HO 0003–AAIS SPECIAL FORM HOMEOWNERS ANALYSIS

(May 2024)

Collapsible Index

Agreement

Definitions

Property Coverages

Principal Property Coverages

Incidental Property Coverages

Perils Insured Against - Coverages A, B, C, And D

Exclusions That Apply To Property Coverages

Liability Coverages

Principal Coverages—Liability And Medical Payments To Others

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

Note: This analysis is based on the January 2008 edition of the form.

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 and the 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 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 Us

The company that provides the homeowner's coverage.

3. Actual Cash Value

The amount it takes to repair or replace property. Consideration under repairs or replacement includes an adjustment for depreciation in value. However, no consideration is made for the reasons that a given property has experienced depreciation.

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 first experiences physical injury there is no coverage for either injury or death that is related to emotional, mental stress or similar situations.

Example: A ten-year-old boy and his father are visiting an insured’s home. The boy witnesses his father’s near fatal mauling by the insured’s dog and is traumatized. The father’s medical and emotional treatment qualifies as bodily injury. The son’s emotional treatment does not as he was not attacked by the dog.

6. Business

A trade, profession or occupation including farming (even when performed only on an occasional basis). This term includes renting 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.

Example: An insured couple are empty nesters living near a famous racetrack. Each year, cousins from another part of the country come out to see the race and they stay with the couple. Since the cousins know that the couple is on a tight budget, they pay them several hundred dollars to use their spare bedrooms. This occasional rental would not qualify the activity as a "business."

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 receives an exchange of like services, it is not a business, such as neighbors who exchange taking care of each other’s’ young children on different days so they can get chores and errands done.

Note: The definition refers to compensation rather than monetary payment. That is a very important distinction.

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 as an exception and it is treated as a business. Other activities the insured may engage in are not considered business as long as in the 12 months prior to the policy inception the total compensation for the particular activity did not exceed $2,500.

7. Declarations

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

8. Described Location

A house (up to a four-family structure), town house 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: Lisa lives in a town home and she has access to a large, community storage barn located in a common area behind the residences. She is a professional singer and she stores all of her recording and related equipment in the barn that is only used for practices and as a recording studio. The barn would not qualify as a described location.

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.

Example: A wealthy executive has an assistant:
Scenario 1–the assistant is located at the executive’s home. His work consists of personal tasks, such as picking up dry cleaning or going to purchase theatre tickets. The assistant would qualify as a domestic employee.

Scenario 2–The assistant, while located at the executive’s home, handles filing, correspondence, performs research and arrange meetings related to the insured’s work. This assistant does not qualify as a domestic employee.

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.

10. Employee

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

Example: An insured lives in a large home and is a home-based meeting planner. He is preparing for a very large convention that is coming to his town and he was hired to run several events.
Scenario 1: He hires an assistant for a week, also working out of his home, to assist with the large client. The leased assistant would qualify as an employee.	Scenario 2: He hires an assistant for a week, also working out of his home, to assist with keeping his household in order and to care for his pets while the insured takes care of his large client. The leased assistant would NOT qualify as an 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 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 fulltime, 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 a named insured who also lives in the household. These non-relatives are also covered while away from the household attending school fulltime 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.

The definition of Insured 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

Example: Prissa is out of the country, vacationing for two months. She hires a realtor to rent out her home during the time she is away. The realtor is an insured under Prissa’s policy while he is acting as her rental agent on the premises.

· 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 specific employment duties.

· Any person using a covered motorized vehicle on the insured premises is an insured but only if the named insured gave 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, 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 animal incidents are not insured if the use or control or either was business related.

Example: Millie’s grandson and his friend Jake are riding Millie’s horses on her property and on park trails connected to her property. The horse becomes spooked by a snake, runs off the trail and tramples a hiker. Jake is considered an insured.

Example: Jake feels terrible about the injury he caused. He volunteers to care for Millie’s four horses for a month. While Jake is grooming one of the horses, a neighbor girl enters the barn. Jake becomes distracted and the horse bolts to take the sugar cube out of the girl’s hand. The girl is bowled over and must be taken to the hospital. Jake is an insured under this situation.

IMPORTANT: The vicarious liability protection that the special form policy grants to entities in possession of an insured’s crafts, vehicles or animals only applies in instances where the use or possession involves an insured’s permission.

Example: A person riding in Charla’s golf cart (which she uses to transport supplies and implements for gardening around her estate) strikes a postal worker in Charla’s driveway.
Scenario 1: The driver is a friend, helping Charla do some landscaping–the situation is covered.	Scenario 2: The driver has just stolen Charla’s golf cart and the accident occurred while she was attempting to escape – the situation is NOT covered.

14. Insured premises

The described location (as defined above) is an insured premises. In addition, any premises that is listed on the declarations as insured premises and is used by the named insured, as a residence, is an insured premises.

Related Court Case: Was Golf Cart Operating On "Insured Premises?"

If a premises is acquired during the policy and is used by the named insured as a residence, it 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.

Example: A one-story, 1200 square foot cottage used by the insured’s mother-in-law and located on the same land as a covered home, qualifies as an insured premises. The same building equipped with power saws and planers that is rented to a person who uses it to build furniture is disqualified as an insured premises.

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

Cemetery and burial plots of an insured, without regard to 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 are insured premises.

Examples

An insured rents a lodge during a vacation to hunt and fish – qualifies as an insured premises.
An insured rents a lodge as a temporary office for a team of accountants who are auditing an out-of-state client – does not qualify as insured premises.

Finally, 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 is not the same. Farmland is not insured premises.

Note: Premises used by any insured for activity generally considered to be a business does not qualify as an insured premises.

