CONDITIONS—SECTION I

A. Insurable Interest and Limit of Liability

Regardless of the number of people who have an insurable interest in the property covered, the insurance company providing the special form HO coverage is limited in its response. It won't pay an "insured" more than the amount of that "insured's" interest applying at the time of loss. It also will pay no more than the limit of liability for the covered property.

Specifically, the Special Form policy is only obligated to pay the policy limit that applies to a covered person who has suffered a loss to covered property.

B. Deductible (This moved from its own section on page 2 of the prior policy to page 13 within the Conditions section of the 05 11 edition)

This section merely says that the insurer will pay the portion of an eligible loss that exceeds the applicable deductible and that payment is subject to the given limit of insurance.

When, in a given situation, more than a single deductible applies to a loss; the insurer will only use the highest, applicable deductible. (This sentence was added to the 05 11 edition)

Note: This provision also states that this item may be pre-empted by specific deductible language that applies to other coverage parts.

C. Duties After Loss

This provision reinforces an insured's prime obligation to strictly comply with its requirements. It mentions that if an insured fails to perform the duties, and if that failure adversely affects the insurer, the insurer is no longer obligated to provide coverage. An insured's cooperation is critical to an insurance company's ability to perform under the insurance contract.

Related Court Case: 131_C087, Uncooperative Insured Can't Seek Arbitration.

In case of a loss to covered property, the named insured, the insured seeking coverage or a representative of either party is responsible for:

1. Giving prompt notice to the insurance company or the insurance company's agent.

Related Court Cases:

Notice To Broker Was Not Notice To Insurance Company

Notice To Independent Agent Or Broker Held Not To Be Notice To Insurer.

2. Notifying the proper authorities in case of loss by theft.

3. Notifying the credit card or electronic fund transfer card or access device company in case of loss under credit card, electronic fund transfer card or access device, forgery and counterfeit money coverage.

Please see this analysis's discussion of this coverage in item E.6. Additional Coverages.

4. Protecting the property from further damage.

If repairs to the property are necessary, the insured is required to:

• Make reasonable and necessary repairs to protect the property
• Keep an accurate record of repair expenses because most are covered under the policy..

If a homeowner kept materials or supplies on hand to help protect the covered property from loss, the policy should also protect such property if it were stolen or destroyed by a listed or eligible cause of loss.

5. Cooperate with the insurance company in the investigation of a claim.

This item acts as an important reminder that the insured must be an active and willing participant in the claims process.

 

Example: The Stonewall Family submitted a claim for $22,000 of damaged property because of a smoke loss. The Stonewalls sent in a detailed list of very expensive electronic equipment and leather furniture. Most of the equipment and furniture was bought in the last year. However, the Stonewalls had no store receipts, or warranty information. Further, the Stonewalls said that the debris was cleared immediately and unavailable for display. Nay Eve Property and Casualty Insurance's adjuster denied the claim because they were unable to view the damaged property or substantiate the loss.

 

6. Prepare an inventory of damaged personal property.

The inventory must show the quantity, description, actual cash value and amount of loss. The "insured" should also attach any bills, receipts and related documents that will justify the figures reported in the inventory. This condition is unchanged from earlier editions of the Special Form policy.

Related Article: Actual Cash Value Guide.

7. As often as is required by the insurance company, the insured must do all of the following:

a. Show the damaged property

b. Provide the insurance company with the records and documents that they request and allow them to make copies;

c. Submit to and sign an examination while under oath and without being in the presence of any other "insured."

This condition may appear to be heavy-handed, but the insurer is in the vulnerable position of having to rely on the insured concerning the scope of the loss. The insurer is merely asserting its chances of getting accurate information for investigating a claim. Unfortunately, this condition often becomes a battleground between insurers and claimants. The interests of insureds may have been better served if this condition contained some wording that obligated an insurer to exercise courtesy and reasonableness when enforcing this provision.

8. The named insured must send to the insurance company, within 60 days after its request, a signed, sworn proof of loss which to the best of the named insured's knowledge describes the following:

a. The time and cause of loss

b. The interest of all "insureds" and all others in the property involved, including the existence of all property liens

c. Other insurance which may cover the loss

d. The details of any changes in title or occupancy of the property during the term of the policy

e. Any specifications of damaged buildings and detailed repair estimates

f. The inventory of damaged personal property described in an earlier part of this section

g. Receipts for additional living expenses incurred and records that support the fair rental value loss

h. Any evidence or affidavit that supports a claim under the credit card, electronic fund transfer card, or access device, forgery and counterfeit money coverage, which verifies the amount and the cause of loss.

