HO 0001–AAIS BASIC FORM HOMEOWNERS ANALYSIS

(May 2024)

Agreement

Definitions

Property Coverages

Incidental Property Coverages

Perils Insured Against

Exclusions That Apply To Property Coverages

Liability Coverages

Incidental Liability Coverages

Exclusions That Apply To Liability Coverages

What You Must Do In Case Of Loss Or Claim

How Much We Pay For Loss Or Occurrence

Payment Of Loss

Policy Conditions

The homeowners program offered by the American Association of Insurance Services (hereafter referred to as AAIS) is simply and logically structured as it is a form of an easy-to-read insurance document. Like its peers, the basic form policy begins with a table of contents.

The table of contents that appears in this policy also appears above as this article’s index.

AGREEMENT

The policy's opening language states that the policy is subject to all of its terms and will provide property, liability and other insurance coverages that are described in the policy. These coverages are provided for a specific policy period. In return for this protection the named insured must pay a premium as required. Principal coverages apply only if a limit is shown for them on the declarations.

DEFINITIONS

The definitions section appears immediately after the Agreement.

1. You and Your

The person(s) who appear on the declarations as insured(s). The named insured’s spouse is also defined as you, but ONLY if he or she lives in the insured's household.

Note: Where possible, it would be prudent to have both spouses appear on the declarations. If not, a non-resident spouse could be denied coverage under circumstances where coverage should actually apply.

2. We, Us, and Our

The company providing the homeowner's coverage.

3. Actual Cash Value

The amount it takes to repair or replace property, but that amount includes consideration of depreciation. How depreciation is determined is not established.

Related Court Case: Loss Settlement Delayed by Insurer – illustrates how a claim can be complicated due to ACV considerations.

4. Aircraft

This term is used only in the Liability section and refers to property made or used for flying. If a model aircraft and model hovercraft are not designed or used to carry people or cargo, they are not considered aircraft. Also, a hovercraft is not considered aircraft.

5. Bodily injury

Actual or physical harm to a person. Harm includes sickness, disease, or death. Any required care and loss of services also qualifies as bodily injury. Unless a person has a physical injury first, there is no coverage for harm such as injury, illness or death that comes from an emotional or mental injury.

Example: A neighbor visits an insured whose home is protected by a basic form HO policy. They are having a friendly chat in the insured’s backyard. The neighbor is leaning against the insured’s wood fence that, unknown to either person, was heavily damaged by dry rot. The fence suddenly collapses and the neighbor flails about wildly but does not fall and is uninjured. However, she is very embarrassed since several other neighbors witness the incident. They make fun of her the rest of the summer. She files a lawsuit against the insured. The insured’s policy will not handle any damage claim because no physical harm was involved.

6. Business

A trade, profession, or occupation (including farming) even if only occasionally practiced. This term includes the rental of property to others but does not include the occasional rental for residential purposes of the part of the covered location that is normally occupied solely by persons in the named insured’s household.

Note: If more than two roomers or boarders are involved, the exception does not apply.

If an insured receives money for an activity, it is considered a business. There are exceptions though. If an insured is caring for a relative, it is not a business even if money is exchanged. When an insured cares for a person, other than a relative, and, in exchange, receives like services, it is not a business.

Example: Jo Babyboom and Jack Paintur have an agreement. On Tuesdays, Jo watches Jack’s invalid father. On Fridays, Jack takes care of Jo’s preschooler, Penny. The weekly arrangement allows both of them to have some time for themselves and to run errands. As long as neither receives any additional benefit from the agreement, the activity should not be considered a business.

Volunteer activities are also not a business even if the insured receives reimbursement for expenses. However, if compensation is provided, the activity no longer qualifies for an exception and the activity is considered a business. Other activities the insured may engage in are not considered business as long as in the 12-month period prior to the policy inception the total compensation for the particular activity did not exceed $2,500.

Example: Chris knitted scarves. She gave most of them away but would occasionally sell some to friends if they had special requests. In the 12 months prior to her 1/1/23 policy inception date she had total receipts of $600. A friend, who loved her work, began actively marketing the scarves. Even though her sales in 1/1/23-1/1/24 were $3,000 during that policy year, her scarf knitting was not considered a business during that policy period.

Related Article: Home-Based Business Coverage Part

7. Declarations

This term refers to any document that is related to the homeowner policy and which may be called Declarations, Supplemental Declarations, or Schedule.

8. Described Location

A house (up to a four-family structure), townhouse or row house that is used by the insured for residential purposes, provided it is described in the policy (schedule/declarations). The term also refers to related structures (such as garages, sheds, etc.) and grounds.

Private structures related to row houses and town houses qualify as described locations only if solely residential and used exclusively by the insured’s household.

Example: Gosh I. Ownit lives in (and owns) a town home that is insured by a Basic Form Homeowner policy. He also owns a small, unattached garage located behind and to the left of the town homes where he lives. However, the garage is NOT on the land directly behind Gosh’s town home. Directly behind Gosh’s town home is a small brick building that’s used to store the town home association’s lawn and maintenance equipment.

One day, a fire destroys the garage. Now, while the private garage does not share the adjacent portion of land as Gosh’s town home, he does use the garage in conjunction with his home, so it would be covered. On the other hand, if the small storage building located directly behind Gosh’s home was damaged in a fire, Gosh’s policy WOULD NOT cover the loss (though it might contribute to repairs via the loss assessment coverage).

9. Domestic employee

A person employed or leased under contract by an insured, to perform duties that are connected to the use and care of the described location such as a butler, housekeeper, or gardener. Included are persons who perform duties of a similar nature elsewhere for an insured provided the duties do not include business-related functions.

A person who is furnished to the insured as a temporary substitute or to meet seasonal or short-term needs, is not a domestic employee.

Example: Henrietta works for Household Temps. Household’s owner has a friend, Marcy, who is overwhelmed with getting her home ready for an upcoming wedding. The owner assigns Henrietta to Marcy’s home to work for one week to help with the cleaning. Henrietta is a not a domestic employee.

10. Employee

Refers to a party who is employed in the business of an insured. The term includes persons who are hired via a labor leasing arrangement. The duties of such persons involve an insured’s business and not the residential or personal-oriented activities performed by a domestic employee.

11. Fungi

Any fungus (including but not limited to mildew and mold) as well as any substances released or created by such matter qualifies as fungi.

12. Hovercraft

This term is used only in the Liability section and refers to machines (including property called flarecraft) that are capable of traveling over the ground or water via the use of a compressed air cushion. The term does not apply to motor vehicles, aircraft, or watercraft. It also does not refer to models of hovercrafts, aircraft or watercraft that are neither designed nor used for moving people or property.

13. Insured

Insured is the person or persons named in the declarations (named insured) and that person’s relatives who live in the household. In addition, there are a number of persons who are insureds based on conditions and circumstances:

·Relatives of the named insured who are under the age of 25, enrolled in school full-time, are still financially dependent on the named insured and lived in the household prior to moving out to attend school

·Non-relatives of the named insured under the age of 21 who live in the household and are in the named insured’s care or in the care of a relative of the named insured who also lives in the household. These non-relatives are also covered while away from the household attending school full-time, provided they continue to be under the care of the named insured or a relative resident and had lived in the household prior to moving out to attend school.

This term is further expanded but only for the Liability section of the policy:

·The named insured’s real estate manager but only within the scope of his or her duties that relate to the described location

·Any person employed by any of the insureds described in the first group of insureds is an insured but only for incidents involving a motorized vehicle that is covered by this policy. The insured status is limited to when that person is performing the duties for which he or she was employed.

·Any person that is using a covered motorized vehicle on the insured premises is an insured but only if the named insured had given that person permission to use the vehicle. The insured status applies only to liability resulting from the use of the vehicle.

·Other parties also qualify as insureds, but on a more limited basis. If a loss situation involves an eligible owned watercraft, golf cart or animal (usually a pet), coverage extends to persons/organizations that, with the insured’s knowledge/permission, have some related responsibility for the loss. This applies only if an insured, as defined in the first grouping of insured, owns the watercraft, golf cart or animal. The policy grants insured status for such parties but only to the extent that they are liable for injury or harm involving such insured property. This applies only if the insured gave permission for the watercraft, golf cart or animal use. Entities that are liable for watercraft or animals incidents are not insured if the use or control of either was business related.

Example: The Carnies are on vacation and they ask their neighbor, Marsha, to feed their pets and to take their dog, Cooger, on daily walks. While going to a nearby dog park, Cooger slips out of his leash and attacks a young man who is eating a steak sandwich. The young man sues the Carnies as well as Marsha. The Carnies’ policy, for the purpose of this particular loss, treats Marsha as an insured.

Example: Fred Landlocked takes the advice of George Goodtravel and buys a ‘fixer-upper’ sailboat. Fred also buys a trailer and the boat is towed over to George’s house. George volunteers to patch up the boat and to help paint it too. The boat is kept in George’s driveway and it has a ladder propped against it. George’s neighbor, Paul, comes over to see what George is up to, but George is in his basement, getting some tools to work on the boat. As Paul attempts to climb onto the sailboat, the ladder gives way and Paul suffers a broken leg and several serious cuts on his arms and face. In this instance, George could be considered an insured on Fred’s HO liability coverage if George is considered legally liable and the loss is considered to have arisen from Fred’s watercraft.

Related Court Case: Dog Bite Culpability A Material Issue

Finally, any policy reference to “insured” also applies to more than one person who qualifies for coverage.

Related Article: Innocent Insured Problem Resolved By Enforcement Of Standard Fire Policy Provisions – Please see the note included in this case regarding the court’s opinion on language referring to insureds.

14. Insured premises

The described location (as defined above) is an insured premises. In addition, any premises that is listed on the declarations as an insured premises and is used by the named insured as a residence is an insured premises. A premises acquired during the policy term and that a named insured uses as a residence, is also an insured premises. Finally, if there are premises that are used by the named insured in connection with any of the above-described insured premises, they are also insured premises.

The next grouping of insured premises applies to insureds, not just the named insured.

Cemetery and burial plots of an insured, regardless of location, are insured premises. An insured’s temporary residence that is within a structure not owned by an insured and premises rented occasionally, for non-business reasons, to an insured qualify as insured premises.

Vacant land owned or rented to an insured, including land being developed to be an insured’s residence, is an insured residence. However, vacant land and farmland are not the same. Farmland is not insured premises.

15. Limit

The policy merely defines this as the amount of insurance.

16. Motorized vehicle

Land or amphibious vehicles that are self-propelled are defined as motorized vehicles. Exceptions are hovercrafts (actual or model) and watercraft (actual or model). In addition, any trailer or semitrailer attached to or carried on a vehicle described earlier is also a motorized vehicle even if it becomes detached. By model, it is meant to apply only to those that are incapable of moving either persons or goods.

17. Occurrence

There are three specific requirements for an occurrence. First, there must be an accident. This means that the incident(s) cannot have been planned. There can be repeated accidents and still be the same occurrence. Second, bodily injury or property damage must result from the accident(s). Last, the bodily injury or property damage must happen during the policy period.

18. Pollutant

Any solid, liquid, gaseous, thermal, or radioactive irritant or contaminant, including acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Also, electrical, magnetic, or electromagnetic particles or fields – visible or invisible plus sound.

Waste includes materials to be recycled, reclaimed, reconditioned as well as disposed of.

19. Property damage

Physical injury or destruction of tangible property. It is also the loss of use of tangible property. The loss of use can apply even if the property has not been physically damaged.

20. Terms

Refers to any written policy components including exclusions, conditions, defined words, etc.

21. Vermin

Refers to a wide variety of creatures that tend to be ideal candidates as pests that damage property because of their tendency to infiltrate structures as a source for dining or housing. Policy examples include raccoons, possums, skunks, porcupines, snakes, armadillos, and bats, but these are only examples.

.22. Watercraft

This term refers to items that are designed for traveling over water, whether powered by engines, motors, or wind. There’s no reference to manually powered, small craft (such as canoes, rafts, or rowboats). The term does not apply to motor vehicles, aircraft, or hovercraft. The term also does not apply to models of hovercrafts, aircraft or watercraft that are neither designed nor used for moving people or property.

PROPERTY COVERAGES

PRINCIPAL PROPERTY COVERAGES

Coverage A—Residence—What is covered

There is coverage for the residence that is situated on the described premises. This coverage includes additions, built-in components, fixtures, and building materials and supplies that are located on or next to the described premises. However, building materials and supplies are only eligible for coverage when they are to be used in the construction, alteration, or repair of the residence or a structure on the described location that is related to the residence.

Example: Laynie and Peter are neighbors in a new housing sub-division and both own homes that are insured by a Basic Form Homeowners policy. One night, a crew of thieves goes through the area, stealing building supplies from several homes including Laynie’s and Peter’s homes. Laynie’s loss is covered because the material was meant for building a screened-in porch on the back of her home. Peter’s loss is not covered. The loss adjuster questioned Peter carefully and found out that the stolen material should have been delivered to his children’s school as part of its playground equipment.

Coverage A—Residence—What is not covered

There is no coverage for land, including the land on which covered property is located. There is no coverage for underground or surface water.

Coverage A also does not apply to damage to grave markers, mausoleums, trees, plants, shrubs, or lawns. Important: Limited coverage is available for such property under Incidental Property Coverages.

Example: Larry Cookout is preparing for his annual Oak Street Neighbors’ Barbecue. This year, as a surprise, he’s roasting a pig. It has been a very dry summer and everyone’s lawns are brown and dry (the city has severely restricted water use). A few minutes after getting a large fire started in his prize grill, Larry goes inside to get his cooking gear. While the grill is unattended, a gust of wind knocks it over. Larry’s lawn, brown and tinderbox dry, is ablaze within minutes. Larry and his next-door neighbor put the fire out, but not before three-fourths of his back lawn is charred to the earth. Larry plans to repair his lawn with sod, but the cost will be out of his own pocket.

The most that this policy will provide for all Coverage A covered property in a single occurrence is the limit that applies to Coverage A.

1. Coverage B—Related Private Structures—What is covered

There is coverage for related private structures on the described premises that are not attached to the residence covered under Coverage A. If structures are connected to the residence only by a fence, a utility line, or a similar connection, they are not considered attached. There is coverage for fences, driveways, sidewalks, and other permanently installed outdoor fixtures.

