorethan25percent.

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Askaboutyourfire-protectionclass.Thecloseryouareandthebettertheprofessionalsaretrained,theloweryourpremiumsshouldbe.TheInsuranceServicesOfficeassignseveryneighborhoodintheU.S.afire-protectionclass,basedonthequalityoffireprotectionandthedistanceofhomesfromawatersource.(Somecompaniesmayusetheirownratingsystems.)Ifyourassignedclassisn'tright,youmaybepayingtoomuchforyourinsurance.Ifyou'rehavingdifficultyobtaininginsuranceinthestandardmarket,youmaywanttolookintoaFAIRplanpolicy.FAIRplanswerecreatedtomakebasicpropertyinsuranceavailabletoconsumersinareaswherecoverageisdifficulttoobtainorhasbecomeotherwiseunavailable.TheFAIRplanwritescoverageindesignatedurbanareasandhazardousbrushareas.ThefederalgovernmentprovidesriotreinsuranceforinsurersthatparticipateinaHUD-approvedFAIRplan.

AnypersonhavinganinsurableinterestinpropertyinanofficiallydesignatedareawhohasbeenunabletoobtaincoveragethroughnormalchannelsisentitledtoFAIRplancoverage.

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ReviewCoverageEveryFewYears

Oneofthemostimportantthingstoconsiderregardingyourhomeownersinsuranceisnottoassumethateverythinghasbeentakencareoforthatithasbeentakencareofinthebestwayforyourneeds.

Ifyourelyonyourinsurancecompanyoragenttosetyourpolicylimitsandtokeepthoselimitsupdated,youmayfindyourselfunderinsuredwhenyoufileaclaim.Thiscanbeaseriousproblem.Inextremesituations,youcandealwithunderinsurancebyhavingyourpolicyupgradedretroactively.Butthiskindofsolutionisrareandgettingrarer,asinsurancecompaniesoperateonever-thinnerreservesandprofitmargins.

Thefactremainsthat,ifyouhaven'treviewedyourhomeownerspolicyinthelastfewyears,yourhomemaybeunderinsured.Thehouseyouinsuredfor$115,000fiveyearsagocouldcost$150,000torebuildtoday.Anyadditions,renovations,ormajorpurchasescouldalsohaveboostedyourcoverageneeds.

Also,ifotherassetsyouownhavegrownsubstantially,yourpersonalliabilitylimitsshouldbeadjustedtokeepupwiththem.

TheHO-3,orspecialhomeownerspolicyprotectsyourhomeagainstallperilsexceptthosespecificallyexcludedbythecontract.Ittypicallycosts10to15percentmorethantheHO-1policy.

Manyinsurancecompaniesalsoofferguaranteed-re-

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placement-costpolicies,whichgoastepfurtherthanastandardHO-3.Theyoffertopaythefullamountneededtoreplaceyourhomeanditscontents,evenifthatexceedsthepolicylimit.

Despiteitsname,however,manycompaniessetlimitsforthiscoverage,payingonlyupto120or150percentofthepolicy'sfacevalue.Thelimitforcontentscoverageisgenerallysetat75percentofthehome'sreplacementcost,asopposedtothestandard50percentonotherpolicies.

Someoldhomeownerspoliciesposeaparticularlysignificantrisk,calledimpliedco-insurance.Thiscomesfromthestandardprovisioninmosthomeownerspoliciesthattheinsurancecompanywillnotcoveraportionofanylossgreaterthantheproportionoftheexistingpolicylimittothemarketvalueoftheinsuredhouse.

Example:Youhaveahousethatwouldcost$200,000toreplace,butyourpolicyhasa$100,000limit.Yourinsurercanmaintainthatyouwerepurposefullytakingonsomeoftheriskofinsuranceinthiscase,50percentoftherisk.Assumeyouhavea$150,000loss,includingcontentsandstructure.Whilethatwouldbefullycoveredifyouwereadequatelyinsured,inthiscasetheinsurermaysaythecoverageishalfthat,or$75,000.

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WarrantyInsurance

Keepinguptodatewithyourhomeownersinsuranceneedsisimportantbecausetheinsuranceindustryischangingconstantly.Andtheadvisoryrolethatpersonalinsuranceagentsusedtoplayisdisappearing.Asaresult,policyownersarelefttobattleinsurancecompaniesovercoverageissues.

Arecentillustration:Withdevelopersfacingintensefinancialpressureinthecurrentweakmarket,agrowingnumberofnew-homebuyersdemandinsuredwarrantyprogramstopayforthecostofdefectiveconstructionorunforeseenrepairstotheirnewhomes.

Thepoliciesusuallycostseveralhundreddollarsandcovermajorstructuralrepairsforasmanyas10yearsandlesssevereproblemsforoneortwoyears.Butaseriesoflawsuitshasraisedconcernsaboutwhetherownersofthesepolicieshavebeengettingtheirmoney'sworth.