Example: Finn rents a loft from an old friend. He uses the loft for:
Scenario 1: A crash/pad when he has had a very late workday and doesn’t want to make the 75-minute commute – this is an insured premises.	Scenario 2: His photography studio, where he meets clients and holds photography sessions with models – this is NOT an 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.

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 items that are thrown away.

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 food and shelter. Creatures that are considered vermin include raccoons, possums, skunks, porcupines, snakes, armadillos, bats but these are only examples.

22. Watercraft

With regard to the special form policy’s liability coverage, 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

1. Coverage A—Residence

a. 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.

b. There is no coverage for land, including the land on which covered property is located, except for some limited coverage for liquid fuel remediation provided as Incidental Property Coverage. 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: Some limited coverage is available for such property under Incidental Property Coverages.

c. The limit that appears on the declarations for Coverage A represents the maximum amount of coverage that will be paid for a given, eligible loss.

2. Coverage B—Related Private Structures

a. There is coverage for related private structures on the described premises that are not attached to the residence protected 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.

b. There is coverage for fences, driveways, sidewalks, and other permanently installed outdoor fixtures.

Examples:

A home and a garden shed have a clothesline stretched between them. The line does not affect the shed's qualification as a "related private structure."
A home and an 800 square foot building used as a guest home are connected by an enclosed, brick walkway. The walkway makes the guest home an attached structure. Protection would have to be included under Coverage A.

c. There is no coverage for land, including the land on which covered property is located except for some limited coverage for liquid fuel remediation provided as Incidental Property Coverage. 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 used in any of the following manner:

· 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) are 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

d. The limit that appears on the declarations for Coverage B represents the maximum amount of coverage that will be paid for a given, eligible loss.

3. Coverage C—Personal Property

The AAIS Special 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.

Clarification: 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 Politico family’s home is insured under a Special Form policy. The Coverage C insurance limit for their residence is $125,000. They also rent a second home in the state capital where Mr. Politico lives during the legislative sessions and when any special events occur in the capitol. The house is completely furnished, and that property remains in that residence. Their Special Form policy that protects the Politicos’ full-time residence can provide up to $12,500 to cover the personal property in the house.

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% of the Coverage C limit (subject to a $1,000 minimum).

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)

Example: A wedding crasher sticks around the insured’s home and steals a stack of department store, jewelry store and restaurant gift cards. The value of the stolen cards is nearly $2,300. Because of the limitation, the insured is paid only $250.

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

Example: A burglar victimizes the Harrahsons’ home, stealing $300 in cash, a $900 silver statuette, and a gold wedding chalice worth $1,200 for a total loss of $2,400. Because of the limitation, the Harrahsons are paid only $250.

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 insured under the applicable policy;

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 does not apply to hovercraft. It also does not apply 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)

Example: A thief breaks into the Lazlos’ home and steals some personal property. The policy has a Coverage C insurance limit of $40,000. Their claim to their insurance company includes the following losses:
Jewelry	$2,400
Watches	$500
Three Rifles	$2,800
Pewter Tea Service	$1,900
Total	$7,600
Since all of this property is subject to the $2,500 theft limit, is the total amount that the Lazlos can recover from their policy $2,500? No. Assuming that the Lazlos are entitled to the full amounts provided by their policy, they should be able to recover $6,900. How did we get this figure? You must be careful about how the special limits apply. The jewelry and watches are both subject to the same limit, so only $2,500 of the $2,900 loss is covered. The rifles are subject to the gun limit, so only $2,500 is available for that portion of the loss. The tea service is also subject to a special limit, but since its value is less than the special limit, the total $1,900 is covered.

AAIS PM 0001-Personal Articles Coverage Form Analysis

8) Since the Special Form policy is designed to cover personal, rather than business losses, the policy restricts the amount of coverage available to protect business property to the following:

· $2,500 on property while on the insured premises

· $500 on property while away from the insured premises.

However, this special limit does not apply to items described in the electronic devices limitations.

Note: These special limits include the cost of research or other expenses necessary to reproduce, replace, or restore business data.

d. Personal Property Not Covered

There is no coverage in this policy for any of the following:

1) Property covered by separate (including scheduled) insurance

The bar to coverage is not affected by the amount of any separate source of coverage. If other coverage exists, that coverage supplants any obligation for property coverage under the special form policy. Therefore, if the other source of coverage is inadequate to handle a given loss, the exclusion STILL applies.

Example: An insured’s home is destroyed along with most of its contents. Her policy had a Coverage C limit of $35,000. She also had a special endorsement with $10,000 coverage for a small collection of paintings. The loss resulted in $20,000 in losses to unscheduled property, while the loss of the paintings totaled $17,000. Although the Coverage C limit of $35,000 was not depleted by the loss, none of the coverage is available to cover the unanticipated additional $7,000 loss to the scheduled paintings.

2) Animals, birds, fish, or insects

Example: An insured is a lab superintendent who brought home a pair of rats used in his employer’s special project. The rats are stolen during a break-in. The loss is not covered.

3) Motorized vehicles, including their parts, equipment, and accessories except for the items subject to the $1,500 limitation explained earlier. Electronic devices, accessories, or antennas that can be operated only from the electrical system of a motorized vehicle, including films, tapes, wires, discs, records, or other media for use with such devices while in or on a motorized vehicle are also not covered.

Note: There is coverage for motorized vehicles that don’t require registration if they are designed and used to assist the handicapped (motorized wheelchair) or used only to service the insured premises or premises of another (riding lawn mower). These vehicles are covered unless used for business purposes.

4) Aircraft is not a defined term, so it includes any type of device that is supposed to fly. Parts and equipment are also not covered even if not attached to the aircraft. There is coverage for model aircraft provided it is not designed or used to carry people or cargo.