2. Coverage B—Related Private Structures—What is not covered

There is no coverage for land, including the land on which covered property is located. There is no coverage for underground or surface water. Coverage B also does not apply to damage to grave markers, mausoleums, trees, plants, shrubs, or lawns.

Important: Limited coverage is available for such property under Incidental Property Coverages.

There is no coverage for structures used for business purposes. However, this limitation does not apply to structures that are used in any of the following manners:

· Rented to a tenant of the Coverage A residence and not used for business

· Used solely for private garage purposes

Example: An insured rents his location’s detached garage to three persons. The renters park their cars in the garage and then walk the two blocks to their jobs at a nearby office building. Losses involving the garage would be eligible for coverage.

· Used to store vehicle or equipment owned by either the insured or a tenant and that equipment (as well as a maximum of five gallons of fuel supply) is used for grounds maintenance such as mowing equipment, snow plowing equipment, etc.

· Used to store business property that is owned by an insured or tenant, as long as the property does not qualify as a motorized vehicle.

Note: With regard to storing fuel – coverage is permitted for fuel in excess of five gallons, but only when contained as part of a craft, vehicle, or equipment’s permanently-installed fuel tank. The 5-gallon limit applies to separate containers.

The most that is paid for all Coverage B covered property in a single occurrence is the limit that applies to Coverage B.

3. Coverage C—Personal Property

a. What is covered

The coverage terms under this coverage part are a little more complicated than what is found under coverage parts A and B. The AAIS Basic Form policy protects the following:

· Personal property that belongs to or property that, while not owned by an insured, is in the insured’s possession.

· (At the named insured’s option) Personal property that belongs to guests, domestic workers, or other persons, but only when the property is in the same residence as an insured.

Coverage for damage to personal property owned by a domestic employee or a guest may be covered at the option of the insured. Why is an insured given the option to allow coverage? One situation that comes to mind is the availability of other insurance and the seriousness of a given loss. If there were a very large loss, the insured may wish to have all available coverage for his or her own property. If there were no option, the loss to a guest or domestic employee could be reimbursed and leave a shortfall in coverage for an insured. Of course, the insured would likely consider whether the guest or employee had their own coverage available before exercising this option.

b. Limitation on Property at Residential Premises Other Than the Described Location

Under Coverage C, a maximum of 10% of the policy’s Coverage C limit subject to a minimum of $1,000 is available for losses involving an insured’s property that is typically located at a residence that is NOT described on the policy (therefore is not at a described location).

Example: The Grabum family’s home is insured under a Basic Form policy. The Coverage C insurance limit for their residence is $48,000. The Grabums also own a camping cabin on a lot near a state park. The cabin is completely furnished and that property remains in the cabin. If there is no separate policy covering the cabin, the policy that protects the Grabums’ full-time residence can provide up to $4,800 to cover the personal property in the cabin.

Note: There are exceptions. This limitation doesn’t apply to property that is being moved to a newly acquired, primary residence. Neither does it apply to property that is moved to another location (either another residence or into storage) because the described location is, temporarily, unfit for use (usually due to repairs, renovation, etc.). The full Coverage C limit applies for 30 days from the date the named insured begins to move. After that, coverage for personal property in a newly acquired principal place of residence is limited to 10%, subject to a $1,000 minimum of the Coverage C limit.

c. Coverage C—Limitations on Certain Property

Certain types of property are subject to sub-limits. The special limits that apply do not increase the Coverage C limit. The indicated limit is the total limit per occurrence for all items in that class.

1) $250 limitation

· Money

· Bank notes

· Bullion

· Gold other than gold ware and gold-plated items

· Silver other than silverware and silver-plated items

· Platinum other than platinum ware and platinum-plated items

· Stored value cards (including magnetic strip scrip and gift cards)

· Numismatic property (coins, currency, medals, and similar property)

Example: A small fire destroys some personal property in the Mizers’ home. The Mizers’ Basic policy has a Coverage C insurance limit of $40,000. Their claim to their insurance company includes the following losses:
Money (from mom’s purse)	$195.00
Billy’s coin collection	$215.00
Total	$410.00
Since all of this property involves classes that are subject to the $250 limitation and since the loss under each type was less than $250, the total amount that the Mizers can recover from their policy is $250. Remember, the $250 limit is the total amount available for ALL of the types of property listed.

2) $1,500 limitation

· Securities

· Stamps

· Letters of credit

· Notes other than bank notes

· Personal records

· Tickets

· Accounts

· Deeds

· Evidence of debt

· Passports

· Manuscripts

Note: This special limit applies regardless of the medium on which these items exist and includes the cost of research or other expenses necessary to reproduce, replace, or restore the item.

3) $1,500 limitation

· Electronic devices

· Accessories including films, tapes, wires, discs, records, or other media for use with such devices

· Antennas

Note: This limitation on electronic devices and accessories applies while the devices are in or on a motorized vehicle or watercraft but only if they can operate from the vehicle or watercraft’s electrical system and also from another source of power.

4) $1,500 limitation

· electronic devices

· accessories including films, tapes, wires, discs, records, or other media for use with such devices

· antennas

Note: This limitation on electronic devices, accessories and antennas applies only if the items:

1. Are used away from the premises;

2. Are used mainly for business purposes; and

3. Are not in or on a motorized vehicle or watercraft if the devices can operate from the vehicle or watercraft’s electrical system and also from another source of power.

5) $1,500 limitation

This limitation applies to watercraft, including their trailers, furnishings, equipment, engines or motors and semi-trailers. This limitation is inapplicable to hovercraft. It is also inapplicable to model watercraft as long as the models are not designed to carry cargo or people.

6) $1,500 limitation

Trailers and semi-trailers not mentioned above are subject to this limitation.

7) WHEN the loss is due to THEFT

· $2,500 for loss to:

o Jewelry

o Watches

o Precious and semiprecious stones

o Gems

o Furs

· $2,500 for loss to:

o Silverware

o Gold ware

o Pewter ware

o Items plated with gold or silver

· $2,500 for loss to guns (and related equipment)

INCIDENTAL PROPERTY COVERAGES

The Basic Form homeowner policy includes a number of coverages that are in addition to the protection described under Coverages A, B, C and D. They are called incidental coverages since they are not part of the primary coverage parts. While the amount of insurance indicated for these incidental coverages is in addition to the limits of insurance shown for Coverages A, B, C and D, there are several instances where the amount of recovery is quite limited.

1. Association Deductible

The basic form policy provides up to $1,500 per occurrence (unless increased on the declarations), for the named insured’s share of a deductible assessment made by a residential association of homeowners, condominium owners, or similar groups. Coverage applies only when all of the following apply:

The deductible is charged against the named insured because of ownership or tenancy of the described location during the policy period
The deductible results from direct loss to the property that would be considered covered property under this policy, if owned by the named insured or is covered property under the named insured’s association insurance
The loss involves direct damage that is due to a peril covered under this policy. Earthquake and tremors before, during and after a volcanic eruption are specifically NOT covered.

Finally, the Policy Period condition does not apply to this coverage.

2. Credit Card; Electronic Fund Transfer Card or Access Device; Forgery; and Counterfeit Money

This incidental coverage is triggered when an insured:

is legally required to pay for the unauthorized use of credit or debit cards issued or registered in the name of an insured
has a loss due to a party using an electronic fund transfer card or any electronic devices to withdraw, deposit or transfer funds with the named insured’s permission
suffers a loss due to forged or altered checks, drafts, notes, or negotiable instruments
unintentionally accepts counterfeit United States or Canadian paper money.

The limit is $1,500 per occurrence unless a higher limit is shown on the declarations. An occurrence is not limited to a single event; it includes all acts perpetrated by a single person.

Example: Penny Goodgraces gets a bill from her favorite department store, which shows $1,200 in charges she never made. Penny discovers that her card was stolen and she reports her loss, expecting coverage. However, the insurance company’s claims department explains to her that, since her credit card agreement includes a provision to cover any losses connected with a card theft or unauthorized use, the credit card company must absorb the loss, not Penny’s insurance company.

Defense Expense

When an insured is sued due to the unauthorized use of credit cards, electronic fund transfer cards or similar devices, this policy will pay the defense expense. The insurance company will decide what investigations and settlements are necessary, without consulting with the insured. Once the insurance company pays the applicable limit, based on a settlement, it is no longer required to provide a defense.

The insurance company may or may not defend an insured or an insured’s bank if a suit is brought because of a refusal to honor a forged check, draft, or negotiable instrument. If it decides to defend a suit, any related expense is paid by the insurance company and the insurance company also provides the counsel.

There are some exclusions under this coverage. No payment will be made in the following instances:

· An insured has not complied with the rules under which the credit or debit card was issued

· The unauthorized person is a resident of the named insured’s household

· The card or device is used with the consent of an insured

· The loss is caused by the dishonesty of an insured

· The loss results from the business of an insured

Note: Since these are not covered, there is no obligation for an insurer to provide a defense or handle related costs.

Examples: The following losses are not covered:

· An insured lets his friend borrow the card to charge a lunch, then the friend purchases a VCR, some clothes and costume jewelry before disappearing

· An insured is tricked into revealing his credit card account number to a party who makes unauthorized charges; however, the charge card is issued in the name of the insured’s company

· An insured discovers that his credit cards are missing but doesn’t report the fact for several weeks. The credit card agreement has a provision that requires immediate notification of missing cards.

3. Debris Removal

There is coverage for the cost to remove the debris of covered property after a loss. The loss must be caused by a peril that applies to the damaged property. The coverage extends to handle the cost of removing volcanic ash, dust, or particulate matter that damages the covered property.

The most that the insurance company pays for the combination of debris removal and the physical loss of property is the limit applicable to the particular damaged property. If the limit is not sufficient to cover the debris removal, the insurance company will pay an additional 5% of the limit specifically for the debris removal.

Example: The Heatermans live in Lavaton, WA and their home was one of many damaged by volcanic dust from the surprising eruption of previously dormant Mt. Gushmore. The Heatermans suffered damage to their home, garage, utility shed and to their furniture. Their homeowner policy’s declarations page showed the following insurance limits:
Coverage A	$200,000
Coverage B	$20,000
Coverage C	$100,000
Policy Total	$320,000
The Heatermans can use each entire limit to cover the ash removal for the specific property covered in ash. But they cannot use the Coverage A limit to pay for Coverage B damage or vice versa. However, if the debris removal expense exceeds the Coverage limit, an additional 5% is available. This means that $200,000 + $10,000 is available for Coverage A, $20,000 + $1,000 is available for Coverage B and $100,000 + $5,000 is available for Coverage C.

Important: This incidental coverage does not cover any expense associated with the effects of pollutants. This exclusion applies to all the following:

· Testing

· Monitoring

· Cleanup costs

· Removal

· Containment

· Treatment

· Detoxification

· Neutralizing

· Respond to (occurrence involving pollutants) and

· Assessment

Finally, there is limited coverage for the removal of fallen trees. Up to $500 per tree and $1,000 per occurrence is provided to remove trees from the described location under any of the following circumstances:

· The tree has damaged covered property

· The tree(s) obstructs access (by a motorized vehicle) to a driveway on the described location

· The tree blocks access to a ramp used to make the described location accessible to handicapped persons.

HOWEVER, this coverage extension is available only IF the named insured’s tree is felled by windstorm or hail or a neighbor’s tree is felled by any of the perils covered by this policy.

4. Emergency Removal

There is coverage for direct physical loss to covered property for up to 30 days if the covered property is moved from premises to protect it from a loss by a peril that is covered by the policy. However, this coverage does not extend past the policy’s expiration date.

Note: This coverage does not increase the limits shown for the property being removed. The property coverage exclusions do not apply to this coverage, except regarding intentional acts. No coverage for any insured (even the innocent insured) is provided for any loss caused by any intentional act committed by or at the direction of any insured.

Example: Buzz Whirly’s home is protected by a Basic Form homeowner policy. Sadly, a fire has started on the upper floor and is spreading to the other parts of the house. With permission of the fire chief, Buzz and some friends remove his piano and furniture from his living and dining rooms. The furnishings are placed in a neighbor’s yard and are saved from fire and smoke damage. As the fire is being fought, there is a sudden rainstorm. While the heavy rain assists the fire fighters, it ruins nearly half of the furniture that was moved out of the house. In this case, the furniture damage is covered.

5. Fire Department Service Charge

This incidental coverage provides a maximum of $500 per occurrence for paying charges under an agreement between the named insured and a fire department. The charges must be related to a fire department responding to the insured location that is endangered by a covered peril. As an option, an insured may purchase a higher limit for this expense.

Note: There is no coverage if the property is located within the operating area of a governmental authority that provides fire department services.

6. Glass or Safety Glazing Material

Another incidental coverage is protection against breakage of glass or safety glazing material that is part of a structure (such as a window). There is also coverage for direct physical loss to covered property damaged by such glass or safety glazing material breakage.

Example: An insured comes home and a group of kids who were playing baseball near her home suddenly scatters. As she enters her house, she notices a baseball, a broken bay window and a set of shredded, custom drapes. The policy’s Glass or Safety Glazing Material coverage would cover the loss to both the window and the drapes.

The earth movement exclusion does not apply to this coverage.

There is no coverage for property damaged by glass, except as described above. There is also no coverage on the described location if the residence insured under Coverage A has been vacant for more than 60 days in a row. A residence being built is not considered to be vacant.

Important: The maximum amount of coverage per occurrence is a modest $100 and does not increase the applicable limits.

7. Grave Markers

The insurer will pay up to $2,500 for direct physical loss to grave markers and mausoleums. To be eligible, the loss must be caused by a peril insured against. The grave markers or mausoleums can be on the described location or off.

Example: The Greevers visit their dearly departed every November 1st. When they arrive for their annual visit, they’re shocked to see remnants of large pumpkins among several broken headstones. This damage would be handled by their HO policy since vandalism is a covered peril.

8. Increased Cost—Ordinance or Law

Another incidental coverage protects against the increased cost caused by the enforcement of a code, ordinance, or law that regulates the use, construction, repair, or demolition of property following a covered loss. It also covers the cost to remove the debris that results when the law is enforced.