Withgrowingfrequency,particularlyincaseswherethehomebuilderhasgoneoutofbusiness,thewarrantiesareleadingtodisputesbetweenthenewhomeownersandtheinsurancecompanyoverwhetherthecoverageappliesunderthecontract.Usuallysuchdisputesareheardbyarbitrators.

Ina1991casechallengingthepracticesofhome-warrantycompanies,afederalappealscourtinVirginiarequiredDenver-basedHomeBuyersWarranty,thenation'slargestsuchcompany,toabidebyanarbitrator'sawardofmorethan$200,000toapolicyowner.Thecompanyhadsoughttopushthecaseintocourt.

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TheissuebeforetheFourthU.S.CircuitCourtofAppealscenteredonwhetheranarbitrator'sawardof$206,605indamagestoahomeownerinonesuchdisputewasbinding,orwhetheritcouldbeappealedbytheinsurerthroughthecourts.NationalHomeInsurancehadarguedthateitherpartyhadtheoptionofappealingifdissatisfiedbythearbitrationaward.

Butina12-pageopinion,theappealscourtruledthatHomeBuyersWarranty'scontractlanguagespecificallyrequiresbindingarbitration.

Thisconclusionshouldn'thavecomeasasurprise.In1990,aTexasjuryorderedHomeownersWarrantyCorp.,thenation'ssecondlargesthome-warrantycompany,topay$483,000indamagestoanpolicyownerwhosehousewasfallingapartbecauseofacrackinthefoundation.

HomeownersWarranty,whichdeniedcoverage,hadassuredthebuyersthatallhomesinsuredunderitsprogramwereinspectedonacontinuingbasisduringconstructionapointthatwascontestedattrial.Ofthetotaljuryaward,5325,000wasforpunitivedamagesintendedtodeterfuturewrongdoing.Thetwosidesagreedtosettlethecaseoutofcourtforanundisclosedamount.

ExclusionsandOtherRedFlags

Animportantpointtorememberwhenbuyinghomeownersinsurance:Alltypesofcoverageposecertainexclusions.Somepeopleoverlooktheseexceptionswhenreadingthroughtheirpolicieslatertofindthattheirassetswerenotprotectedundertheirpolicies.

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ItisImportanttoknowwhencoveragedoesanddoesnotapply.Youshouldknowthecommonrestrictionsofyourpolicybeforeyoupurchaseit.

Understandtheconceptsinvolvedinratingprocedures.Althoughtherewillbevariationstocontendwithfordifferentcompaniesanddifferentstates,therewillremainmanysimilaritiesinapproachesused.Havingabasicunderstandingoftheapplicationofrulesunderthetraditionalratingprocedureswillmakeiteasierforyoutounderstandhowratesarechargedandadapttofuturechanges.

Theageofahomeisanimportantfactortoinsurancecompanies.Companiesmaychargeupto20percentlesstoinsurenewhomesthantoinsureolderones,whichmaybemoresusceptibletodamageinstormsandfires.Outdatedbuildingstandardsandoldwiringcanalsomakeolderhomesriskiertoinsure.

MakingClaims

Theprocessofmakingaclaimonyourhomeownersinsurancepolicyisreferredtoastheadjustmentprocess.Itisanegotiation,inwhichknowingyourrightscanbepivotal.

Aninsurancecompanyhastherightandtheoptiontoinvestigateandsettleanylawsuitorclaimagainstyou.Italsoacceptsanobligationtodefendanylawsuitorclaimbutifitpaysthelimitofitsliabilitytosettleasuitorclaimitisnolongerobligatedtoprovideanyfurtherdefense.

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Atthesametime,itisalsoimportanttoknowtheroleyouplayinreportingalossafteraloss.Herearejustafeweffectivewaystohelpensurethebestresponsetoyourclaim:

Giveimmediatenotice.Promptlygivenoticetoyourinsurancecompanyoragentafteralosstocoveredpropertyhasoccurred.Makeaninventorylistofthedamagedpersonalproperty.Includeallbills,receiptsandrelateddocumentsthatjustifythefiguresintheinventory.Ifthere'sbeenalossbytheft,besuretonotifythepoliceassoonaspossible.Iflossortheftofacreditcardorfundstransfercardoccurs,notifythecreditcardorfundtransfercardcompany.Makeanattempttoprotectthedamagedpropertyfromfurtherdamage.Ifrepairstothepropertyarerequired,makethereasonableandnecessaryrepairsaswellaskeepanaccuraterecordoftherepairexpenses.

Readyourpolicyandknowthetypeofcoverageyouhave.Ifyouknowthebasicsaboutyourcoverage,you'remorelikelytoreceivewhatyou'reentitledto.Herearesomewaystodoublecheckyourpolicy:

Verifytheadjuster'sestimate.Don'tacceptthesettlementuntilyougetawrittenbidfromalicensedcontractortomakesuretheadjuster'sestimateisrealistic.