5) Hovercraft

Note: The hovercraft defined in the Definitions section is limited to liability coverage only, so this is not a defined term in this section. In this section, hovercraft 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. Parts and equipment are also not covered, even if not attached to the hovercraft. There is coverage for model hovercraft provided it is not designed or used to carry people or cargo.

6) Property of roomers, boarders or tenants is not covered but the property of an insured’s relative who is considered a boarder or roomer is covered.

Example: An insured rents a room to an out-of-state college student for the summer. The student’s clothing, stereo, and other belongings, worth $2,100, are destroyed by smoke from a severe fire that started in the insured’s kitchen. The loss is not covered since the property belonged to a roomer.

7) Property that an insured makes available for rent to other persons but there are exceptions. If the property is in part of the described location occupied solely the named insured’s household that is only occasionally rented out and then only for residential purposes, there is coverage. If it is located in part of the described location that is occupied by the named insured’s household but also rented to one or two boarders, there is coverage. Finally, if the property is in an apartment at the described location that is rented out by an insured (doesn’t have to the named insured) there is coverage. However, any coverage for the rental property is subject to the Incidental Property Coverage.

Example: An insured couch that is located in a room rented to a boarder is destroyed in a fire. The couch is covered.

Example: An insured’s guitar that he regularly rents to local musicians is destroyed in a fire. The guitar is not covered

8) Loss involving credit cards, debit cards, and fund transfer cards (such as ATM cards) except as provided under Incidental Property Coverages

9) Property such as grave markers and mausoleums. However, modest coverage is available under Incidental Property Coverage

10) Land, including the land on which covered property is located except for some limited coverage for liquid fuel remediation provided as Incidental Property Coverage

11) Underground or surface water

12) Trees, plants, shrubs, or lawns

Note: Limited coverage is available under Incidental Property Coverage.

Except for what is stated regarding special limits and exclusions, the Coverage C limit that appears in the policy represents the maximum that will be available for a given loss involving eligible property.

4. Coverage D—Additional Living Costs and Loss of Rent

a. The insurance company is obligated to reimburse increased living costs that are paid by an insured household to maintain its normal standard of living. This situation has to be triggered by the described location becoming unlivable (or, in some instances, inaccessible) because of a covered source of loss (such as fire, windstorm, etc.). The increased costs will be paid for the time reasonably required to make the described location fit for use or until the household is permanently relocated, whichever occurs first. This period of time is not limited by the policy period.

There are many homeowners who rent out part of their residence to others. The next feature of Coverage D, Loss of Rent, is to help persons whose rental income is affected by a covered cause of loss.

b. The insurance company will pay for the rent or for the fair rental value that is lost when part of the described location, which generates rental income, can’t be used because of a covered loss. Expenses that do not continue are deducted from the rental value in determining the loss payment. As it is with Additional Living Costs, the lost rent will be paid for the time reasonably required to make the rented part of the described location fit for use. This period of time is not limited by the policy period.

c. The policy also pays for increased living expenses and lost rental income for up to two weeks if a civil authority prohibits access to the described location because it is endangered by a loss to a neighboring premises. The damage to the neighboring property must be caused by a source of loss that is covered by the Special Form policy.

d. There is no coverage under Part D if an insured loses rent because a lease or an agreement has been canceled.

e. Also, the insurance limit that is shown for Coverage D is the maximum amount that may be recovered under all sections of this coverage.

INCIDENTAL PROPERTY COVERAGES

The Special 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. Further, 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.

1. Association Deductible

The special form policy provides up to $1,500 per occurrence (unless increased on the declarations) for the named insured’s share of a deductible 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; is covered property under the named insured’s association insurance; and

· The loss involves direct damage 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. Collapse

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

There is coverage for direct physical loss to covered property involving the collapse of a building or a part of a building only if caused by one or more of the following:

· Any of the perils described under Coverage C (Under this coverage, these perils apply to both covered buildings and personal property.)

· Hidden insect or vermin damage or hidden decay*

· Weight of contents or people (also animals) *

· Weight of rain pending on a roof*

· Failure of defective materials/methods during a construction or repair job*

Note: Collapse damage caused by the items with an * above that involve the following property is not covered unless the damage is the direct result of the collapse of a building. None of the following property is considered building even if they are attached to a building:

Awnings	Docks	Foundations	Retaining walls
Bulkheads	Drains	Patios	Swimming pools
Cesspools, or septic tanks	Fences	Paved areas	Underground pipes
Decks	Flues	Piers	Wharves

In other words, the damage has to be due to a building, affected by one of the * items, collapsing on top of the listed property.

Collapse must be due to any of following and it must be abrupt:

· Caving in

· Falling in

· Falling down

· Giving way

of the building (not the structures listed above) or a part of the building. The building must become uninhabitable or unusable because of the collapse. A building is not considered to have collapsed in the following situations:

· No collapse has occurred but the building (or even part of the building) looks like it could collapse because it is showing signs of collapsing such as bulging, leaning, settling and similar conditions.

· The building or any part of the building is considered in danger of collapsing

· Part of the building has broken or separated away from a part of the building but has not yet collapsed.

Example: Kelly’s gazebo tore away from her house. According to the experts, the problem is due to carpenter ants. The building inspectors say she must tear it down since it is in an imminent state of collapse. She turns in the claim to her insurance carrier and is denied because the collapse has not yet occurred.

Important: Nothing stated above limits coverage under a direct loss covered by a Coverage C peril. The Weight of Ice, Snow or Sleet peril is expanded to include damage to buildings. Two exclusions do not apply to the Collapse Coverage - Bacteria, Fungi, Wet Rot, Dry Rot, and Errors, Omissions and Defects.