Example: Daisy Flayme and her family lose their home in a fire. When they attempt to get a permit to rebuild it, a city inspector points out that the home was too near the street and has to be moved back ten feet. This will cause an additional expense since part of the foundation will have to be filled in, the rear foundation wall must be demolished and then re-dug to comply. This additional cost should be covered (subject to the applicable policy limits).

Note: If the insured chooses to repair or replace the damaged Coverage A or Coverage B property, up to 10% of the Coverage A limit is available to cover increased costs that are solely due to the enforcement of the building code.

Naturally, there are some exceptions to the protection provided by this incidental coverage. It excludes any:

· loss in value of property caused by the enforcement of a code, ordinance, or law

Example: Let’s use the previous example with a twist. The insured finds out that their home, destroyed in a fire, was too close to the street and an inspector orders the home to be set further back on its lot. While the insurance policy will pick up the costs of re-setting the foundation, there’s no coverage for the loss in value because the new back yard will be too small to attract buyers.

· loss, cost, or expense related to any legal requirement of an insured or others to test for, monitor, clean up, remove, contain, treat, detoxify, neutralize, or in any way respond to or assess the effects of pollutants

Example: Jess Unlucky’s home is totally destroyed during a severe windstorm, and a county inspector has looked at the damage. While the inspector gives Jess permission to rebuild according to his home’s original specifications, there’s a problem. The inspector discovers that the home used to be heated by oil and there is a large, underground tank that may be damaged. Jess is ordered to have the tank inspected for leaks, to repair any damages and to monitor it in the future (or remove it). None of the costs associated with the underground tank are covered by the policy.

9. Loss Assessment

In certain circumstances, there is coverage (up to $1500 per occurrence) for the named insured’s share of an assessment made by a homeowners, condominium, or similar residential association. Coverage applies only when all of the following apply:

· The assessment is made during the policy period

· It must result from direct loss to the property owned collectively by all association members

(as opposed to an assessment to replace worn hall carpeting or for landscaping)

· It is caused by a peril covered by the policy (excluding earthquake or land shock waves or tremors before, during, or after a volcanic eruption, explosion, or effusion)

· It must be charged against the named insured as an owner or tenant of the described location.

Note: There is no coverage for assessments charged against the association by any governmental body or authority or for assessments to cover the deductible on the association’s insurance policy.

It’s important to understand that $1,500 is the maximum amount available for a single, eligible loss that triggers an assessment, unless a higher limit is shown on the declarations.

Example: Cary Morestuff’s home is insured by a Basic Form policy. Cary lives in a new neighborhood, which emphasizes family life and has a homeowners association that handles the association’s common property, including the recreational areas. One day, a severe storm destroys the playground area (which includes extensive wooden play structures and miniature playhouses) and each homeowner is assessed $1,100. As contractors perform work on the job, they find additional damage, causing more work. The association makes a 2nd assessment of $550 per homeowner and, later, a final assessment of $250 per homeowner. When Cary submits her claim for reimbursement, she discovers that only $1,500 out of the $1,900 is covered. Although there were three separate assessments, the assessments were related to the same loss, so the $1,500 limit applies.

One more point. The Policy Period condition in the Policy Conditions section does not apply to this coverage. This is added so there is no conflict when the loss occurs in one policy period but the assessment is made in a later period. The policy in effect when the assessment made is the one that applies.

10. Property in Rental Units

This provision pays a maximum of $2,500 for various classes of property that an insured owns that are located in premises the insured rents out to other parties. The location of the rental has to be described on the policy and a loss qualifies only when it is caused by a hazard (peril) listed under the policy’s Coverage C – but not theft.

Typical covered property includes stoves, carpeting, refrigerators, tables, couches, and similar items. To fully understand this coverage, refer back to Coverage C – Property Not Covered and review the rental furnishings coverage.

11. Reasonable Repairs

This incidental coverage (which neither adds to the policy’s property limit nor affects the separate property protection duties) reimburses expenses related to the prevention of additional damage to property that has experienced a loss. The coverage applies only for the types of loss and for the types of property that are eligible for protection under the policy.

Example:

Scenario 1: Barbie arranges for a tarp to be delivered to cover up a large hole in the roof of a shed that was caused by a violent windstorm. The shed is used to store the electronic video players and sound systems she sells from her home. The expense is not covered because the property she is protecting is not eligible for coverage.

Scenario 2: Barbie arranges for a tarp to be delivered to cover up a large hole in the roof of her pole barn that was caused by a violent windstorm. The barn is used to store her patio, playground and large assortment of gardening and lawn equipment. The expense is covered because the property she is protecting is eligible for coverage.

While the policy provides coverage for certain repair-related costs, this does not affect the policy’s applicable coverage. In other words, it does NOT increase the policy’s total coverage, only expands it to another category. Further, this provision does not affect the named insured’s responsibilities to act to protect and preserve his property from additional damage any time a loss occurs.

12. Refrigerated Property

Under certain circumstances, there is coverage (up to $500, unless a higher limit is shown in the declarations) for a direct loss to covered items that are in a freezer or refrigerated unit on the described location. The loss must be caused by one of the following:

· Disruption of electrical service from conditions out of the insured’s control (if caused by generating or transmission equipment)

· Mechanical breakdown of the refrigeration equipment

Note: The equipment must be working properly prior to the loss. Also, the power failure and the bacteria, fungi, wet rot, or dry rot exclusions do not apply to this coverage.

Example: Carol Singer comes home, enters her kitchen, drops her briefcase to the floor and is startled to hear a splash. She then notices a large puddle and the stream feeding the body of water originates from her freezer. Her entire meat supply, worth more than $600, is ruined. She feels better when she reads her policy and finds that there’s coverage for the loss. She feels worse when, later, her husband tells her that he installed a new ceiling fan and he forgot to turn the home’s electrical breakers back on. The loss is not covered as no breakdown occurred.

13. Trees, Plants, Shrubs, or Lawns

There is coverage for direct physical loss to trees, plants, shrubs, or lawns on the described location caused by any of the following:

· Fire or lightning, explosion, riot or civil commotion, or aircraft

· Vehicles not owned or operated by an occupant of the described location

· Vandalism or theft

Note: Up to 5% of the Coverage A limit is available to cover trees, plants, shrubs, or lawns. No more than $500 will be paid for any one tree, plant, or shrub, including the cost to remove the debris of the covered item. There is NO coverage for trees, plants, shrubs, or lawns grown for business.

PERILS INSURED AGAINST

COVERAGES A, B, C AND D

This section of the policy lists the perils which are insured. The policy coverage applies only when a listed peril physically damages property described under Coverages A, B, or C. The coverage exceptions are explained under the Exclusions That Apply to Property Coverages section. Although not mentioned in the introduction to this section, the listed perils must also be the cause for any claim for indirect loss (Coverage D).

Related Article: Dwelling Policy Program Perils

The eligible perils include:

a. Fire or Lightning

b. Windstorm or Hail

There is no coverage for loss in either of the following:

· When damage to the interior or to the interior’s contents is caused by dust, rain, sand, sleet, snow, or water, driven by wind or not, that enter through an opening in the structure not made by the direct force of wind or hail

· Damage to watercraft or their trailers, furnishings, equipment, or engines or motors, unless inside they are in a fully enclosed building.

Naturally, an insurer wants its insureds to use common sense and protect their property. If the first stipulation didn’t exist, then coverage would be available for losses that could be prevented by closing doors, windows and by moving personal property indoors.

EXCLUSIONS THAT APPLY TO PROPERTY COVERAGES

This section of the Basic Form policy lists the sources of property loss that ARE NOT covered by the policy. The current language strengthens the anti-concurrent causation intent by stating that if any of the following perils cause loss or damage directly or even indirectly, there is no coverage. The loss or damage continues to be excluded even if other events aggravate or contribute to the loss before, after or during the excluded peril. In addition, the exclusions apply no matter how large or small the damage area is.

Example: A gas line explosion destroys buildings in a half-block area in downtown Smallville. Several of the buildings do not meet the current building codes and the cost to bring them to into compliance is significant. The ordinance or law exclusions on those buildings continue to apply, even though the scope of damage is extensive.

a. Ordinance or Law

There is no coverage for any loss or increased cost caused by the enforcement of a code, ordinance, or law that regulates the use, construction, repair, or demolition of property or the removal of its debris, except as provided under Incidental Property Coverages. This exclusion extends to any loss in value of any damaged property that results from the enforcement of a code, ordinance, or law.

Example: Long Tymer’s home is the oldest home in New Westerntown. In fact, it existed long before the town changed its name and building codes to pander to out-of-state tourists who want to see an authentic Old West town. Long’s home holds a code variance that has kept Mr. Tymer from having to add a special false front to his plain wood plank-sided home. However, after a fire destroyed nearly two-thirds of his home, the town council advised Tymer of an important detail in his variance. The code variance remains in effect UNLESS 51% or more of his home is damaged and has to be repaired or re-built. If this happens, the home has to be re-built in conformance with the style of its surroundings. In this case, Mr. Tymer’s policy will not pay for the additional cost to conform to the building code.

This exclusion has another important limitation. No coverage is provided for damages or expenses that are related to legal requirements involving the existence or impact of pollutants.

b. Civil Authority

If the civil authorities confiscate, destroy, or seize property that is covered under Coverages A, B or C, there is no coverage. (There is coverage under Coverage D). However, if the civil authority is destroying the property as a way to create a fire stop, the loss is covered, provided the fire would have been covered by the policy.

Example: Mary Farmer looked on in shock as the Sagebush County Fire Chief ordered the demolition of her vacation cabin. Mary’s cabin was on the outskirts of a small group of similar cabins that were being threatened by a forest fire. The County’s Fire Chief told her she was sorry, but her cabin had to be torn down as it was the last obstacle that had to be cleared in order to establish a fire break. Mary’s policy would cover this incident UNLESS the fire was caused by an excluded peril.

c. Nuclear Hazard

If nuclear reaction, radiation, or radioactive contamination causes a loss, such loss is not covered no matter how the nuclear reaction, radiation or radioactive contamination is caused and whether it occurs in a controlled or uncontrolled circumstance. Any loss that is a consequence of the above is also not covered. Fire, explosion, and smoke often are part of a nuclear incident, but even if these perils are covered under the policy, when they occur as part of a nuclear reaction, radiation, or radioactive contamination loss, they are not covered.

There is one exception. If there is a direct loss by fire that is a result of the nuclear reaction, radiation, or radioactive contamination, it is covered.

d. War and Military Action

War is an absolute exclusion, including undeclared wars and civil wars. Warlike action taken by a military force is not covered even if the action is one of defense by a governmental authority and not offense. There is also no coverage if a loss is caused by internal domestic disputes such as insurrection, rebellion, revolution, and usurped power including the action the government takes to curtail (defend against) the event. The discharging of a nuclear weapon, intentional or accidental, qualifies as an event that is excluded by this item.

e. Neglect

Insurance policies are contracts that obligate an insurance company to help a customer whose property is damaged or destroyed under described conditions. Insurance contracts are meant to respond to accidental loss so, inherent in the agreement, is the assumption that the insured will act to preserve or protect their property. In case an insured doesn’t act in this manner, the insurer is relieved of any obligation to pay for any damages caused by the insured’s failure. Of course, an insured is not required to go through heroic efforts to save property.

f. Earth Movement

Note: A mandatory Amendment of Policy Terms endorsement has changed this item.

The policy excludes losses due to earth movement no matter how the earth movement is caused – animal, human or act of nature. There are five distinct items included in the definition of earth movement.

Earthquakes
Volcanic eruption shock waves or tremors no matter when they occur
Mudslide or mudflow and landslide
Erosion and subsidence
Other – including but not limited to the earth sinking or rising, expanding, or contracting and even just plain shifting.

There are three exceptions. Sinkhole, as described in the Incidental Property Coverages, direct fire or explosion loss that result from any type of earth movement, and theft, if theft is covered elsewhere in the policy.

Example: The Slackpaws fled their house as soon as the initial earth rumblings were heard. While no home in their part of the neighborhood was damaged by the moderate quake, a nearby explosion damaged the Slackpaws’ home. The quake ruptured a gas pipe and the gas ignited the localized explosion and a number of fires. The Slackpaws’ damages were eligible for insurance coverage under their policy.

Note: An issue that has arisen recently involves studies concerning the effect of hydrofracking, where liquids are forcibly injected into underground shale deposits in order to extract oil. Claims and claims disputes are increasing due to damage suffered by property owners.

g. Water

This exclusion is organized in seven paragraphs that explain the scope of the exclusion. Water damage and its eligibility for coverage is commonly disputed. A change to this exclusion’s format and wording was made in response to claim expectations and judicial rulings involving water-related losses that have occurred in recent years. (2008 Change)

1) There is no coverage for damage that results from flood, surface water, waves (including tidal wave and tsunami), tides, tidal water, overflow of a body of water, or spray (which occurs from any of the sources mentioned above), driven by wind or not. Further, coverage is excluded for loss if caused by water surge due to storm, tides or a tide created by a storm (storm tide).

2) There is no coverage if a loss is caused when

a) water backs up through sewers or drains or

b) water overflows (or is in anyway discharged) from within a sump pump, sump pump well, or other type of system designed to remove subsurface water that is drained from the foundation area.

Note: The reference to DISCHARGED water is intended to defeat attempts to gain coverage from, essentially, technicalities.

Example: The Soakertons turn in a claim for water damage that occurred in their finished basement. Their insurance company denies the claim since it was due to water removed by a sump pump that reentered the basement from a hole in the sump pump’s pipes.

3) If water below the surface of the ground causes the loss there is no coverage. This term includes (but is NOT restricted to) water that exerts pressure on, or seeps or leaks through or into a building, sidewalk, driveway, foundation, swimming pool, or other structure. It also applies to such water that flows through or into such areas/structure.

Example: Underground water dislodges a large stone in a paved driveway and the water flows into and damages a home. This source of damage is excluded.

4) When a loss is caused by matter that is either contained in and/or has been transported by sources described in paragraphs 1), 2), and 3) above there is no coverage. The matter is not defined but examples could be sewage, waste, or any other type of debris.