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But,beforeyoubringinoutsideexperts,checktheirqualifications.Keeprecords.Makecopiesofallinformationinconnectionwithyourclaim.Holdontoeverythingtheinsurergivesyou.Youmayalsowanttotakenotesofmeetingsandconversationswithyouragent,insurer,orclaimsadjuster.Don'tsettleiftheoffer'sunfair.Ifyoucan'treachanagreement,contactyouragentortheinsurer'sclaim-departmentmanagerbeforemakingasettlement.

Thewayyouhandlethestepsofthisprocesscandeterminewhetheryoucomeoutofthelossfinanciallywhole.

Ifyouthinkyouneedtosueyourinsurancecompanybecauseyouaredissatisfiedoverclaimadjustments,youhavetohavecompliedwiththepolicyprovisionsconcerningthereportingoftheloss,cooperatingwiththecompanyinsettlingtheloss,etc.

Conclusion

Itisimportanttocompareandcontrastanylargeexpensethatyoumayhave.Homeownersinsuranceisnotanexceptioninordertofindthecoveragethatindividuallysuitsyouandobtainthatcoverageatpremiumsthatyoucanafford.

Itisimportanttocomparenotonlyinsurancecompaniesbutthepricesandlevelwithineachinsurancecompanyaswell.Ifyoufollowtheguidelinesprovidedthroughoutthisbook,withsomeshoppingaroundand

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justafewadjustmentsyouwillbetofindcoverageinapackagethatsuitsyouandyourhomeownerneeds.

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Index

A

actualcashvalue5,25,28,31,35-36,110,133,159-160,177,189-190,192,199,201

additionalcoverage6,53,129,173,212,223,230

additionallivingexpenses6,15,69,129,187

adjustmentprocess185,199,237

all-riskcoverage148

alternativemarkets113,129,196

assigned-riskprograms169

B

bankruptcy54

blanketcoverage35,118

bodilyinjury45,48-50,53,55,60,77,78

buildingcodeupgradecoverage177

buildingmaterials67,162,166,211,212,229

business2,13,16-17,56-58,68,80,87,105,109,139,140,144,150,164,167,170-171,173,176,178,215,228,235

businessownerspolicies173

C

cancellation132,181,207-209

cash42

civilianauthorityrisk69

claims12,22-24,26,39-40,51,59,61-62,64,70-71,81,83-84,109,114,154-156,160,166,183,189,194,198-199,203-205,207-208,215,219,239

co-payees24,204

collapse69,84,130,133,209,210,218,221

commonrestrictions237

concealment123

concurrentcause69

condominiums8,114,136,162

consideration70

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construction10,14,23,25,29,59,74-75,88,95,109,110-111,128,132-133,163,168,176-177,193,207,211,227,229-230,235

cooperative9

coveragedisputes209,213

coveragelimits24,36,37,40,158,199

creditcards,stolen214

D

damagedproperty5,71,133,186,191,192,196,238

death13,47,48,78

debrisremoval71,130

declarations80,86,99-101,107,121,128

deductibles95,109,162,173

DepartmentofHousingandUrbanDevelopment(HUD)168

directloss102-103,105-106,109,128,209,211,221

dwellings18,69,99,132,134,136,169,209

dwellingforms18,107,123,127,129,130,146

dwellingpolicy18-19,71,139,145,166

E

earthmovement17,69,131,133,221

earthquakecoverage93-96,118-120,157,172,173

endorsement5,11,15,24,34,59,72,79,93-94,107-111,116,121,132-134,139,146,147-148,214

entrustment62,72

estimates27,28,91,155,187

exclusions7,17,61,64,99-100,107-108,127,131,145,147,159,209,216,223,236

aircraft16,62,64,107,124,130,144,228

vehicles17,42,63-64,107,124,131,144

watercraft47,62,64,79,141,142

expiration72-73,100-101,128,183,206,209

explosions73,125

extendedcoverage(EC)124

F

FAIRplans168-182,232

commercialpropertypolicies173

dwellingpolicies166

fairrentalvaluecoverage73

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farming12,132

faultyconstruction75

faultymaintenance75

faultyplanning74

fire,lightning102,123

fireprotection161,232

firstaid6,52,53,55

floaters34,35

floodinsurance91-92,97

form4,9,12,15,19,25,46,57,72,76,83,91,99,101,104,107-109,111,115-116,121,123-129,136-137,145,150,159,187-189,192,198,230