This coverage provides additional coverage but not additional limits.

PERILS INSURED AGAINST - COVERAGES A, B, C, AND D

This section discusses the perils eligible for protection under this policy’s property coverage sections:

1. Coverage A—Residence and Coverage B—Related Private Structures

Unless a source of loss is specifically barred under these two coverage parts’ exclusion sections, all described building property (and property related to it) is protected against damage, loss, or destruction.

a. Exclusions Applying to Coverages A and B

1) Losses that are excluded under the Exclusions That Apply to Property Coverages Section.

2) Freezing, Discharge, Leakage, or Overflow

Loss caused by freezing is excluded. In addition, any water damage from any plumbing, heating, air conditioning, or automatic fire protective sprinkling system; water heater; or domestic appliance resulting from such freezing is also excluded.

An exception is made for an insured that takes care to maintain heat in the building or shuts off the water supply and completely empties liquids from such system, heater, or appliance. Of course, freezing and any related damages are very unlikely to occur if either precaution is taken. If the insured has an automatic fire protective device, turning off the water is not encouraged, so an exception is made for coverage if the insured maintains heat and continues the water supply.

The exclusion and exception do not apply to damage involving sump pump systems or drains and gutter systems.

3) Freezing, Thawing, Pressure, or Weight of Ice or Water

There is no coverage for damage caused by freezing, thawing, pressure, or weight of ice or water - wind driven or not - to the following structures:

· Swimming pools, fences, patios, paved areas

· Bulkheads, footings, foundations, walls, and similar items that support a building or structure

· Retaining walls or bulkheads that don’t support a building or structure

· Wharves, docks, or piers

This exclusion applies even if damage by the elements is assisted by force of wind.

Example: The Parklies’ home includes a backyard with a large brick patio. Pat Parklie notices that the bricks’ mortar is severely cracked, missing in places, and many bricks are loose and/or broken. A handyman tells her that wind-driven water that has frozen and then thawed has caused the damage. He estimates that it can be repaired for about $2,700. The loss is not eligible for coverage, even though wind action contributed to the damage.

4) Theft

This cause of loss is excluded, even damage caused by theft attempts, when it involves a dwelling under construction, or the loss of materials or supplies for use in construction of the dwelling. Coverage applies once the dwelling is occupied. According to policy wording, theft coverage exists when the dwelling is occupied for its intended use. However, this appears to be subject to interpretation. The inference is that coverage is provided when a dwelling is occupied as a residence, so the wording should be changed to be explicit.

Example: Karter Paperbound buys a policy for a home under construction. A couple months later the home is finished. The home will primarily house:

Scenario 1: Karter’s home, complete with an extensive home theater.

Scenario 2: Karter’s home plus a small copier supply and PC repair business.

In both scenarios, Karter uses his property for his intended purpose. However, in the second scenario, while the property is being put to its intended use (a home and a business), will there be coverage if the expensive business sign in Karter’s front yard is stolen?

5) Vandalism or Malicious Mischief

There is no coverage for loss caused by or resulting from (including deliberate acts related to the commission of) vandalism or malicious mischief if the residence is vacant for more than 60 days in a row just before the loss. A residence being built is not considered to be vacant. (2008 change)

6) Water, Humidity, Moisture, or Vapor

There is no coverage for loss caused by repeated or continuous seepage or leakage of water or from humidity, moisture or vapor that occurs over a period of time – weeks, months or even years. A long-developing loss may possibly be covered if it turns out that no one could have either known or expected the loss circumstances. In other words, if a rare or unusual situation creates a loss, it is possible that it may qualify for coverage. As part of this exception, a portion of a water damage exclusion found elsewhere in the policy is voided (but just for sake of this exception).

The policy’s separate water exclusion does NOT apply to such instances IF the source of loss is a domestic appliance or the insured home’s air conditioning, plumbing, heating, sprinkling systems or water heater at the described location. However, the coverage only applies if the insured either did not or could not have been reasonably expected to know about the damage. Eligible loss sources do NOT include plumbing, sump equipment or similar equipment used for handling the removal of subsurface water or regular drainage water. (2008 Change)

7) Collapse or Impairment

This exclusion specifically bars coverage for either collapse or property impairment. The latter term refers to a variety of situations indicating a lack of structural support. Damage to buildings on a described location that showed signs of sagging, bowing, bending, etc., would not qualify for protection. The only available coverage is restricted to what is provided under Incidental Property Coverages.

Related Court Case: Porch Damage Due To Defect Not Collapse

8) Settling, Cracking, Shrinking, Bulging, or Expanding

There is no coverage for loss caused by the settling, cracking, shrinking, bulging, or expanding of structural property. The policy specifically references a variety of building components including walls, ceiling, floors, and foundations. The bar to coverage extends to paved areas, patios, bulkheads, footings, and roofs.

Example: An insured built a home 10 years ago and, a year later, added a brick patio. Today, the home is two inches lower than the patio. Several rows of bricks adjacent to the home have cracked and tilted toward the home’s level. A contractor says that the problem was due to the home settling deeper than the patio and that he can rip out part of the patio and get things level for only $2,900. This cost is not recoverable under the special form policy.

9) Birds, Vermin, Rodents, Insects Or Animals

There is no coverage for loss caused by animals owned or kept by an insured. Further, this exclusion extends to damage caused by birds, vermin, rodents, or insects.