5) The losses caused by items discussed in 1) through 4) are not covered, regardless of whether the item:

a) is an act of nature

b) involves water and/or matter that comes from (overtops, escapes from, released from or otherwise is discharged) a containment or control system (such as dikes, dams, levees, floodgates, and similar devices).

6) While the above (and similar) events are excluded, an exception is made for direct loss to covered property caused by a subsequent fire or explosion

7) Another exception is granted for theft that is related to such occurrences mentioned above (as long as the applicable policy provides theft protection elsewhere in the policy).

Example: The Desurtahs evacuate their home due to the warnings of imminent flash flooding. The family home is damaged by a flash flood that sweeps through with floodwater, entering the home and soaking both carpeted and wood floors. Later that night, some thieves ransack a number of homes, including the Desurtahs’ home. While their policy won’t cover the damaged carpeting and floors, they do qualify for coverage for the stolen property and the damage the thieves caused to their home.

h. Power Failure

The policy does not respond to damage caused by a failure of utility service unless the cause occurs on the described location, but the policy will cover any direct damage due to a subsequent covered peril.

Example: A drunk driver is meandering home from a party when he falls asleep, runs off the road and slams into an electric transformer. The collision disables the transformer and knocks out electricity to over forty homes. The accident occurs at 2:30 a.m., so none of the households discover the problem until they wake up late (no alarm clocks worked). The Brideluvs were upset because an ice sculpture in their extra freezer completely melted. The water leaked out from their freezer and soaked into their wood parquet flooring. This loss would not be covered since the disruption in power occurred away from the insured premises.

Now let’s change a couple of facts and see what happens:

Example: Again, a drunk driver is meandering home from a party. This time when he falls asleep, he runs off the road and hits a utility pole that sits on the corner of the Brideluvs’ front lawn. The pole is bent severely enough to snap the power line that’s connected to the Brideluvs’ home. Again, the accident occurs at 2:30 a.m. and there wasn’t a loud crash, so the Brideluvs continued their sleep. Again, the Brideluvs are upset because an ice sculpture in their extra freezer completely melted. The water leaked out from their freezer and soaked into their wood parquet flooring. This loss WOULD BE COVERED since the disruption in power occurred ON the insured premises.

i. Intentional Acts

The policy does not cover intentional acts of any insured that acts alone or in collusion with another that results in a loss. The exclusion extends to losses resulting from intentional acts committed by persons acting on the directions of any insured.

Note: Not only must the act be deliberate, but also the intent must be to cause a loss.

Example: Nut E. Dad keeps pleading with his kids to make sure to clear their driveway and garage of toys so he can pull in and park the family car. Every evening, Mr. Dad’s anger increases when he has to get out of his car and clear bikes, bats, balls, and other toys away from the driveway and garage. After returning home after a HORRIBLE day at work and being delayed by snarling traffic, he approaches his house and is greeted by the sight of another cluttered driveway. Enraged, Mr. Dad revs up his car and pulls into the driveway so fast that he plows over toys and bikes and, unintentionally, drives halfway through his garage door. The policy will not pay for any of the damages since they resulted from operating his vehicle in a destructive manner. As an aside, all of the other dads in the neighborhood held a fund-raising barbecue for Mr. Dad, which handled the entire repair costs.

When one insured intentionally damages property that is owned or co-owned by another insured, all insureds are barred from collecting payment of that loss. Innocent insureds are not eligible for coverage.

Example: Using our example above, Nut E. Dad’s wife – Pat – is an innocent party to Nut’s action and she is co-owner of the house. If she makes a separate claim for the garage door damage, she will be denied even though she bore no responsibility for her husband’s action.

j. Bacteria, Fungi, Wet Rot, or Dry Rot

The policy does not cover loss involving mold, bacteria, and similar substances. Neither does it respond to circumstances that directly create rotted property. If, somehow, rotting, or bacterial, mold and similar events trigger a loss from an eligible hazard or peril (source of loss) that damage is eligible for coverage.

LIABILITY COVERAGES

Principal Coverages—Liability and Medical Payments to Others

Unlike the first part of the policy, which concerns damage to property belonging to the insured, this part provides protection for a person’s responsibility for injuring other people or for damaging their property. The liability portion of the policy has its own set of coverages, exclusions (with exceptions) and conditions.

1. Personal Liability—Coverage L

Note: A mandatory Amendment of Policy Terms endorsement has changed this item.

The insurer is obligated, up to the limit shown on the declarations, to pay the amounts for which an insured is legally liable because of bodily injury or property damage to others. However, any payment under Coverage L—Personal Liability is subject to all of the following:

· any loss has to arise out of an eligible occurrence

· the loss has to occur within the policy period

· the bodily injury or property damage must not be excluded under this coverage

Example: Joe Crazybat and his son, Splinter, are practicing baseball in their backyard. Joe throws a fastball that’s low and hard (but in the strike zone). Splinter, who has a great eye for the ball, swings his bat in a beautiful, looping arc, which smashes the pitch high over their house. As Joe goes to congratulate his son, they hear the following sounds:

breaking glass
screeching brakes and tires
several blasts from a car horn, and
a loud crash

Joe runs into his house to get his insurance policy information and Splinter runs to his room.

Besides responding to eligible losses, the insurance company provides a legal defense to covered persons and the related expenses are handled without affecting the policy’s applicable insurance limits.

The insurer has the option of investigating and, IF the insurer decides it is appropriate, settling claims or suits. It is also the insurer’s choice regarding who, if anyone, handles the legal defense. In recent years, this insurer right has been causing some controversy as, in certain disputes, a lawyer selected by (or often working as an employee) the insurer is seen as being an advocate of the insurer and not the insured.

The insurer does not have to continue defending an insured after it has paid a judgment or made a settlement that is equal to the limit shown on the declarations.

Example: Let’s return to Joe Crazybat. Joe has his policy information and he goes outside. He sees what he expects, a guy holding his head and their baseball, while talking to a lady who was driving the car, which was hit by the first driver. Joe trades insurance information with everyone and everyone talks to a police officer who arrives on the scene. Later, when reporting the loss to his insurance carrier, Joe says that everything was their fault and that the company should get moving on paying for the injury to the driver whose windshield was broken and for the damage to both cars. Joe’s agent thanks Joe for the information and tells him to fill out a written loss report that will be sent from the agency.

A couple of weeks go by and Joe calls his agent about the claim. His agent surprises Joe when he says the company investigated the loss and ended up paying only the first driver and only for a new windshield and the medical bill for stitching up a cut on his forehead. The company’s investigation found that the first driver had been drinking and traveling through the neighborhood at least twice as fast as the posted limit. In the company’s opinion, the collision with the other vehicle was the fault of the first driver and not Splinter’s home run.

2. Medical Payments to Others—Coverage M

Under this coverage, the insurer agrees to pay for necessary medical expenses, which are related to an eligible loss that involves bodily injury. Medical expenses refer to a reasonable (as determined by the insurer) amount for medical, surgical, x-ray, dental, ambulance, hospital, and professional nursing services. It also covers items such as funeral services; prosthetic devices; hearing aids; prescription drugs; and eyeglasses or contact lenses.

In order to qualify for coverage, the expense must be incurred or medically determined within three years from the date of an accident-causing bodily injury covered by this policy.

Example: Jan and Teri have just moved into their dream home that’s in an adorable neighborhood. They’re eager to make friends, so they invite several neighboring families for a party. Teri is the conversationalist, so Jan is busy hustling back and forth for refreshments. She also has been carefully dodging several small children who are running around their home. As Jan briskly pushes open the swinging door from her kitchen (which is adjacent to the recreation room) she feels the door hit something and then she hears a hard thump against the wall. A neighbor’s child, Billy, was behind the door and Jan, inadvertently, knocked him into the wall with the kitchen door. Billy suffers a concussion and Jan and Teri’s policy takes care of the overnight stay at a hospital.

Four years pass and Jan and Teri get a surprise. Billy has been having problems in school and tests show that he has been affected by the injury he received four years ago. When Jan and Teri submit the claim, their insurer tells them that it’s been too long since the accident and that the policy won’t take care of any subsequent bills.

Medical payment coverage is provided for situations that occur either on, or away from, the insured premises. While on the premises, the injured party merely needs to be on the premises with an insured’s permission. In order to qualify for coverage while away from the premises, the bodily injury must:

1. result from a condition on an eligible location

2. result from an activity of an insured

3. be caused by a person who is performing duties as a domestic employee

4. be caused by an animal owned by or in the care of an insured

The above elements are independent of each other. Meeting any single element may qualify an injury for medical payment coverage.

Note: There is no coverage for medical payments for the named insured or for any regular resident of the named insured’s household. However, there is coverage for domestic employees.

Incidental Liability Coverages

The policy includes eight incidental liability coverages and they are subject to all of the terms which apply to principal coverages L—Personal Liability and M—Medical Payments to Others.

Note: These incidental liability coverages do not increase the limits of liability, except under the following:

· Damage to property of others

· Claims and defense costs

· First aid expense

· Loss assessment

1. Business

The Basic Form policy provides some very limited coverage for bodily injury or property damage related to a business use of the insured premises. Specifically, coverage is granted for such injuries or damage created by two types of business activities:

a. The following types of rental activities are covered:

· The occasional rental, as a residence, of the insured premises that is usually occupied by the person appearing on the declarations

· The rental of other parts of the insured premises for use as a residence as long as no one family unit includes more than two roomers or boarders

· The rental of a part of the insured premises for use as a school, studio, office, or private garage

Examples:

1. Insured B owns and insures his single-family residence. B’s family likes to get out of town during their town’s famous, annual, Big Race. However, they make the most of things by renting their home out to another family that comes to town to see the Big Race. This situation is covered.

2. Insured C and his family belong to a travel club and while they travel out of town, they always arrange for renters to use their home. This typically occurs a dozen or more times a year. This situation is not likely to be covered since it presents a source of steady income.

3. Insured D owns a home with a spacious 2 and 1/2 car garage. However, D does not own a car since he lives very close to his job and he merely rents a car when traveling. D rents out his garage to Clarissa, who uses it to teach crafts to retirees. This situation would be covered.

4. Insured D, discussed above, has to kick Clarissa out of his garage because she is so far behind in her rental payments. D signs an agreement with Clyde to use the space as an auto painting service. This rental of the insured premises WOULD NOT be covered. It is a commercial use, which should be covered by a commercial policy (assuming that a zoning law would even permit such a use of a private garage).

b. The policy also covers business activities involving younger members of an insured household. Businesses run by persons younger than 21 are eligible for coverage as long as the activity does not include employees and that any loss is related to the activity.

Example: The Browns’ home is covered by a Basic Form policy. Their 14-year-old daughter, Veri, is out of school and she earns money by doing yard work throughout her neighborhood. One day, Veri is hired to clear out a densely overgrown area of a neighbor’s backyard. While swinging a sickle, she feels a hard, unexpected thud on a backstroke; then she hears a scream. She didn’t see her neighbor approach and she nearly severs the neighbor’s forearm. The Browns’ policy will respond to the injury-related expenses.

Note: Exclusion g., under Exclusions that Apply to Coverage L and Coverage M, does not apply to this Incidental Liability Coverage. Also note that the business activity coverage is subject to the additional exclusions listed under Coverage L and the additional exclusions listed under Coverage M.

2. Claims and Defense Cost

Note: A mandatory Amendment of Policy Terms endorsement has changed this item.

In a defense action, the insurance company will pay all of the following:

The costs that are taxed to an insured and the costs incurred by the insurance company
The premiums on bonds but only on the amount of the bond that is within the limits in the policy. The insured is responsible for the premium of the bond limits in excess of the policy limits.
The necessary costs incurred by the insured at the request of the insurance company including an insured’s lost earnings caused via time spent away from work (subject to a $250 daily maximum)
The interest accruing on the entire judgment amount following its award. Once the insurance company deposits its policy limits with the courts, it stops paying such interest even if the limits did not satisfy the entire judgment
The portion of prejudgment interest levied against the insured up to the insurers limits. Once a full limits offer is made, the insurer will no longer pay this type of interest.

Example: Lightnin’ Pete Slosher was sued by his neighbor who lived across the street. One Saturday afternoon, Pete had unloaded a beer keg from his truck and placed it on the ground—on its side. The keg rolled out into the street. Pete’s driveway is very steep, so the keg was rolling very quickly. The speeding keg hit the opposite curb, bouncing up and into the neighbor’s legs. His neighbor suffered fractured shins and had to undergo surgery and months of rehabilitation. Lightnin’ Pete kept interfering with the settlement effort (cause his dumb neighbor shoulda gott’n outa tha way—he also dented my keg). His neighbor became too angry to accept an early settlement even though Pete’s company offered its limit of $100,000. Pete’s neighbor eventually won a $200,000 judgment. The insurance carrier immediately paid its $100,000. Lightin’ Pete dragged things out and eventually had to pay $5,000 in interest in addition to his $100,000 judgment. The insurer avoided all interest costs because of its rapid payment plan.

3. Contracts

There is coverage for damages for bodily injury or property damage under a written contract if either of the following applies:

· The contract directly relates to the ownership, maintenance, or use of an insured premises

· The contract where the liability of others is assumed by an insured was made before the loss.

Example: The Mudheads were very late in getting their daughter, Tippi, registered for a volleyball team. They signed an updated registration form from Tippi’s school. It included a section in which the Mudheads agreed not to sue the school for any injuries which may occur to Tippi. Further, they agreed to assume any legal action on behalf of the school, the coaches, and assistants.

One day, after an embarrassing volleyball loss to their rivals, Coach Sludge let the girls into the school gym and, even before the lights were fully lit, ordered them to run ten laps. Neither Coach Sludge nor the girls saw that some gym equipment was left on the floor and one of the players tripped, her face sliding a couple of feet across the rubberized gym floor. The girl’s parents (who registered with an old form that did not have a waiver) sued the coach. They sought to recover dental and emergency medical costs that included plastic surgery and skin grafts. The Mudheads, being the only ones who signed the new form, had to report the claim and their insurer bore the cost of the suit.

The loss causing the bodily injury or property damage must take place during the policy period. Exclusion c., under Additional Exclusions that Apply to Coverage L does not apply to this Incidental Liability Coverage. The other Coverage M and Coverage L and M exclusions still apply to contracts.