D. Loss Settlement

Any mention of replacement or repair cost does NOT include any expense created by any ordinance or law. The only exception is the coverage described under Additional Coverage E.11. Ordinance or Law. In light of this clarification, covered property losses are settled in the following manner:

1. The following types of property are paid at actual cash value at the time of loss but not more than the amount required to repair or replace:

a. Personal property

b. Awnings, carpeting, household appliances, outdoor antennas, and outdoor equipment, whether or not attached to buildings

c. Structures that are not buildings

d. Grave markers and mausoleums.

Actual cash value is generally considered to be today's replacement cost of the item minus depreciation.

 

Example: Vanisha Clayman has a ten year old sofa that is destroyed in a fire. The insurance company considers the fact that the sofa if purchased today would cost $4,560, but offers to settle the loss at $372. When Vanisha complains that the settlement is so much less than what she needs to replace, the company explains that she did not lose a new sofa, but a piece of furniture she had been able to use  for its entire product  life. The insurer explained that its offer reflected the loss of value due to age, wear and tear, etc.

 

2. Dwellings and other structures are covered at replacement cost without deduction for depreciation. However, any payment would be conditional upon the following:

a. At the time of loss, if the amount of insurance in this policy on the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, the insurance company will pay the cost to repair or replace, after application of deductible and without deduction for depreciation. In no case will the insurance company pay more than the least of the following:

(1) The limit of liability under this policy that applies to the building

(2) The replacement cost of that part of the building damaged for like construction and use

(3) The necessary amount actually spent to repair or replace the damaged building

Under this section, it does not matter if the covered property is rebuilt at a new location. Such a move would be considered inconsequential to the operation of the policy settlement. The payment under the policy would be limited to the maximum eligible cost that would exist if damaged property were rebuilt at its original location. The additional cost would belong to the policyholder.

b. At the time of loss, if the insurance applicable to the damaged building is less than 80% of the building's full replacement cost (before the loss), the insurance company isn't obligated to pay more than the limit of insurance under the policy; further, the insurer is limited to paying the greater of:

(1) The actual cash value of that part of the building damaged

(2) That proportion of the cost to repair or replace, after application of deductible and without deduction for depreciation of the part of the building damaged, which the total amount of insurance in this policy on the damaged building bears to 80% of the replacement cost of the building.

c. To determine the amount of insurance required to equal 80% of the full replacement cost of the building immediately before the loss, do not include the value of any of the following:

(1) Excavations, footings, foundations, piers, or any supports which are below the undersurface of the lowest basement floor

(2) If there is no basement then those supports described above which are below the surface of the ground inside the foundation walls

(3) Underground flues, pipes, wiring, and drains

d. The insurance company pays no more than actual cash value until the actual repair or replacement is complete. Once it is complete, the insurance company will settle the loss according to the provisions discussed above. If, however, the cost to repair or replace the damage is less than 5% of the amount of insurance in this policy on the building and less than $2,500, the loss will be settled according to the provisions listed above, regardless of whether actual repair or replacement is complete.

e. An insured has the option not to worry about replacement cost loss settlement provisions and ask that his or her loss or damage to buildings be settled on an actual cash value basis. However, if the "insured" changes their mind, they have up to 180 days from the date of the loss to ask for any additional amount due according to a settlement based on the replacement cost. If the insured misses this 180 day window, the actual cash value settlement basis is their only reimbursement.

This condition emphasizes the point that it is very important to accurately document the replacement cost of the covered property. Property that doesn't comply with the Special Form policy's replacement costs provisions is subject to a tedious and complicated settlement process.

E. Loss to a Pair or Set

When property that is part of a pair or set suffers a covered loss, the insurer can choose to settle on one of the following basis:

1. Repair or replace any part of the pair or set which will restore the pair or set to its value before the loss

2. Pay the difference between actual cash value of the property before and after the loss.

Note: This condition DOES NOT say whether the insurer has the option of paying the least or most expensive of the two options. However, it would be consistent with other settlement provisions of the policy that an insurer is likely to select the least expensive option.

F. Appraisal

If the "insured" and the insurer disagree on the amount of loss, either party can demand that the loss be appraised. In this process:

·       each party chooses a competent, impartial  appraiser no later than 20 days after getting the other party's request for an appraisal,

·       the two appraisers will choose an umpire

·       each party has to share the cost of the judge and pay the entire expense for their own appraiser.

If the appraisers cannot agree upon an umpire within 15 days, either the insurer or the "insured" can ask that a judge be selected by a court of record in the state where the "residence premises" is located.

The appraisers have to submit separate opinions on the loss amount and an agreement (submitted to the insurer in writing) between any two persons (among the appraisers and the judge) becomes binding on both the insurer and the policyholder.