Example: Melynda was working on some landscaping around her home. As part of one big project, she breaks through a small area of her home’s foundation, but she doesn’t continue further work for several weeks. Later, she discovers that squirrels built a large nest in her exposed crawl space. The mess they create, including the damage to support joists, etc., is not eligible for coverage. However, some limited coverage for this cause of loss exists under the policy’s Incidental Property Coverages section.

10) Smoke

Coverage is excluded for damage due to smoke from agricultural smudging or industrial operations.

Example: Paul notices that he has to replace his home’s aluminum siding because, just a few years after installation, it has darkened and has a crumbly surface. He discovers that the aluminum siding is being destroyed due to exposure to fumes from a small manufacturing plant located near his neighborhood. The damage is not covered.

11) Pollutants

There is no coverage for loss caused by any conceivable incident involving pollution unless the damage is a direct cause of a source of loss described under Coverage C.

Example: Xavier spent a couple hours thoroughly cleaning his backyard brick patio with a solution of water and muriatic acid. He cleaned it in sections and used a wet vac to suction up used solution. As he was moving a tank of used solution, he tripped and the cart with the tank tipped over, cracked and the solution spilled onto his neighbor’s front yard. A few hours later, a quarter of the neighbor’s lawn and exotic perennial garden was destroyed. The loss is not eligible for coverage.

12) Wear And Tear

No protection exists for loss involving property that is inevitable, due to the mere use and longevity of such property. Therefore, natural deterioration, marring, breakdown, flaws (inherent vices), corrosion, root pressure and other sources of loss are ineligible for coverage.

b. Exceptions to Exclusions That Apply To Coverage A and Coverage B

The policy will pay for certain ensuing losses that stem from items a.2). through a.12) situations excluded above, except when the source of ensuing loss is, itself, specifically excluded.

Example: Let’s build upon the previous situation with Melynda. Again, Melynda was working on some landscaping around her home. As part of one big project, she breaks through a small area of her home’s foundation, but she doesn’t continue further work for several weeks. Later, she discovers that a small army of squirrels has established a large nest in her exposed crawl space. The mess they create, including the damage to support joists, etc., is not eligible for coverage. However, a few days after discovering the animal damage, Melynda’s home suffers a fire and smoke damage loss. It turns out that the invading squirrels chewed through some wiring and overheated, exposed wires caused the fire. This ensuing damage from an eligible peril is covered.

An additional exception applies to loss involving discharge and overflow. Under Coverages A and/or B, if property is damaged by overflowing water or steam caused by excluded perils of settling, cracking, shrinking, bulging, or expanding, birds, vermin, rodents, insects or animals, smoke, pollutants and/or wear and tear, it is covered, but only in certain situations. If the discharge comes from a water/vapor source that is:

· located off-premises

· located on premises, such as a plumbing system, regular home appliance, water heater or sprinkler system

there is coverage, even though no coverage is available for damage to the actual device.

The exception does not apply to damage involving either a described location’s sump pump or gutter systems.

2. Coverage C—Personal Property

There is coverage for losses to property identified as eligible under Coverage C when the damage or destruction is due to any of the sources of loss described in the section of the policy.

Note: Careful reference should be made to the Exclusions That Apply to Property Coverages Section since that section might specifically bar coverage.

The eligible perils are:

a. Fire or Lightning

b. Windstorm or Hail

Note: 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 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, which could be prevented by closing doors, windows and by moving personal property indoors.

Related Article: Windstorm or Hail—A Discussion

c. Explosion

Example: Leslie and Jim were upset that their anniversary dinner was interrupted by a neighbor’s frantic call to come home! They arrived to find a nightmare, their home in flames and firefighters trying to get the situation under control. It turns out that their dog had tipped over a gas can (used for their lawn mower). Fumes built up and were ignited by their water heater’s pilot light. The damage to their contents from the explosion (and fire) was eligible for coverage.

Related Article: Explosion—A Discussion

d. Riot or Civil Commotion

Related Article: Riot or Civil Commotion—A Discussion

e. Aircraft

Example: As a homeowner near her city’s private airfield, Zoe’s long-time fear came to pass. A pilot lost control while attempting a descent to the airfield. The plane dipped so low that its wheels smashed into and ripped the chimney off Zoe’s home.
Scenario 1: This provision would not respond to the loss since Zoe’s contents were not affected. However, the policy’s Coverage A would handle the loss to the home.	Scenario 2: The damage to the chimney causes soot to accumulate and flow into her home. The soot damage to personal property would be covered because the aircraft was the cause of the loss.

f. Vehicles

Example: Arnie is jolted out of sleep by the sound of a large crash and vibrations. He runs downstairs to find that a drunk driver, during an episode of freezing rain, attempted to make a turn in his driveway. Instead of reversing, his car rapidly slid down Arnie’s driveway and smashed into his home’s attached garage and, along with the garage door, demolished a refrigerator, a couch, and a large screen TV (Arnie had converted half the garage into a “man cave”). This loss is eligible for coverage.

g. Sudden and Accidental Damage from Smoke

There is coverage when boiler, furnace or related equipment release fumes, smoke, and soot or vapor causing sudden and accidental damage. However, there is no coverage for loss caused by smoke from agricultural smudging or industrial operations. Both of these sources of loss result from a home’s proximity to an operation or practice that is longer term and intentional in nature. Agricultural smudging is the practice of creating an oily smoke to cover fruit and fruit trees in order to protect them from frost.

h. Volcanic Eruption

This does not include any loss caused by earthquake or other shock waves or tremors.

i. Vandalism or Malicious Mischief

j. Theft

This peril expands the term to include attempted theft and loss of property from a known place so that it is likely that theft occurred.