4. Damage to Property of Others

This coverage is often called voluntary property damage. Its purpose is to handle smaller losses without being concerned about an insured’s legal liability. Under this provision, the insurer will pay replacement cost for property damaged by the insured without regard to legal liability.

Note: The limit for this coverage is $1,000 (per each, eligible incident).

Example: Jym Kickuh is a real sports enthusiast! If an event involves any sort of competition, Jym wants to see it. Jym has a cousin, Gluver, who is nearly as sports-crazed as Jym. Gluver comes to Jym’s house one Saturday for dinner and he has a big surprise! The previous weekend, Gluver went to a sports show and bought a baseball bat that actually belonged to Big ‘Sluggin’ Sam, a legend in the Majors. Jym examines the bat reverently, even using a magnifying glass to look at the sweat stains. Later, Jym’s boy, Kyle (10), comes across the bat and the magnifying glass. Kyle goes outside with both items and plays with them. When Gluver tells Jym that the smell of hickory smoke is making him ravenous, Jym replies that he hasn’t started the grill. They run outside in time to see how Kyle was able to reduce the bat to charcoal with only the sun and a magnifying glass. In this case, Jym’s policy would respond to the loss of the special bat.

The exclusions that apply to coverages L and M aren’t applicable to this coverage. However, there are certain circumstances under which the insurance company will not pay for damage to property:

a. If the property is covered under the property section of the policy. However, if the property section limit does not satisfy the loss, this coverage will pay the excess up to the limit of the coverage.

b. If the property is owned by an insured, or owned by, rented to, or leased to another resident of the named insured’s household or by a tenant of an insured.

c. When the loss is caused intentionally by an insured that has reached the age of 13

Example: Joy & Pete Malignunt have a 12-year-old son, Chip, who just loves to play pranks. While most of them are harmless, he sometimes gets carried away. One night, Chip was at a friend’s (Tim) house for a sleepover. While Tim was asleep, Chip used a screwdriver to pry up the first tread of the home’s stairs that connected its first and second floor. A couple of days later, he tells Tim, who becomes furious! When Tim’s father was attempting to go upstairs while carrying a laptop, the tread slipped out. His father was startled, but uninjured as he fell onto the stairs. He also landed on top of his laptop, destroying it.

The policy would cover this loss up to $1,000. Chip, however, has to handle being grounded for a month as well as paying back his parents the additional $200 they had to contribute to buy a new laptop.

d. Involving an insured’s business activities or a premises owned, rented, or controlled by an insured other than an insured premises;

e. When the loss arises from the ownership, operation, maintenance, use, occupancy, renting, loaning, entrusting, supervision, loading, or unloading of motorized vehicles, aircraft, hovercraft, or watercraft.

There are two exceptions. Property damage that arises from motorized vehicles not owned by the insured and which are meant for recreational off-road use or handicap assistance is covered. There is also coverage if the nonowned vehicle is a service vehicle for the insured premises or for nonbusiness purposes at another premises. However, these exceptions apply only when the vehicles are not required to be registered by a governmental authority.

5. First Aid Expense

If the insured incurs first aid expenses caring for persons injured by bodily injury under the policy, the insurance company will pay for those expenses provided the persons are not insureds under the policy.

6. Loss Assessment

There is coverage for the named insured’s share of an assessment made by his or her homeowners, condominium, or similar residential association if the assessment is due to either of the following:

· Bodily injury or property damage eligible for insurance under coverages L and M of this policy

· Damages or legal fees the association has a legal obligation to pay for the acts of a director, officer, or trustee but only if they result from the exercise of his or her duties performed on behalf of the association. These individuals must be elected by the association and serving without compensation.

There is no coverage if the assessments charged against the named insured are due to a requirement by any governmental body or authority upon the residential association.

Example: An insured lives in a condo called Felonious Acres. The Felonious Acres Condo Association levies an assessment of $950 per condo owner. The assessment is to cover a fine charged by the city zoning office because the Condo Association failed to secure and file some paperwork related to their land purchase. This instance would not be covered by the Basic Form homeowner policy.

Also, coverage is barred if the assessment involves property other than what appears as the described location.

Coverage applies if the assessment is made during the policy period. This means that coverage is based not on the occurrence of the loss that causes the assessment but instead is based on the timing of the assessment charge. As a way to prevent confusion, the Policy Period condition of the liability section does not apply to this coverage.

The limit for this coverage is $1,500 per occurrence. Regardless of the number of assessments, this limit is the most that will be paid for either of the following:

· Any single accident, including repeated exposures to similar conditions

· A particular act of a director or trustee. (An act involving more than one director or trustee is considered a single act.)

7. Motorized Vehicles

This very long, complex provision concerns the policy’s limited-basis coverage for bodily injury or property damage that is a result of the ownership, maintenance, use, loading, or unloading of the following:

· A motorized vehicle that is in dead storage and is at the insured premises

This exception is granted because such vehicles represent a premises rather than an auto exposure.

· A motorized vehicle that services the insured premises provided any occurrence takes place on an insured premises. Insured premises in this case does not include premises that are used by the named insured in connection with other insured’s premises. It also does not include cemetery lots or burial vaults.

Example: Jim owns a small tractor that is used for mowing and which has a small trailer that he uses for hauling around mulch and wood. Jim lets his son, Paul, drive it occasionally. One day Paul was driving the tractor and trailer and some friends came over. Paul decided to let his friends jump into the trailer and he drove them along the street near his house. Paul pulled into a neighbor’s driveway a few homes away, the trailer caught the corner of the curb and it tipped over. His friends suffered bruises and broken bones. The injuries would NOT be covered since the accident occurred off the insured premises.

·A motorized vehicle designed only for off public roads use and is used to service the insured premises or premises of another

· A motorized vehicle that assists a handicapped person

·A motorized recreational off-road vehicle that is not owned by an insured but is used by an insured (not required to be on premises)

·A motorized recreational off-road vehicle that is owned by an insured provided any occurrence takes place on an insured premises. Insured premises in this case does not include premises that are used by the named insured in connection with other insured’s premises. It also does not include cemetery lots or burial vaults.

·A battery operated, very low speed (15 m.p.h. or less) motorized vehicle that is not a motor-driven bike, moped or golf cart

·A motorized golf cart owned by the insured and not designed to seat more than four persons, nor designed to exceed a speed of 25 m.p.h. but only if the occurrence takes place at one of the following:

o At a golf club or similar establishment and the cart is being stored or parked or is being used by an insured in a manner appropriate for the golf club – on the marked paths and in accordance with club rules. Coverage continues if the cart must travel across public roads but only if traveling where marked and to other parts of the golf club.

o A residential community where golf carts are allowed on the public roads, the community has a property owners association and the insured premises is located within the community.

This provision’s wording reiterates that any coverage is barred if, at the time of a loss, the applicable vehicle is subject to registration because it is designed for public road use or in order for it to be used at the described location. Coverage is also barred if the vehicle is part of a speed or performance contest, if it used in business (exception exists for golfing), is rented to others or if an insured is compensated for using the vehicle to transport anyone or anything.

The form’s goal is to avoid having to respond to loss exposures that should be handled by a vehicle policy.

Exclusion c. and e. under Exclusions that Apply to Coverages L and M do not apply to this Incidental Liability Coverage and exclusion g. has an exception so it does not apply to losses involving golf carts being used at golfing establishments. The other exclusions applicable only to Coverage L and that apply only to Coverage M still apply to motorized vehicles.

8. Watercraft

There is coverage for bodily injury or property damage resulting from the maintenance, use, loading, or unloading of watercraft if any of the following apply:

· It is in storage

· It is less than 26 feet and a sailing vessel

· It is powered by outboard engines of 25 horsepower of less

· The watercraft is not owned by an insured and it is powered by inboard or inboard/outboard engines or motors totaling 50 horsepower or less.

· The watercraft is not owned or rented by an insured, there is coverage under either of the following:

o It is a sailing vessel with or without auxiliary power over 26 feet

o It is powered by inboard or inboard/outboard engines or motors totaling more than 50 horsepower

· When a watercraft is powered by outboard engines or motors that total more than 25 horsepower there is coverage under any of the following circumstances:

o The engines or motors are acquired by an insured prior to the policy period and they are listed on the declarations as insured for personal liability; or if a request for liability coverage is made within 45 days after they are acquired

o The engines or motors are acquired by an insured during the policy period

o The engines or motors are not owned by an insured.

In other words, coverage is restricted to loss situations involving watercraft owned by an insured as long as it is not in active use or is low risk (small, minimally powered craft), or loss situations involving slightly more powerful craft, which is not owned by an insured.

This provision’s wording reiterates that any coverage is barred if, at the time of a loss, the applicable craft is part of a speed or performance contest (exception for sailing vessels participating in either a cruise or predicted log contest), if it is rented to others or if an insured is compensated for using the vehicle to transport anyone or anything.

Exclusions c. and e. under Exclusions that Apply to Coverages L and M do not apply to this Incidental Liability Coverage. The other exclusions applicable only to Coverage L and that apply only to Coverage M still apply to motorized vehicles.

EXCLUSIONS THAT APPLY TO LIABILITY COVERAGES

1. Exclusions That Apply To Coverages L (Personal Liability) and M (Medical Payments to Others)

This policy does not apply to:

a. bodily injury or property damage caused by war or warlike situations including:

Undeclared war	Destruction, seizure, or use of property for a military purpose	Rebellion
Insurrection	Defense or hindering of hostilities by a military force	Warlike act by a military force or military personnel
Revolution	Civil war	Discharge of a nuclear weapon (even if accidental)

b. bodily injury or property damage resulting from an insured owning or leasing an aircraft or hovercraft. There is also no coverage for any person who operates, maintains, uses, occupies, loads, or unloads an aircraft or hovercraft. In addition, if an insured entrusts or loans a hovercraft or aircraft to a person, there is no coverage. Finally, there is no coverage for the insured’s negligence or nonexistent supervision of a person as respect to an aircraft or hovercraft. This exclusion does not apply to bodily injury that may occur to a domestic employee of the insured if the injury occurs in the course of that employee’s duties.

Remember that, based on the definition of aircraft and hovercraft, models are covered provided they are not designed to carry cargo or people.

Example: Greg Airnut loves military aircraft and he loves building and displaying models. One evening, while entertaining a young lady, Greg points out his favorite model, an F14 fighter that is tethered to his living room ceiling. It’s quite detailed and it is scaled to 1/20th the size of the real model. As Greg’s guest, Lisa, runs her hand along the underside of the model, a tether line snaps and the back end of the model swings down. It knocks Lisa to the floor, breaking out a couple of front teeth and slicing a gash in her forehead and her forearm (which she raised to try to ward off the model). Greg’s policy would respond to these injuries.

c, bodily injury, or property damage resulting from an insured owning or leasing a motorized vehicle or watercraft. There is also no coverage for any person who operates, maintains, uses, occupies, loads, or unloads a motorized vehicle or watercraft. In addition, if an insured entrusts or loans a motorized vehicle or watercraft to a person, there is no coverage. Finally, there is no coverage for the insured’s negligence or nonexistent supervision of a person as respect to a motorized vehicle or watercraft. This exclusion does not apply to bodily injury that may occur to a domestic employee of the insured if the injury occurs in the course of that employee’s duties. This exclusion also does not apply in situations where the policy’s Incidental Liability Coverage provides coverage for Motorized Vehicles or Incidental Liability Coverage for Watercraft.

d. bodily injury or property damage that arises from an aircraft or hovercraft even if the insured is considered vicariously (indirectly) liable because the actions of a child or minor caused or led to the injury or property. This exclusion holds whether or not law imposes the liability.

Example: The Wrights’ 10-year-old son was flying his gas-powered, radio control airplane in a nearby park. While trying to land it, he loses control and it slams into a person walking a dog. The walker sues the Wrights. This loss should qualify for coverage.

Example: Elena Clouderson is 12 years old and has played video flight simulator games for years and wants to test out her prowess. She sneaks into the nearby airport and finds an aircraft powered up and ready to go. She jumps in and starts to taxi. She quickly loses control and, without ever getting off the ground, strikes two other aircraft, a hanger, and a fire truck. Elena’s father is sued for his vicarious liability in this debacle. Coverage for the loss is denied because of the aircraft exclusion which includes even vicarious responsibility.

e. bodily injury or property damage that arises from a motorized vehicle or watercraft even if the insured is considered vicariously liable because the actions of a child or minor caused or led to the injury or property. This exclusion holds whether or not law imposes the liability. This exclusion also does not apply in situations where the policy’s Incidental Liability Coverage provides coverage for Motorized Vehicles or Incidental Liability Coverage for Watercraft.

f. bodily injury or property damage resulting from rendering or failing to render a professional service

Example: Dr. Henry Skilcutter enjoys playing basketball on Sunday nights. He and a group of other dads play at their kids’ school gym. The guys call Henry Dr. Hoops. During a Sunday when only ten guys show up, one of the players falls and hurts his knee. He asks Dr. Hoops to look at it. Henry gives it a quick look and says, mindful that they need this guy in order to have a full court game, that he could walk around a little bit and then continue to play. The injured guy re-joins the game, goes up for a rebound and lands on the leg he previously injured. He crumples to the floor with a loud yell and he is in AGONY. It turns out that his knee injury was serious and he should have sought treatment. He ends up needing surgery and extended physical rehab. He sues Dr. Hoops for telling him it was okay to keep playing. This loss would not be covered by Henry’s policy since it involved professional medical advice.

g. bodily injury or property damage that are created by any insured’s business activities whether on or away from the insured premises and whether or not the business is owned or operated by an insured. An exception exists for the limited circumstances insured under the form’s incidental business coverage and also when a golf cart is used at a golfing establishment.

Example: Judy Lightscreen is a network administrator who, at her home, does PC repairs and other work such as adding memory, installing, or uninstalling software and miscellaneous tasks. She earns as much as $500 a month for this sideline. One evening Judy is helping a customer take his PC and monitor to his car after she has completed work on it. Judy trips and drops the monitor; the custom monitor is worth $2,000. Judy’s policy WILL NOT provide coverage for this property since the loss was directly connected to an excluded business activity.