G. Other Insurance and Service Agreement

This represents a broader intent than the traditional other insurance provision since it addresses other sources of protection.

1. If a covered loss is also protected by other insurance, the insurer's payment obligation is shared with the other coverage source. Specifically, the insurer becomes obligated to pay only its share of the loss. The share is determined by taking the total amount of available insurance and determining the insurer's percentage of coverage.

2. If any valid service agreement applies to the covered property, this insurance is triggered once the amount available under the service agreement is paid. Service agreement refers to the following:

·       service plan

·       property restoration plan

·       home warranty

·       other warranties.

This condition applies even if, rather than being called a warranty or plan, the other source of coverage calls itself insurance.

 

Example: Dave Glaringloss makes a claim for his home entertainment system which was destroyed when a vehicle slammed into his home, broke through the wall next to the entertainment system, and toppled the property and shelving onto the Italian marble tile floor. Dave's receipts show that the various components had a total value of $5,269. Lowfair Ltd. Insurance's adjuster had no problem with the claim amount but, while looking through Dave's receipts, he noticed that the TV and DVD players were covered by the Plastik Elektro-Palace's Consumptive Protektiv Plan. The plan guaranteed to replace the TV and DVDs if lost or destroyed within 18 months of their purchase date. Since Dave just bought the equipment 11 months earlier, Lowfair paid the $1,800 left after the Protektiv Plan paid $3,269. However, Lowfair depreciated the claim by $200.

 

Note: This condition only refers to other coverage, but does not specify whether the other source has to be valid and collectible. Therefore, a dispute could arise depending upon how this condition is exercised.

 

Example: Fran Weekwill's newly purchased home is covered by a special form policy. Fran is moving into her home with the help of the moving company she hired, Olde Paradigm Movers. Fran's porch and porch roof are destroyed when the Olde Paradigm truck driver backs up too fast and slams into the front of her home. Olde Paradigm has a general liability policy with limits of $50,000. Fran's policy has a limit of $50,000 on her dwelling. The damage to her property is estimated at $6,000. Fran's insurance company pays Fran $3,000 for the loss and tells her to collect the rest from Olde Paradigm, even after the insurer discovers that Olde Paradigm's insurer is bankrupt and is unable to honor their policy. While Fran argues that no other collectible coverage applies to her loss, her insurer says that another source of coverage did, technically, apply to the loss and it doesn't matter if the coverage lapsed.

 

H. Suit Against Us

This condition states that an insured can't sue the insurer without fully complying with the terms and conditions under Section I of the policy. Further, any suit has to be filed no later than two years after the loss date. The intent of this provision is to make certain that an insured takes every course of action that is available and to use a lawsuit only as a last resort. It should be to everyone's advantage if conflicts can be resolved without having to go to court. However, suits happen and if this alternative is chosen, the insured must file the action within two years of the loss date.

Related Court Case: Suit Limitation Rule Was That Of State In Which Property Was Located

I. "Our" Option

"Our" refers to the insurance company. This condition obligates the insurer to either repair or replace the damaged property within 30 days after receiving the "insured's" signed, sworn proof of loss. The insurer also has the option to use material that is similar in type or quality to repair or replace the damaged property. In other words, the insurance company is not obligated to pay a loss with cash. The insurance company can actually replace the damaged property with new or like property.

J. Loss Payment

The insurance company will adjust all losses with the named insured. The insurance company will pay the named insured unless some other person is named in the policy or has a legal right to receive payment. All losses will be payable 60 days after the insurance company receives the named insured's proof of loss and after one of the following occurs:

1. The insurance company reaches an agreement with the named insured

2. An entry of final judgment is entered

3. The insurance company receives filing of an appraisal award.

This condition explains to the insured that the insurance company is only obligated to deal with persons who have a valid interest in the loss and not with disinterested third parties such as lawyers or independent brokers or specialists.

Related Court Case: Buyer's Insurer Could Not Secure Contribution From Sellers' Insurer For Loss After Closing

K. Abandonment of Property

The insurance company is not required to accept any property which is abandoned by the named insured. In other words, an insurance company is not automatically responsible for taking care of or disposing damaged property.

 

Example: Raymun Veramyte's vinyl ping pong table was reduced to a melted, useless lump during a fire. Raymun's insurer sends him a check for $275 for the table, which he bought nearly two years earlier. The table cost $420 new, so the $275 reflected two years' depreciation. Because it was a minor loss, the settlement was handled over the phone. Raymun asks his company to come and get rid of the ruined ping pong table which he has moved into his garage. His company claims specialist tells him that he'll have to take care of disposing of the table...their claim file is closed.