Note: There is no coverage for any of the following:

· Theft in or to a residence while it is being built. This includes the theft of materials or supplies that are intended to be used in the construction of the residence. This exception applies until the residence is occupied for its intended use

· Theft by an insured

· Loss of a precious or semiprecious stone from its setting

· Loss as a result of the theft of a credit or debit card or other electronic transfer or access devices, except as provided under Incidental Property Coverages

· Theft from a part of the described location while it is rented to others who are not considered insureds

· Theft of trailers, semitrailers, campers, camper bodies, watercraft or their furnishings, equipment, or engines or motors when not at the described location

· Theft of property that occurs away from the described location while on a residential premises which an insured owns, rents, or occupies. There are two exceptions. Theft coverage does apply when an insured is only temporarily residing. Theft coverage also applies for the property of an insured who is a full-time student, while the property is in the living quarters occupied by the student at school. However, the exception does not apply if, before the loss, the student has been away for 60 or more days from that location.

k. Falling Objects

There is no coverage for loss to property inside a structure, unless the falling object has first damaged an outside wall or the roof of the structure by impact; nor is there coverage for the object which falls.

Example: An insured is trimming tall bushes that are next to her home. While moving a ladder that has gardening tools on top, she loses control and the ladder tips over. It slams against the home, smashing a bay window. The heavy tools and glass shards shred a leather upholstered couch and demolish a teak coffee table. The damage to the window and furniture would be eligible for coverage. If damaged, the tools would not be covered

l. Weight of Ice, Snow, or Sleet

There is coverage when it causes damage to property inside a structure.

m. Sudden and Accidental Tearing Apart, Cracking, Burning, or Bulging

This coverage refers to accidental, violent loss to a heating, air conditioning, or automatic fire protective sprinkling system or water heater. This cause of loss does not respond to damage involving freezing.

n. Accidental Discharge or Overflow of Liquids or Steam

This protection is quite limited since it only responds to discharge and overflow from a plumbing, heating, air conditioning, or automatic fire protective sprinkling system; water heater; or domestic appliance.

Example: Fran and Mitch come home from work on a winter’s day and, when they open the door, they are engulfed by a thick plume of steam. They find that a valve on a radiator burst and steam had poured into their house for hours, ruining much of their furnishings. The contents loss is covered though and, luckily, a lot could be salvaged by a thorough drying.

Losses involving sumps, sump pumps, roof drains, gutters and related equipment are not covered. Further, the following situations are also excluded:

· Caused by continuous or repeated seepage, leakage or condensation over weeks, months or even years. There is coverage if an insured could not have reasonably suspected the situation to exist.

· Caused by freezing

· Damage to both the system and the particular appliance from which the water or steam escaped

· Caused by accidental discharge or overflow that originates away from insured premises.

Example: The rich oak floors of an insured’s finished basement are ruined. While the insured and their neighbors were on a get-away weekend trip, the neighbor’s automatic lawn sprinkling system broke and runoff water flooded the insured’s home. This loss would not qualify for coverage as the source of the loss was not part of the described location.

o. Freezing

This involves situations of damage from frozen house utility systems or regular appliances. If a fire-fighting system is installed in an insured home, damage caused by a frozen sprinkler system is included. Coverage is excluded for any loss on the insured premises unless an insured arranges for any of the following:

· Maintain heat in the building

· Shut off the liquid supply and drain the system, heater, or domestic appliance (when no water-driven anti-fire system exists

· Maintain the water supply (when a water-driven anti-fire system DOES exist)

Parts of the policy’s subsurface and surface water exclusion do not apply to this particular coverage.

p. Sudden and Accidental Damage from Artificially Generated Electrical Currents

This peril is restricted by eliminating coverage for loss to tubes, transistors, and similar electronic features that are components of appliances, computers, home entertainment centers and similar items.

Note: This could create a significant coverage gap for newer or retrofitted homes with increasingly complex, integrated electronics, such as Smart homes, especially since circuitry within the apparatus is not covered.

q. Sinkhole Collapse

In this policy, this term means direct physical loss caused by sudden settlement or collapse of earth that forms the support for covered property. The earth settlement or collapse must be due to subterranean voids created by the action of water on a limestone or similar rock formation. This source of loss is distinct from an event called Mine Subsidence when earth settlement or collapse occurs due to active or abandoned mines.

Important: There is no coverage for the cost of filling sinkholes.

EXCLUSIONS THAT APPLY TO PROPERTY COVERAGES

1. This section of the Special Form policy lists the sources of property loss that ARE NOT covered by the policy. The policy language specifically addresses instances of anti-concurrent causation 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 the size of the area suffering damage.

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.

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: Harvey’s home is located in a neighborhood that borders a forested area. After a long, dry spell, lightning ignites a fire in the forest and it heads toward the residential neighborhood. The area’s Fire Marshall orders several homes, including Harvey’s, to be razed to keep the fire contained. The loss of Harvey’s home would be eligible for coverage.

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 the event. The discharging of a nuclear weapon, intentional or accidental, is defined as a warlike action.

Note: The refinement concerning defense appears to broaden the application of the exclusion compared to earlier form (pre-2006) editions.

e. Neglect

Insurance policies are contracts which 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: An insured home is in a neighborhood where a minor tremor occurs. The home is unaffected by the tremor, but the slight earth movement creates a very small crack in an underground gas pipe that is located near the insured home. A few days later, a pocket of leaked gas ignites, and the explosion decimates the insured home. This loss is eligible for coverage.

g. Water

In the previous edition, this was titled Water Damage. This exclusion was expanded and reorganized into seven paragraphs in an attempt to clearly communicate the scope of the exclusion. The change was made in response to dealing with 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 the following:

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, this exclusion also applies to water surge caused by storm, tides or a tide created by a storm (storm tide).