Note: This exclusion also applies to other forms of injury to others that may be directly related to an insured’s business activity as well as loss involving expectations related to such activity (i.e., activity related service, etc.).

h. bodily injury or property damage that is connected to locations that, while not shown as a described location, an insured owns, rents, or controls.

Note: There is coverage for bodily injury to a person in the course of performing duties as a domestic employee.

Note: A mandatory Amendment of Policy Terms endorsement has changed this item.

i. bodily injury or property damage expected by, directed by, or intended by an insured, as a result of a criminal act of an insured, or the result of an intentional and malicious act by or at the direction of an insured

This exclusion applies even if the bodily injury or property damage that occurs is different than what was expected by, directed by, or intended by the insured, or if someone suffers the bodily injury or property damage other than the person or persons expected by, directed by, or intended by the insured.

Example: Let’s revisit an earlier example. A drunk driver is meandering home from a party. This time when he falls asleep, he runs off the road and hits a utility pole that sits on the corner of the Brideluvs’ front lawn. The pole is bent severely enough to snap the power line that’s connected to the Brideluvs’ home. Again, the accident occurs at 2:30 a.m. and there isn’t a loud crash, so the Brideluvs continue their sleep Again, the Brideluvs are upset because an ice sculpture in their extra freezer has completely melted. The water has leaked out from their freezer and soaked into their wood parquet flooring. The Brideluvs wake up and discover the disaster and they decide to postpone the wedding. The bride-to-be, Whiplash Brideluv, is furious! She notices that the drunk driver is outside, leaning against his car. She runs out, yelling at him. She reaches out and jabs her finger to his chest. Whiplash continues to poke him and the driver backs away from her. As she pokes him again, the driver loses his balance, spins around and falls, sprawling, face first into his car bumper. Even though Whiplash only meant to give the driver a tongue-lashing, the policy will not provide coverage for the injuries. They were connected with her verbal attack and jabbing.

Example: Max D. Mentid had enough of his neighbor, Chuck. Their township has strict rules on how many bags of leaves can be put out for trash pick-up and, for three straight weeks, Chuck has sneaked several bags onto Max’s pile. Tired of being ignored, Max decides on a prank. Since Chuck leaves his car in his driveway, Max lets the air out of one of the front tires. The next morning, Chuck pulls out into their busy street but since the car doesn’t respond normally (due to the flat tire), Chuck moves too slowly and causes a crash. Max apologizes because he only meant to inconvenience Chuck, not to injure Chuck or to cause damage to the car and driver that crash into Chuck’s hobbled car. The policy will not pay for the damages to the cars or any injured drivers.

This exclusion makes an exception for bodily injury or property damage that is caused by an insured using reasonable force to protect people or property.

j. bodily injury or property damage because a communicable disease is transmitted by an insured.

This is a broad exclusion with no limitation.

k. bodily injury or property damage due to sexual molestation.

The term insured is not used in this exclusion and there is no further explanation. Since there are no explanations or limitation, this means that if an insured is named in any suit involving sexual molestation there is no coverage even if the insured is not alleged to have perpetrated the molestation.

l. bodily injury or property damage that is a result of physical or mental abuse.

There is no requirement that this be a direct result of the abuse, the amount of time that can be between the abuse and the bodily injury and the property damage. It doesn’t even say who must cause the physical or mental abuse. It is a very open-ended exclusion.

Example: Mary was abused as a toddler and removed from her parents’ home and adopted by the Smiths, a loving family. The Smiths are alarmed when Mary, who is 11 years old at the time, starts setting small fires around the neighborhood. Mary’s parents take her to a therapist. The therapist states that Mary’s fire setting is a direct response to the abuse she suffered as a toddler. When the Smiths present claims from neighbors for property damage caused by Mary’s fires, would this exclusion be used to deny coverage?

m. bodily injury or property damage arising from corporal punishment.

This exclusion is as equally open-ended as the physical or mental abuse exclusion.

Example: If a child retaliates against the teacher for administering corporal punishment by trashing the teacher’s home, is that property damage excluded?

n. bodily injury or property damage arising from any aspect of the illegal drug trade. This includes manufacturing, selling, using, delivering, transferring, or possessing of a controlled substance such as cocaine, LSD, marijuana along with other narcotic and hallucinogenic drugs by a person (does not have to be an insured).

This very broad exclusion should make homeowners wary of activities in or around their home since they would have no coverage even if they had no knowledge of the activity on their premises. This exclusion does not apply to prescription drug use provided the person to whom it was prescribed uses the drugs.

Example: The Farming Folks home is on a five-acre wooded lot. A neighbor asked for permission to walk through their woods to look for mushrooms. While she is looking, she walks into a booby trap that had been set by individuals who were growing hallucinogenic illegal mushrooms on the property. If the neighbor sues the Farming Folks, would this exclusion prevent the policy from responding?

Note: A mandatory Amendment of Policy Terms endorsement has added an exclusion to this section.

2. Additional Exclusions That Apply Only to Coverage L (Personal Liability)

Coverage L (Personal Liability) does not apply to:

a. bodily injury to any of the persons defined as insureds under definition 13. a.-e. in the definition portion of this policy. This would include the named insured, residents of the named insured’s household, the named insured’s relatives and more. It also means that persons defined as insureds under definition 13.f. are covered for bodily injury. The 13.f. insured definition includes real estate managers, persons accountable for animals and watercraft, etc.

Example: The Pitscrapple Clan is having their annual reunion and picnic. They rotate the location among the elder relatives and, this year, it’s at Emily Pitscrapple’s wide open home that is on a three-acre wooded lot, which also has a small creek running through the property. Since there are so many younger Pitscrapples, Emily asks her college-aged niece, April, to entertain them. April gets the ten younger kids together for a critter hunt. April borrows several of her younger cousin’s stuffed animals and hides them around the grounds. While running around and searching, Penny and Jeff Pitscrapple both get tangled up and tumble down the small ravine next to the creek. The others hear their yelling and come to their aid within minutes. Both have to receive emergency room treatment and x-rays for their cuts and sprains. Penny is Emily’s daughter, so none of her injuries are covered. However, since Jeff and his folks live elsewhere, Emily’s policy may cover his injuries.

b. any claim made or suit that is brought against an insured that is seeking contribution to or reimbursement of damages for which another person may be liable because of bodily injury to an insured.

This exclusion is trying to eliminate coverage that might be gained when one insured may have assisted another in the injury of another insured.

Example: One snowy day Paul, Fred, and Molly are using the Paul’s golf mobile to pull Paul’s wife Cindy on a sled. While Fred is driving, the sled tips over and Cindy is severely injured. The medical claims are exorbitant and Cindy’s income loss is a significant drag on the family fortune. Paul sues Fred. Fred’s homeowners carrier then makes a claim against Paul’s homeowners policy because the injury was on Paul and Cindy’s premises. This exclusion would prevent coverage from being provided.

c. liability assumed under a contract or an agreement, except as provided by the Incidental Liability Coverage for Contracts.

Example: Pete D. Lapidated hires a small painting company to paint the interior and exterior of his home. The company, called Perilous Painters, belongs to an old college pal, Jesse. While in a hurry to get the front of the home painted, a couple of Jesse’s employees unload an extension ladder from their van and rush to get it set up. Unfortunately, they run into a young mother and her preschooler, who were passing by on the sidewalk. The young mother sues Perilous Painters and its owner, Jesse. Jesse talks to Pete and tells him that his business is close to failure and that he doesn’t have any insurance. Pete, the ol’ softie, agrees to sign an agreement to handle any losses related to the painting job. In this case, since the agreement was made after the loss, Pete’s policy will not respond.

d. damage to property owned by an insured

e. costs and expenses an insured experiences on owned property to prevent injuries to and damage to property belonging to others.

Although the insurance company appreciates the efforts, an insured should take such measures without expecting payment from the insurance carrier.

f. damage to property that is rented to, occupied by, used by, or in the care of an insured, except for property damage caused by fire, smoke, or explosion

Note: This coverage exception concerning property in the control of an insured is often referred to as Fire Legal Liability.

g. sickness, disease, or death of a domestic employee. This applies only when a written notice is not received by the insurance company within 36 months following the end of the policy period during which the injury occurred. Stated another way, such injury to a domestic employee IS covered but only IF notice of the injury is received no more than 3 years after the end of the policy period during which the loss occurred.

h. bodily injury to a person, including a domestic employee, if the insured has a workers compensation policy covering the injury. Such injury is also not covered if benefits are payable or are required to be provided by the insured under a workers compensation, non-occupational disability, occupational disease, or like law. This exclusion places the coverage onto the workers compensation carrier and prevents double dipping. It also doesn’t protect the employer from shirking his or her legal responsibilities.

i. liability for any assessment made by a homeowners, condominium, mobile homeowners, or similar residential association, except as provided by the Incidental Coverage for Loss Assessment.

i. bodily injury or property damage that results from an occurrence for which an insured is also an insured under a nuclear energy liability policy or would be an insured but for the exhaustion of its limits. A nuclear energy liability policy is a policy issued by American Nuclear Insurers, Mutual Atomic Energy Liability Underwriters, Nuclear Insurance Association of Canada, or their successors.

3. Additional Exclusions That Apply Only to Coverage M (Medical Payments to Others)

Coverage M (Medical Payments to Others) does not apply to the following bodily injury:

a. To an insured or other person who resides on the insured premises, except a domestic employee – this applies to regular inhabitants

b. To a person, including a domestic employee, if a workers compensation policy covers the injury or if benefits are required to be provided under a workers compensation, non-occupational disability, occupational disease, or like law

c. To a domestic employee if the injury occurs off of the premises and does not arise out of the employment of an insured

d. That results from and all consequences of nuclear reaction, nuclear radiation, or radioactive contamination, however caused.

WHAT YOU MUST DO IN CASE OF LOSS OR CLAIM

1. PROPERTY COVERAGES

This section of the policy discusses a very important part of the policy, the promise of the insurer, under described circumstances, to pay for a loss (including defending a lawsuit). Since the policy is a contract, both the insurer AND the insured have responsibilities. The manner in which an incident is handled by an insured is a critical matter. It increases the policy’s ability to function as intended. The policy lists the responsibilities separately, under the major coverages and it also makes references to parties that represent an insured.

a. Notice

When a loss occurs, the insured is obligated to do all of the following:

· Promptly notify the insurance company or the insurance company’s agent

Note: The company providing coverage has a right to ask that the notification be in writing.

· IF the act that causes the loss is a crime, the insured must promptly notify the police

· Notify the credit, debit, or similar funds-handling card company if the loss involves a credit, debit, or similar card.

The above actions serve important functions. First, they permit the company to begin the loss investigation process, including any action to protect its rights and to determine if an insured is actually liable for payment under the policy. Quick notification to the police and any credit or debit card companies help to minimize a potential loss by initiating any criminal investigation and terminating a thief’s ability to make continued use of stolen cards. The reporting duty also minimizes fraud on the part of an insured. Persons tempted to make phony claims may be stopped by the requirement of a police report.

b. Protecting Property

The Basic Form policy recognizes the importance of preserving property. An insured is required to extend a good faith effort to protect covered property at and after an insured loss to avoid additional loss. The company agrees to reimburse the insured’s REASONABLE costs incurred for necessary repairs or emergency measures performed solely to protect covered property from further damage. However, the preservation effort must involve covered property that is endangered by a covered peril or a covered peril that has already caused damaged. The insured must keep an accurate record of such costs. However, the insurer will not pay for such repairs or emergency measures performed on undamaged property. This provision does not increase the insurer’s policy limit.

c. Cooperation

The insured must cooperate with the insurer in performing all acts required by this policy. The policy requires that an insured work with, rather than against, the insurer in order to investigate and process a possible claim.

Related Court Case: Insured Did Not Fail To Cooperate

d. Inventory of Damage Personal Property

This is the quantity, description, cost, amount of loss, and actual cash value of the personal property involved in the loss. The insured must give the insurance company copies of all bills, receipts, and related documents that are relevant in helping to establish a confirm losses.

e. Showing Damaged Property

The insured must show the damaged property and allow the insurer to take samples of damaged property for inspection, testing, and analysis. Such requests can be made at the insurer’s discretion and the number of requests should be kept reasonable. Of course, what is considered reasonable is subjective.

f. Records and Documents

The insured must show records, including tax returns and bank records of all canceled checks that relate to the value, loss, and costs, and permit copies to be made of them as often as the insurance company reasonably requests.

g. Examination under Oath

The insured must agree to be questioned by the insurer with regards to a claim and the questioning can include answering questions under oath. When more than one insured is questioned, the sessions can be taken separately and without any other insured witnessing the separate sessions.

This duty helps to protect a company against attempts to conspire to file false claims. On the positive side, it may also assist in getting the most details concerning a valid loss.

Note: Insurer Requests - While an insurance company has the right to make requests concerning gathering insured statements, seeing the damaged property, and securing related records, the emphasis is on the insurer making REASONABLE demands. The request must be for the purpose of moving along their claims investigation and a formal decision on accepting or denying the claim.

h. Proof of Loss

If the insurance company requests it, the insured is required to provide the insurer with a signed, sworn proof of loss. The proof of loss must be submitted within 60 days from the date of the insurer’s request and it must show the following:

· The time, place, and the details of the loss

· The (insurable) interest of the insured and the (insurable) interest of all others, such as mortgagees and lien holders, in the property. If a party cannot demonstrate an insurable interest in the damaged property, the insurer is not obligated to make payment to an insured.

· Other policies that may cover the loss, since other policies may have to also provide coverage for an eligible loss

· Changes in title or use

· Available plans and specifications of buildings

· Detailed repair estimates

· An inventory of lost items (the inventory must meet the requirements stated separately in this section)

Further, an insured must document any claim that includes any request for reimbursement for a credit card, debit card or other, similar funds-handling card. Finally, any requests that involve additional living expenses have to be supported by proof of the property’s current market rental value and actual additional living expenses incurred.

i. Assistance with Enforcing Right of Recovery

This duty requires an insured to help the carrier with any reasonable recovery effort. In many instances where insurers make payments to their clients, other parties are responsible for the damage or injury. When possible, insurers take action to recover payments from these other parties and they often need the insured’s help. This is also known as right of subrogation.