G

guaranteed-replacement-cost159,225,229,233

H

homeownerspolicy2-4,11-12,14,16,18,23-25,28,36,39-40,43,45,48,51,54,57-58,60,63-64,67,69,72,74-75,77,81-82,85,87-89,97-98,121-122,146-147,149-150,153,183,192,197-198,207,209,211,214-215,221,223-225,228,233

basichomeownerspolicy(HO-1)4,5,10,233

broadhomeownerspolicy(HO-2)4,10-11

co-op/condominiumpolicy(HO-3)4,6,10-11,225,233-234

policyforolderhomes(HO-4)5,12,14-15,116,136,138,231

rentershomeownerspolicy(HO-6)5,14-15,115-116,231

specialhomeownerspolicy(HO-8)5

householdexclusion59

I

indirectloss105,109,128

inherentvice77,212

injuredperson45,49,55

insurableinterest11,23,78,79,171,196,204,232

insurancepolicy26,28,65,70,72,76,84,93,99,115,119,121,136,194,225-226,230,237

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insurancerates142

lossadjustmentexpenses155

underwritingexpenses155

InsuranceServicesOffice(ISO)122,154,232

insured1,6,7,11-13,15-18,23,27-30,34,42,47-58,60-63,68,70-73,77-89,91,94,100-103,105-111,117,122,124,126,128-129,131,133,136-137,139-141,143-145,147,149,157-159,163,176-177,190,194,203-205,207,216,218,221,227-228,233-236

additionalinsured11,79,80,131

legalrepresentative13,47,101,122,174

namedinsured12-13,15,47,50,60,62,79,80,84,86,94,101,122,124,139,140

residenceemployee13,50,85-87,140-141,143-144

temporarycustodian13,47,122

insuredlocation50,63,80

newly-acquiredpremises80

non-ownedpremises80

residencepremises13-15,47,80,86,149,214,216,219

vacantland80,88

insuringagreement99,101-102,104,127

intentionalloss17,81,131

L

lenders24,168,204

liability1-3,5-6,11-14,18-19,38-41,43,45-46,48-49,51-52,54-59,62-66,68,71-72,77,79-83,87,89,113,115-116,118,121-122,136-137,140-144,146,150,162,164,173-174,176-177,184,193,197-198,207,214,215,230,233,237

liabilityexclusions63

liabilitylimits81,233

personalliabilitycoverage6,49,52,54,56,65,121,137,197

vicariousliability63,89

lightning,fire102,123

lossofuse6,15,48,73,85

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M

medicalpaymentscoverage6,11,51,60,65

mobilehomes11-12

mortgage21,23,25,26,78,187,196,204,227

N

negligence49,51

nuclearhazard131,216

O

occurrence48,51,53,55,81-84,109,160,173,185,197

otherstructure6,7,11,13-14,68,80,86,94,122,126,128,130-131,173,209,217,231

attached14,68,94,128

separate14,68,94,173

ownership8-10,113-116

apartmentflat9,114

clusterorpatiohomes9

condominium8,114

feesimple8-10

high-rise117

manorhouse10

quadorfour-cornerhome10

townhouse8-10,114,116

P

packagepolicies46,230

pension42

peril7,19,73,85,93-94,100,102-103,106,111,126,129,147-148,205,216,221,223

coveredperils19,85,105,106,111,205,216,223

namedperils4-5,7,19,102,104,137,214

personalinjurycoverage77-78

personalproperty2-3,5-7,11,13,15,18,24,31,34,82,85,87,94,102,109,113,115-116,121-122,128-130,136,138,139-142,171,173,177,183,186-187,205,209,213,217,219,228,231,238

scheduledpersonalproperty87

unscheduledpersonalproperty87

pets16,65,228

postjudgmentinterest53,81

prejudgmentinterest81

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premiumquotations177-178

premiums22,46,52,73,97,100,108-109,156-157,160-161,164,166,170,225,230-232,239

principalresidence73,128,143,144

prorata181

propertycoverage13,15,31,46,95,121,130,167,173,230

propertynotcovered144

propertydamage45,48,55,60,118

proximatecause102

R

removal71,102-103,130

rentalvalue6,16,69,73,109,128,129-130,132,188,200

renterscoverage136,150

all-risk150

broadtheftcoverage136

exchanginghomes149

theft136-139,151

repaircost5,190,193

replacementcost1,4-5,11,27-29,31,35-36,53,110,133,137,158-160,176-177,190-191,193,200-201,231,234

replacementvalue25,27-28,35-37,160,192,199,226-227

reportingaloss238

residencepremises13-15,47,80,86,149,214,216,219

riotcoverage167

risks3,14,35,92,108,115,123,126,137,148,151,169,171-172,182

S

separatestructure3

severabilityofinsurance87

StandardFirePolicy(SFP)91,98,99,108,111

otherinsuranceclause198

subrogation123,197

T

tangible48,85,171

temporarylivingexpenses3,185,200

theft18,82,88,102-103,108,121,125,136-139,142,144-149,151,174,186,211,215,219,221,228,238