While these additions may appear to be mere semantics, recent, high-profile claim awards hinged upon such parsing and shifting of language and the change is meant to specifically address this reality.

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: There is a general power outage. The sump pump stops working, and the pump well fills with water and then overflows. There is no coverage for the water damage.

Related Article: AAIS Homeowners Optional Coverage Endorsements – includes info on endorsement HO 2708–Water Back Up and Sump Discharge or Overflow

3) If water below the surface of the ground causes the loss there is no coverage. This term includes (but is NOT restricted just 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: The sewer pipe leading from Jordan’s house plugs up and bursts. The sewage then pushes through foundation cracks. All 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 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: A dam bursts, inundating a housing subdivision. All residents are forced to leave, and police patrol the area. Unfortunately, when the families return, thieves have still managed to enter some properties and steal items. Even though the proximate cause is the flooding, the theft losses are still covered.

8) The policy’s separate water exclusion does NOT apply to such instances IF the source of loss is a domestic appliance or the insured home’s air conditioning, plumbing, heating, sprinkling systems or water heater at the described location. However, the coverage only applies if the insured either did not or could not have been reasonably expected to know about the damage. Eligible loss sources do NOT include plumbing, sump equipment or similar equipment used for handling the removal of subsurface water or regular drainage water. (2008 Change)

h. Power Failure

The policy does not respond to damage caused by an interruption 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.

i. Intentional Acts

The policy does not cover intentional acts of any insured (who acts alone or in collusion) 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 intentional but also the intent must be to cause a loss.

When one insured causes intentional damage to property that is owned or co-owned by another insured, the loss that would be payable to the innocent insured is still not covered.

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.

Example: The Clintnors file a claim. They noticed that the window in the room they use for storage is covered with mold and is totally rotted out. The insurer examines the loss and finds that the damage was caused by a cracked storm window allowing moisture to seep in. The loss is not covered.

Related Court Case: Homeowner Disputes Third-Party Exclusion

2. If a covered loss ensues from either of the following exclusions, there is coverage for the ensuing loss.

a. Weather Conditions

Coverage is not provided for losses that result from weather conditions that CONTRIBUTE IN ANY MANNER to losses excluded under the preceding Exclusions That Apply to Property Coverages. In other words, losses caused by legal ordinances, civil authority, nuclear activity, war, neglect, earth movement, water damage, power disruption or intentional acts DO NOT become eligible for coverage because of weather conditions. Weather conditions do not mitigate or eliminate any excluded sources of loss.

b. Errors, Omissions, and Defects

The Special Form policy intends to cover accidental property damage so, by its nature, it would be contradictory to provide coverage for errors, defects, and mistakes, which become an inherent source of loss. In light of this, the policy DOES NOT cover losses due to acts, errors, or omissions (whether negligent or not) involving any of the following:

1) land use

2) the design, specification, construction, workmanship, or installation of property

3) planning, zoning, development, surveying, siting, grading, or compaction

4) maintenance of property (including land, structures, or improvements), whether on or off the insured premises

5) a defect, weakness, an inadequacy, a fault, or unsoundness in materials used in construction or repair, whether on or off the insured premises, except as provided under the Incidental Property Coverage for Collapse.

LIABILITY COVERAGES

Principal Coverages—Liability and Medical Payments To Others

Unlike the first part of the policy, which concerns itself with damage to property belonging to the insured, this part provides protection for a person’s responsibility for injuring other people or 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: John and his neighbor have a problem. John is upset that his neighbor has a collection of large statues placed around his yard. They all depict life-sized circus clowns. One day, while cutting his lawn with his riding mower, he snaps and plows down every one of his neighbor’s statues, causing nearly $4,000 in damage. None of the loss, nor the expense of defending himself against his neighbor’s lawsuit, is covered.

The insurer has the option of investigating and, IF the insurer decides it is appropriate, settling claims or suits. 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 consider John’s situation. When John receives notice of a lawsuit from his neighbor, he sends the information to Getalong Mutual, his insurer. Getalong reviews the matter, including sending a claims specialist out to investigate. A week after doing so, Getalong sends John a letter stating that the loss is not covered, and that the insurer has closed its investigation. Although Getalong spent nearly a thousand dollars just to look into the claim, this expense is part of the policy’s coverage and does not affect the policy’s limit.

For more details, please refer to the Incidental Coverages Section, Claims and Defense Costs.

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.

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 insured premises

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.

Example: The Nettlesums have an active household. When a window treatment salesperson entered their house for an appointment to discuss new drapes, she was bowled over by the Nettlesums’ boys who were wrestling. The salesperson’s arm was broken, and her contact lenses were knocked out and lost. The policy’s medical payments coverage will handle her injury and loss.

Example: It’s the next day at the Nettlesums. Mrs. Nettlesum rounds the corner and is bowled over by her two sons who are racing. Her leg is broken when she falls. The policy’s medical payments coverage will NOT handle her injury.

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 Special 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

Example: Henry rents his unused garage to the family next door as a practice studio for their daughter Melissa’s hard rock band. Melissa is injured when the garage door spring breaks and the door slams down while she’s carrying in her drums. This injury would be covered by the special form policy.

Related Court Case: “Baby-sitter’s Activity that Caused Injury”

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 any loss is related to the activity.

Note: Exclusion g., under Exclusions that Apply to Coverage L and Coverage M, does not apply to this Incidental Liability Coverage.

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.

Related Court Case: Cover No, Defend Yes

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

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. However, this incidental provision is subject to all other exclusions that apply to this policy’s Liability and Medical Payments parts.

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.

The exclusions that apply to coverages L and M do not apply 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.