2. LIABILITY COVERAGES

Once there has been an occurrence, the following duties must be performed. It is important to notice the word occurrence is used and not claim. This means that an obligation exists even before a claim is presented. The named insured can choose to have another insured perform the duties but the ultimate responsibility of getting the duties completed remains with the named insured.

a. Notice

While speed in reporting a loss is important, quick notification is useless if it doesn’t include enough information with which to make decisions. Therefore, the notification has some content requirements. Specifically, the notice should include all of the following:

· The name of the named insured

· The policy number

· The time, place, and the details of the occurrence

· The names and addresses of all known potential claimants and witnesses.

Further, any notification has to be done in writing and, if not performed by an insured, must be completed by an insured’s legitimate representative (a person with proper authority to work with the insurer on behalf of the insured AND to be held accountable for actions or errors).

Related Court Case: LATE Notice Exclusion Did Not Require "Prejudice" – illustrates how this provision can act as a technicality that creates huge consequences.

b. Volunteer Payments

An insured must not make payments, pay, or offer rewards, or assume obligations or other costs, except at the insured's own cost. This stipulation does not apply to costs that are allowed by this policy, such as minor payments (i.e., first aid) that are permitted under the policy’s incidental coverage section.

The policy allows an insured some leeway to make payments in order to respond to emergencies or to help mitigate problems. However, an insured has to take great care in making payments that fall outside of the parameters permitted by the company. When an insured agrees to make payments out of his or her own pocket, attention has to also be paid to possible ramifications. Certain actions may be interpreted as an admission of responsibility for a loss when that may be wrong. It is important that an insured not put his company on the hook for a loss when the facts don’t support liability on the insured’s part.

Example: Karen hosted the latest monthly meeting of her Collector’s Club! One member brought over a Tiffany lamp she recently acquired. As the club members were in Karen’s kitchen, enjoying coffee and dessert, they heard a crash. A table that held the lamp had collapsed and the lamp laid crushed on the floor. Mortified, Karen asked how much the lamp cost and she gave the distraught member a check for $1,500. She turned in a claim for the loss. The insurer investigated and found out that the lamp was a knock-off purchased from a garage sale and that it was the member’s child who, while playing in the home, fell onto the table, destroying it and the lamp. The insurer said that it doesn’t have an obligation to reimburse Karen.

c. Cooperation

d. Notice, Demands, and Legal Papers

Insureds are required to provide rapid notification to the insurer of any communications, especially paperwork that is related to an occurrence. Specifically, the insured must send copies of such paperwork to the insurer as quickly as possible. Failure or significant delays can compromise the insurance company’s ability to properly investigate and handle a claim.

e. Assistance with Claim and Suits

At the request of the insurance company, an insured must help the company with any or all of the following:

· To settle a claim

· To participate with lawsuits, such as appearing at trials and hearings

· With their efforts to recover payments or take other action against separate parties who may be legally responsible for applicable injury or damage

· With efforts to obtain and provide evidence

· To ensure attendance of all witnesses.

Note: This provision actually appears redundant as it is an expansion of the “Cooperation” duty.

f. Other Duties—Damage to Property of Others

In case of a damage to property of others loss, the insured must give a signed, sworn statement of loss within 60 days after the loss and must exhibit the damaged property but only if the property is still within the insured’s control.

HOW MUCH WE PAY FOR LOSS OR OCCURRENCE

In this portion of the policy, the company’s obligation to provide insurance protection to the insured is described, including explanations of limits, deductibles, losses to pairs, set and parts and loss settlement terms.

1. Property Coverages

a. Our Limit

Subject to the deductible or any other limitation that may apply, the insurance company providing coverage has the option to pay either the policy’s applicable limit or the amount that is developed according to the policy’s loss settlement terms. The amount that is paid will be the LEAST EXPENSIVE option. The option will be exercised without being affected by the total number of insureds, claimants or financial interests involved with a given occurrence. However, the amount paid will also be subject to the actual insurable interest that exists.

Example: Fern Causloss submitted a claim for a large fire loss in which the adjuster estimated that the damages to the contents totaled $47,000. Fern’s policy had a Coverage C limit of $45,000. Fern owned 50% of the contents since they were being purchased on a rent-to-own basis. The rental store values the contents at $56,000 and the rental store is listed as an additional interest on the policy declarations. Fern’s policy would provide a total of $45,000 since this is the smallest value among the settlement options. Fern and the rent-to-own store must divide the proceeds based on their interest.

b. Deductible

The deductible that appears in the policies applies to all of the principal and incidental property coverages, except for Refrigerated Property, Fire Department Service Charge and Credit Card; Electronic Fund Transfer Card or Access Device; Forgery, and Counterfeit Money losses.

Unless a specific exception is made, the deductible that appears on the policy declarations page applies to losses caused by all covered perils. The insurance company providing coverage will pay the part of the loss that exceeds the deductible.

Important Factors to Remember About the Deductible

· The deductible applies per occurrence.

· The deductible applies separately at each covered location.

· Only one deductible applies at each location.

c. Loss to a Pair or Set

If there is a loss to an item that is part of a pair or set, the insurer has the option of just paying to replace or repair the item, or to pay the difference in the actual cash value of the pair or set just before the loss and the actual cash value just after the loss. In other words, the insurer does not become obligated to compensate such losses by providing the value of a full pair or set.

d. Loss to Parts

When an occurrence involves a loss to a part of an item that consists of several components, the insurer’s obligation is only according to the value of the lost or damaged part or the cost to repair or replace it.

Both the Loss to a Pair or Set and the Loss to Parts provisions are meant to control the insurer’s exposure. In this case, the insurer makes it clear that it is not automatically obligated to treat a partial loss as, for all intents, a total loss. Of course, the loss circumstances and the type of property involved have a great deal to say about the values involved and what is considered to be fair.

Example: Bessie James and Ron Dillinger were on a date at an amusement park and both wore their favorite earrings. Both Bessie and Ron were upset to find an earring was missing after they got off the Belly Mangler roller coaster ride. Both Bessie and Ron submitted claims to their respective insurers and, while Ron was happy with the amount, he received for the loss of his one earring, Bessie was not. In Ron’s mind, each piece of his earring set had single value since he only had one ear pierced. As far as Bessie was concerned, getting a settlement that was somehow based on a single earring was ludicrous. She wasn’t able to find a single earring that matched the one she still had, so the remaining earring was worthless.

e. Loss Settlement Terms

Depending upon the policy’s applicable settlement terms, eligible losses are handled according to either the replacement cost terms or according to the actual cash value term.

Regardless of the terms used to handle an eligible loss, increased costs or expenses that are created by a law, code or ordinance will not affect the payment. However, there is an exception for the limited coverage that exists under the policy’s incidental property section.

1) Replacement Cost Terms

These terms are for losses involving structural property (with foundations and roofs) that is protected under Coverages A and B. They do not apply to any of the following:

· Window air conditioners

· Awnings and canopies

· Appliances

· Carpets

· Antennas

These exceptions have much to do with the fact that such property is either protected under another coverage part or is too vulnerable to depreciation, or both.

When attempting to determine the replacement cost for property that is covered under Coverages A and B, do not include the cost of any of the following:

· Excavations; brick, stone, or concrete foundations; piers; and other supports that are below the undersurface of the lowest basement floor; or below the surface of the ground inside the foundation walls, if there is no basement;

· Underground flues, pipes, wiring, and drains.

The policy makes these exceptions in the replacement cost computation because this property often survives even total losses and, therefore, shouldn’t be included in determining a building or structure’s full replacement value.

Most carriers have a goal to preserve the property that they insure. Therefore, it is in their interest to encourage that damaged or destroyed property be repaired or replaced. For larger losses, the insurer has the option to make incremental settlements. Specifically, when the cost to repair or replace damaged or destroyed property exceeds the lesser of $2,500 or 5% of the limit on the damaged building, the insurance company will not pay for more than the actual cash value of the loss until repair or replacement is completed.

The insured also has options. He or she may make a claim for the actual cash value of the loss before repairs are made and then make a further claim for the replacement cost provided a notification has been provided to the insurance company within six months of the loss of the intent to claim replacement cost.

If the limit on the damaged building is less than 80% of its replacement cost at the time of loss, the larger of the following amounts is used in applying the terms under the Our Limit terms:

1. The actual cash value at the time of the loss

2. That part of the replacement cost of the damaged part which the policy limit on the building bears to 80% of the full current replacement cost of the building.

Example: The replacement cost at the time of loss is $100,000. The limit of insurance carried at the time of loss is $60,000. The replacement cost of the loss is $35,000. That is multiplied by .60 (penalty factor developed by $60,000 ÷ $100,000) for an adjusted replacement cost value of $21,000. The actual cash value of the loss is $20,000. So, the $21,000 is paid because it is the larger of the two.

If the limit on the damaged building is at least 80% of its replacement cost at the time of loss, the smaller of the following amounts is used in applying the terms under the Our Limit terms:

1. The cost to repair or replace the damage on the same premises for the same use and utilizing materials of like kind and quality, to the extent practical

2. The amount spent to repair or replace the damage.

Note: The named insured may decide to rebuild at a different location. This is acceptable under the policy but the replacement cost is limited to the costs that would have been incurred had the rebuilding took place at the original site. Therefore, an insurer preserves the obligation it accepted by writing the original business and is not subject to costs that are controlled by an insured.

2) Actual Cash Value Terms

Actual cash value includes a deduction for depreciation.

The actual cash value terms are used to settle losses in all instances where items are not eligible for replacement cost settlement. In those instances, the least expensive option among the following is used:

1. To the extent practical, the cost to repair or replace the property with materials of likes kind and quality

2. The actual cash value of the property at the time of loss

2. Coverage L—Personal Liability

The policy’s Coverage L limit appears on the declarations and it acts as the maximum possible amount that the insurer is obligated to pay for a single occurrence. This maximum obligation is not affected by the number of persons who are insureds, the number of parties who sustained injury or damage, or the number of legal actions (claims or lawsuits). Further, the above limit also acts as the maximum when more than one policy period is involved and it applies regardless of the number of claims. Repeated exposure to similar conditions is considered one occurrence as are all bodily injury and property damage from any one accident.

3. Coverage M—Medical Payments to Others

The coverage limit that appears for Coverage M is the maximum amount of protection available for medical expenses paid to a given third party for a single accident.

The payment of a claim under Coverage M does not imply liability under Coverage L. In other words, the policy may cover the medical expenses of an injured person without giving up the right to investigate and decide upon the merits of any related liability claim.

Example: Agnes Lowfault loves to garden. One day Agnes returned home with supplies from Green Menace, her favorite home and garden center. Since she planned to immediately work on her garden, Agnes quickly unloaded her car and piled the supplies on her lawn. Agnes rushed outside when she heard a crash and some loud groaning. Perry Sumklutz tripped and fell over a couple of bags of fertilizer that protruded onto the sidewalk in front of Agnes’ home. Agnes helped Perry to a nearby medical center where he was cleaned up and received several stitches. Agnes’ policy paid for the medical treatment.

A few weeks later, Agnes received notice that Perry was suing her because she left the bags in a place that caused the accident. He also stated that the fact she paid for treatment indicated that she was guilty. Agnes’ insurer, No Guff Ins. Co., investigated the claim and offered Perry nothing. The insurer discovered from several witnesses that, at the time of the loss, Perry was skating very fast and doing so backwards, zigzagging as he actually ran onto Agnes’ lawn first, then hitting the bags and falling down. Perry decided to be happy that his medical expenses were taken care of and he dropped the lawsuit.

4. Severability

Each insured under the policy is treated individually under the policy with one exception—the limit of insurance applies per occurrence not per insured.

Related Court Case: Dog Bite Triggers Coverage Dispute

5. Insurance under More Than One Coverage

If more than one coverage of this policy applies to a loss, no more than the actual loss itself will be paid. This condition assures that a person is not allowed to benefit from the fact that coverage under the policy exists from more than one area.

6. Insurance under More Than One Policy

a. Property Coverage

Depending upon the source of coverage that is available (in addition to this policy), the policy may respond to the loss on either a proportional or an excess basis.

When there is other insurance that applies to the loss, the insurance company providing coverage under this form is only obligated to pay its share of the loss. This policy’s share is based upon the portion of coverage it provides in relationship to the total amount of coverage available from all sources of coverage, which apply to the loss.

Example: Frank just moved into a single-family home two weeks ago and the home is protected by a Basic Form policy from Wriggle Wrangle Insurers. The Wriggle Wrangle policy has a $30,000 limit on Coverage C—Contents. Frank lost a one-month-old couch when a friend left a smoldering cigarette between its cushions. The couch had a purchase price of $1,800. When speaking to Frank about a settlement, the claims adjuster discovered that Frank had a previous policy from another insurer. It was for Frank’s apartment. That policy had a limit of $10,000 for contents and it had overlapping coverage that applied to the lost couch. In light of this information, the claims adjuster paid Frank $1,275 for his company’s portion of the loss. That figure was developed per the following:
Amount of loss (replacement cost of couch)	$1,800
Amount of 1 month’s depreciation	$100
Adjusted amount of loss (current value of couch)	$1,700
Total amount of coverage applicable to loss	$40,000 - [$30,000 from Wriggle + $10,000 from apt. policy]
Percent of coverage supplied by Wriggle	75% - [$40,000 divided by $30,000]
Amount of loss paid by Wriggle	$1,275

Loss, cost, or expenses that are covered under a government fund or a home warranty type plan are not considered insurance under this provision.

When a loss also is covered by the master policy of an association or corporation of property owners, this insurance responds on an excess basis. In other words, this policy would provide coverage ONLY AFTER any available protection from the master policy is exhausted. While this is an important provision, it is likely to be a rare occurrence since master policies are unlikely to provide coverage for property owned individually by a condo unit-owner.

b. Coverage L - Personal Liability

This insurance is excess over other valid and collectible insurance that applies to the loss or claim. However, this condition does not apply to insurance written specifically to act as a second or additional tier of coverage above this policy's limits.

If the other insurance is also considered excess, this policy will pay only its share of the loss. The part of the loss that will be paid is that part of the loss that the applicable limit under this policy bears to the total amount of insurance covering the loss.