 

L. Mortgage Clause

1. When the policy's declarations page includes a mortgagee, that mortgagee will be paid along with the named insured for any eligible loss involving property covered under dwelling coverage (Coverage A) or other structures coverage (Coverage B). The payment will be made according to the mortgagee's insurable interest and, if there is more than one mortgagee, will reflect any order of precedence.

2. If the insurance company denies the named insured's claim, that mortgagee may preserve its right to a loss payment by taking corrective action as described below:

a. The mortgagee notifies the insurer of any change in ownership, occupancy or substantial change in risk of which it is aware

b. The mortgagee pays any premium due if the named insured fails to make the premium payment,

c. The mortgagee provides the insurer with a signed, sworn statement of loss within 60 days of being told that this has NOT been done by the named insured.

In other words, when a mortgagee exists, an insured's failure to comply with the policy conditions does NOT endanger the mortgagee's recovery for a covered loss IF the mortgagee agrees to fulfill the policy conditions in place of the named insured. Further, if there are disputes involving a claim, the mortgagee assumes the ability to exercise the rights to appraisal or legal action against the insurer. However, the mortgagee is also obligated to the same terms: specifically, to comply with ALL policy provisions and to be subject to the same two year time frame for filing a lawsuit.

3. If the insurer cancels or does not renew the policy, the mortgagee will be notified at least 10 days before the date cancellation or nonrenewal takes effect.

IMPORTANT: While this is the time frame appearing in the policy, the time limit and notification requirements are determined by laws of the state in which the policy is issued.

4. If the insurance company pays the mortgagee for any loss and denies payment to the named insured, the insurance company receives the mortgagee's subrogation rights.

The insurer reserves the option of paying the mortgagee the entire principal balance on the mortgage along with any accrued interest. If the principal and interest are paid, the insurer acquires a full assignment and transfer of the mortgage. The transfer includes all securities that are held as collateral for the mortgage.

 

Example: Millie Strainfunds, a chief loan officer for Highflown Finance Co., contacts a claims adjuster from Hapless & Harried Fire and Casualty Insurance. Millie insists on payment on a fire loss sustained by the Tramplongs' home, on which Highflown is shown as a mortgage. The fire occurred eight months earlier and, after repeated requests, the Tramplongs haven't sent a proof of loss statement, nor cooperated in any loss settlement. Hapless pays the outstanding loan amount to Highflown and the lender assigns subrogation rights against the Tramplongs to Hapless.

 

5. However, any subrogation won't affect the mortgagee's full claim.

M. No Benefit to Bailee

Through this policy provision, an insurer denies any policy benefit to entities (personal or commercial) that charge or receive a fee for providing any of the following services:

·       holding property

·       storing property

·       moving property

no matter what appears in any other provision of the Special Form policy.

N. Nuclear Hazard Clause

"Nuclear hazard" refers to the following:

·       nuclear reaction

·       radiation

·       radioactive contamination,

regardless of the incident being controlled and no matter how the event is caused. Any consequence of a nuclear hazard is also considered a nuclear hazard.

Losses created or involving a nuclear hazard are not considered to be a fire, explosion, or smoke loss, even when these three perils are included within Section I of the Special Form policy.

This policy does not apply under Section I to loss caused directly or indirectly by nuclear hazard. The one exception is that direct loss by fire resulting from the nuclear hazard is covered.

O. Recovered Property

The named insured and the insurer are obligated to tell each other when, after a loss has been paid, property involved in the claim has been recovered. What happens next is up to the named insured. The named insured may allow the company to have or keep the property or the property may be kept by (or returned to) the named insured. If the property is returned to the named insured, any payment has to be adjusted to reflect the condition or value of the property. In other words, the named insured may have to return part or all of any loss payment.

P. Volcanic Eruption Period

Within a 72-hour period, all volcanic eruptions that occur will be treated as one eruption.

Q. Policy Period

This item merely states that the coverage supplied by this policy is only valid for loss that actually occurs during the applicable policy period.

R. Concealment or Fraud

Under this policy if, whether before or after a loss, an "insured" has done any of the following:

a. intentionally concealed or misrepresented any material fact or circumstance

b. engaged in fraudulent conduct

c. made false statements

that relate to this insurance; no insured has coverage.

The intent is to eliminate protection that could possibly be claimed by innocent insureds or by persons other than the named insured. However, the provision wording remains awkward and is grammatically inconsistent. It is likely to continue to be scrutinized by various courts.

Related Court Case: Application Information About Previous Cancellation Held To Render Policy Void

S. Loss Payable Clause

The purpose of this provision is to change the way the policy operates when a loss payee appears on the policy declarations. When a loss payee appears, the loss payee is included in the definition of "insured" with regards to the covered property. Further, the loss payee is entitled to written notification if the policy is cancelled or not renewed.