This condition attempts to make any liability protection provided by this policy act only after another source of coverage responds to a loss. It adds an option of responding on a proportional basis when the other source of coverage provides its protection on an excess basis. Unfortunately, not all circumstances can be foreseen by policy conditions so there are times that insureds and insurers will dispute how coverage is to apply.

7. Warranties and Service Or Maintenance Plans Or Agreements

The policy’s available coverage is directly affected when a warranty, service plan or similar agreement applies to an occurrence. In such instances, the policy responds on an excess basis. This provision applies even if such agreements or plans are structured to operate similarly to insurance. Regardless, the policy’s coverage would apply as excess (as opposed to the proportional basis that applies when other sources of insurance are available).

8. Government Funds

The policy’s available coverage is directly affected when a government fund also applies to an occurrence. In such instances, the policy responds on a proportional basis. Specifically, this policy would apply coverage based on the share of total protection that its limit represents.

PAYMENT OF LOSS

1. Property Coverages

Losses are adjusted between the named insured (including resident spouse) and the insurance company. The insurance company is obligated to pay an insured loss within 60 days after receiving an acceptable proof of loss and coming to a written agreement on amount of the loss.

If a covered loss makes the described location unfit for use for more than one-month, additional eligible expenses will be paid on a monthly basis. The insured must submit proof of the extra living expenses.

The insurance company has some flexibility in paying for an eligible loss. The settlement may be paid in money; or the insurer may choose to rebuild, repair, or replace the property. The insurance company is obligated to give the insured notice of its intent within 30 days after the insurance company receives an acceptable proof of loss.

2. Liability Coverages

Once a person has been granted a judgment against an insured or insurance company, the insured and the claimant have reached an agreement, that person can recover under the policy based on the extent of coverage the policy provides.

Note: That extent is based on the limits section of the policy.

3. Damage to Personal Property of Others

At the option of the insurance company, a loss may be handled and paid either with an insured or with the actual owner of the damaged or destroyed property. These handling options are mutually exclusive.

Note: If it is not clear, the above reference to owner is to the owner of the damaged or destroyed property (not the owner of the policy paying the coverage). This insurer option could help to mitigate adverse feeling between the insured and the property owner.

POLICY CONDITIONS

Conditions Applicable To All Coverages

1. Assignment

No insured or other party can sign this policy and its coverages over for use by any other party unless, first, getting the insurance company’s permission (in writing).

2. Cancellation and Nonrenewal

This policy may be canceled by the insured by returning the policy to the insurance company or by giving the insurance company written notice that states at what future date coverage is to stop.

The insurance company providing coverage may cancel or not renew this policy by written notice to the insured at the address shown on the declarations. Proof of delivery or mailing is sufficient proof of notice.

If it is during the first 59 days, the insurance company may cancel for any reason with at least 10 days’ notice before the cancellation is effective.

After this policy has been in effect 60 days or more, or if it is at the policy’s annual renewal, the insurance company may cancel only at the anniversary date unless any of the following applies:

· The premium has not been paid when due

· The policy was obtained through fraud, material misrepresentation, or omission of fact, which, if known by the insurance company, would have changed the decision to accept the risk, or

· A material change or an increase in the hazard of the risk has occurred.

This condition goes on to say that, if the policy is canceled for nonpayment of premium, the company providing insurance will give the named insured at least 10 days’ notice before the cancellation is effective. If the policy is to be canceled for any other reason after it has been effective for 60 days or more, the insurance company is obligated to provide at least 30 days’ notice before cancellation. If the company providing coverage elects to non-renew the policy, it is obligated to provide at least a 30-day notice.

Related Court Case: Cancelled Policy Triggers Coverage Dispute

Important: Generally, this provision is pre-empted by state law regarding cancel or nonrenewal reasons, amount of notice and proof of delivery. It is critical that state law is followed concerning any decision to cancel or non-renew a homeowner policy.

If any return premium is owed, it will be refunded at the time of the cancellation or as soon as is practical. Payment of the unearned premium has no bearing on cancellation.

3. Change, Modification, or Waiver of Policy Terms

Only the insurance company has the option of waiving or changing this policy’s terms and such waiver or change must be in writing. If the insurance company providing coverage under this policy adopts a revision that broadens coverage without additional premium, the broadened coverage will apply to this policy as of the date the insurance company adopts the revision in the state in which the described location is located. This condition applies only to revisions adopted 60 days prior to or at any time during the policy period shown on the declarations. This condition does not apply to changes in a policy that both broaden and restrict coverage whether in an edition change or an endorsement.

A request by the insurance carrier for an appraisal or that an insured provide examination under oath cannot be construed as a waiver of policy terms.

4. Conformity with Statute

Terms in conflict with the laws of the state in which the premises shown on the declarations is located, are changed to conform to such laws. This provision is rarely relied upon since amendments or endorsements are added to policies based on the described location’s state. However, there are instances where the condition is relied upon such as when a law changes after the policy issuance and prior to the attachment of a revised amendatory endorsement.

5. Death

If the named insured or the named insured’s in-resident spouse dies the legal representative of the person who died becomes an insured in respect to the deceased insured’s premises and property but only for the coverage provided by the policy at the time of that person’s death.

The status of the residents in the household changes after a named insured or spouse dies. In such events, the definition of insured is changed for the time of transition following the death. The definition of insured is expanded to include members of the deceased person’s household who were members at the time of death but only while residing at the described premises. In addition, if a person is granted temporary custody of the covered property belonging to the deceased, that person is an insured but only for that property and only under a legal representative is appointed.

6. Inspections

The insurer reserves the right to inspect the property it insures and it can do so with its own personnel or it can have another organization make an inspection on its behalf. The condition also warns the insured that, while an inspection and related information about the results of the inspection may imply a type of warranty or guarantee about the fitness of the insured location - that is not an assumption that should be made.

What purpose does this serve? This is a warning and a notice to an insured that a company inspection cannot be used as evidence of the worthiness of the property. A company has their own underwriting rules and philosophy for providing coverage and will not permit its actions to be used to the benefit of other parties. This also prevents the company from being held liable to other areas of authority concerning the property.

7. Misrepresentation, Concealment, or Fraud

Any intentional concealment or misrepresentation on the part of any insured can void the policy for ALL insureds. If an insured lies or hides a material fact or any circumstance that relates to the insurance that is granted by this policy will cause the insurance to bar coverage for any insured. Therefore, such instances or acts will bar coverage even for innocent insureds. This negative consequence may take place due to incidents that occur either before or after any loss.

Simply put, the company should be able to rely on the statements made by the insured in making its decision to insure a person or property. If the statements are seriously in error, the insurance contract has no right to exist and the company has no obligation to honor it.

8. Subrogation

When an insurer pays damages, it may ask the insured to transfer his or her right to attempt to recover damages from another party. The insured must agree, in writing, to do so and to fully cooperate with the insured in pursuing the recovery. This act of seeking payment from a party responsible for a loss is called subrogation. This right is very valuable to an insurer. In fact, if an insured damages this right to recover payment after a loss has occurred, the insurer may no longer be obligated to pay for the loss.

The insured may waive all rights to recover before a loss occurs—but this waiver must be in writing. Signing this waiver BEFORE a loss does not affect coverage under the policy.

Subrogation problems do arise under homeowner policies. Many insurers aggressively assert and protect their rights to subrogate against other parties. In some instances, insurers are taking legal action against their clients who harm this right.

Note: Subrogation does not apply to losses involving medical payments made to other parties or to the Damage to Property of Others, Incidental Liability Coverage.

Related Court Case: Subrogation Not Allowed for Tenant's Breach of Contract to Buy Insurance – illustrates that claiming a right to recover against other parties is not always clear-cut.

Conditions Applicable To Property Coverages Only

1. Abandonment of Property

An insured may not abandon property to the insurer without the insurer’s permission.

Of course, if the insurer agrees to accept the damaged property, the act is NOT abandonment.

2. Appraisal

If the insurer and the named insured do not agree over the value of the covered property or the amount of the loss, each party has 20 days (after receiving a written request from the other party) to select an appraiser. The two appraisers will select an umpire.

If, within 15 days, they do not agree on an umpire, the two appraisers may ask a judge of a court of record of the state where the described location is located to make the selection. If the two appraisers agree in writing, that sets the amount of the loss. However, if they do not agree, the differences are submitted to the umpire and then the written agreement of any two of the parties sets the amount of loss. Each party will pay its appraiser and the two parties will share the cast of the umpire and related expenses equally. Remember – the appraisal is about the amount of the loss not whether or not coverage applies.

3. Loss Payable Clause

If the form includes a loss payee with an insurable interest in any covered contents, that loss payee (appearing in the declarations) is granted status as an insured. However, any coverage is only to the extent of the amount and nature of their interest in any personal property that is protected by this policy. A copy of any termination notice or non-renewal sent to the insured will also be sent to the applicable loss payee.

4. Mortgage Clause

a. When a mortgage interest appears on the declarations, loss settlements under Coverages A or B will be arranged with both that interest and the policy’s named insured. The payments will be made with proper consideration of each party’s financial interest. Similar payment procedures will take place in the event that a policy includes more than one mortgage (including trustee) interest.

b. A mortgage interest, which is listed on the declarations, has rights and obligations under the policy, which, as far as loss payment goes, are comparable to an insured’s rights. Any payments involving property losses under Coverage A (dwelling) and Coverage B (related structures) will be made to each party according to their share of the claim.

c. If an insured’s claim is denied, coverage may still apply for the mortgagee. However, in order to secure coverage for its legitimate claim, the mortgagee has to notify the insurer regarding any changes in the risk, such as different ownership or occupancy. The mortgagee must pay the policy premium once it becomes aware of the insured’s failure to pay and, again if the insured fails, the mortgagee can preserve possible coverage if it sends a valid, timely proof of loss statement.

d. If a mortgagee is paid for a claim that involves a denial to the named insured, it is likely that the insurer will secure the mortgagee’s subrogation rights and, in turn, go after the named insured for reimbursement. Further, when payment is made to a mortgagee, the insurer may decide to buyout the mortgagee’s complete financial interest and, if applicable; secure rights to the mortgage debt and/or collateral.

The insurer has the obligation to give any mortgagee 10-day advance notice of a decision to cancel of non-renew the applicable policy.

5. No Benefit to Bailee

This policy is not intended to provide protection for the direct or indirect benefit to parties who are paid to assume custody of the covered property. In other words, such persons or organizations should secure their own insurance instead of piggybacking onto an insured’s coverage.

6. Policy Period

The policy period sets the time frame in which a loss must occur in order for it to be covered under the policy.

7. Recoveries

There are instances when the insurer pays for a loss and then the property is recovered. Similarly, after the insurer’s payment, damage payments are received from those responsible for the loss. When this happens, the named insured and the insurer are obligated to inform each other. The costs of the recovery efforts are paid first. The named insured can decide to keep the property or give it to the insurer. If the recovery is not wanted, then nothing changes but if the named insured wants the property, claim payments received from the insurer, or some lesser agreed upon amount, must be returned to the insurer. If the named insurer did not receive a complete payment for the claim, due to a deductible or a coverage limitation, the recovery is prorated based on the interest of each party in the loss.

Note: The policy language is not clear about who bears recovery cost. What is important is that they are resolved in a manner that is fair to the insurer and the insured. One party should not significantly benefit from the recovery of property or money if it comes at the expense of the other party.

Related Court Case: Insured Has Right to Claim Recovered Property

8. Suit Against Us

A suit against the insurer cannot be filed without Property Coverage’s terms being complied with. Further, the suit must be filed within two years after the loss.

Note: If applicable state law makes this time period invalid, the suit must be filed according to that state’s mandated time frame.

9. Volcanic Eruption

All volcanic eruption action that occurs within a 72-hour (3-day) period is considered a single occurrence.

Conditions Applicable To Liability Coverages Only

1. Bankruptcy of an Insured

Bankruptcy or insolvency of an insured does not relieve the insurance company of its obligations under this policy.

2. Duties of an Injured Person—Medical Payments to Others Coverage

When there is a loss, the injured person or his or her representative must provide the insurance company with a written proof of claim as soon as it is practical. The insurer has the right to request the statement be made under oath. The insurer must also receive permission or authorization to receive copies of medical records.

In addition, the person who was injured must agree to allow the insurers chosen doctors to conduct medical exams on a reasonable schedule.

Note: Although all of this may sound reasonable – the injured party is not a part of the insurance contract so this may be difficult to enforce.

3. Policy Period

This policy’s protection only extends to actual bodily injury or property damage losses occurring within the applicable policy period.

4. Suit Against Us

The insured is not permitted to file suit against the insurer without, first, complying with all of the policy’s terms. Further, the amount of the insured’s liability must have been determined by either of the following:

A final judgment against the insured as a result of a trial
A written agreement between the insured, the claimant, and the insurer.

Note: No person has a right under this policy to join the insurance company or to speak for the insurance company in actions related to determine the amount of an insured’s liability.

Example: The Jergletons’ home is burglarized. They have a HO 0001 policy which has a Coverage C insurance limit of $54,000. Their claim to their insurance company includes the following losses:
Jewelry	$3,900
Two fur coats	$3,700
Seven handguns and a hunting rifle	$4,600
Set of silver goblets	$3,300
Total	$15,500
All this property is subject to the $2,500 theft limit. Instead of the $15,500 loss, the total possible recovery the Jergeltons can expect is $10,000 ($2,500 maximum for theft loss per category of property).

HO 0001–AAIS BASIC FORM HOMEOWNERS ANALYSIS

TABLE OF CONTENTS

AGREEMENT

DEFINITIONS

PROPERTY COVERAGES

INCIDENTAL PROPERTY COVERAGES

PERILS INSURED AGAINST

EXCLUSIONS THAT APPLY TO PROPERTY COVERAGES

LIABILITY COVERAGES

Incidental Liability Coverages

EXCLUSIONS THAT APPLY TO LIABILITY COVERAGES

WHAT YOU MUST DO IN CASE OF LOSS OR CLAIM

HOW MUCH WE PAY FOR LOSS OR OCCURRENCE

PAYMENT OF LOSS

POLICY CONDITIONS

Conditions Applicable To All Coverages

Conditions Applicable To Property Coverages Only

Conditions Applicable To Liability Coverages Only