Now this exclusion is confusing for a couple of reasons. First, it should be obvious that it wouldn’t cover property owned by any insured, because it is called Damage to Property of Others. Second, while it doesn’t cover property that is owned by an insured, if the person is either a tenant of any insured or is a resident of the named insured’s household, there’s no coverage for property that they own, lease, or rent. Therefore, it appears that this coverage does pay for property that is either rented or leased by any insured.

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

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.

Example: Max is visiting his friend Larry and, since Max needs the assistance of a cane or walker, Larry lets him drive a golf cart from their home to the residence’s landscaped garden located several hundred yards away. Max takes a turn too quickly and sideswipes a tree. The golf cart’s awning and support poles are torn loose, causing $470 damage. This loss could be paid under Max’s policy’s voluntary property damage.

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 or the residential associations are made by any governmental body or authority.

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:

· A 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

a. This provision involves 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 but not a connected premises to the insured premises or a cemetery lot or burial vault

· 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.

b. 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 is 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.

Example: Glenn bought a home in a very large retirement community a year ago. He enjoyed living there, but he became bored. He noticed that quite a few folks in the community had difficulty with getting around for different activities. Using his golf cart, he started a delivery service to pick up and deliver groceries and shopping items. Use of golf carts on the community’s streets is permitted since it is a closed community. During one delivery, he was backing out from a neighbor’s home and hit a pedestrian. The loss will NOT be eligible for coverage.

c. Exclusion c. and e. under Exclusions that Apply to Coverages L and M do not apply to this Incidental Liability Coverage and exclusion g. also does not apply but only for golf carts being used at golfing establishments.

Note: The other exclusions applicable only to Coverage L and that apply only to Coverage M still apply to motorized vehicles. (2008 clarification)

Related Court Case: ATV Injury Not Covered By Homeowners Policy

8. Watercraft

a. 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.

b. 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.

c. Exclusions c. and e. under Exclusions that Apply to Coverages L and M do not apply to this Incidental Liability Coverage.

Note: The other exclusions applicable only to Coverage L and that apply only to Coverage M still apply to motorized vehicles. (2008 Clarification)

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	civil war
insurrection	rebellion
revolution	warlike act by a military force or military personnel
destruction, seizure, or use of property for a military purpose,	discharge of a nuclear weapon (even if accidental)
defense or hindering of hostilities by a military force

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: Paul and his son Craig love to build and fly their model airplanes. One Saturday morning they were flying their latest model at the school parking lot. The controls froze, and they stood helplessly as they watched it careen into the school’s marching band. Although Paul and Craig tried to warn them, the music was loud, and the band was so focused no one saw the airplane’s approach. The entire trumpet section had to be taken to the hospital with head and mouth injuries. Paul’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 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: Nathan owns a small airplane. He sometimes takes his son to the hangar of the private airfield where the plane is kept. While caught up in a conversation with a pilot friend, Nathan hears a commotion nearby. His son had jumped into Nathan’s plane and, somehow, engaged the engine. The propeller strikes nearby equipment and shatters. Several persons in the hangar are struck and injured by debris. While Nathan is responsible for his son’s actions, his HO policy will not handle the lawsuits filed against him by the injured airfield workers.

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. Stevens enjoys playing on the church softball team. During the playoffs, when only nine gals show up, one of the players falls and hurts her knee. She asks Dr. Stevens to look at it; the doctor gives it a quick look and, mindful that they need her in order to have a game, says that she could walk around a little bit and then continue to play. The injured gal re-joins the game, slides into home and lands on the leg she previously injured. She crumples with a loud yell and she is in AGONY. It turns out that her knee injury was serious, and she should have sought treatment. The player ends up needing surgery and extended physical rehab. She sues Dr. Stevens for telling her it was okay to keep playing. This loss would not be covered under Dr. Stevens’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 when a golf cart is used at a golfing establishment.

Example: Darla Writewell is a magazine editor who, at her home, does editing and proofing of reports and manuscripts for the public. She earns as much as $250 a month for this sideline. One evening a customer is coming up the stairs to pick up his proofed report when he trips and tumbles down the stairs, breaking a leg. Darla’s policy WILL NOT provide coverage for this injury 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.

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

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: Pam and her friends decide to TP the quarterback’s house because of the humiliating season the team had. Unfortunately, the wind starts to gust as Pam is applying the paper and it blows out of her hand onto a car windshield, causing the driver to lose control and strike another car. There is no coverage under Pam’s family policy for any of the damage incurred.

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.

Related Court Case: Stabbing Attack Excluded Under HO Policy

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.

Related Court Case: Sexual Misconduct Claim Denied

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: Kelly’s husband has abused her and her children for a number of years. One evening she and the children escape to a shelter for abused women. The first night they are at the home, one of her children pushes another child down the stairs. The injured child’s mother sues Kelly and the shelter. Will Kelly’s homeowner’s policy deny this claim because the proximate cause was the physical abuse of the father?

Related Court Case: HO Policy Excludes Physical Abuse of Minor

m. bodily injury or property damage arising out of corporal punishment

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 Petersons planted corn on their 10 acres that they will use to help feed their two horses over the winter. An unknown group decides to plant marijuana in between the corn rows and set up some booby traps to prevent others from harvesting their crop. One day a neighbor child decides to take a short cut through the corn field as a way to return home and is injured when the booby trap is set off. If the child’s family sues the Petersons, would this exclusion prevent them from receiving coverage?

Note: A mandatory Amendment of Policy Terms endorsement has added one more 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 who meet the conditions found under items 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 Komars are throwing their annual Elm Street Neighbors Bash, which includes a “Big Wheel” Race for the younger neighborhood children. Tony Komar and Bunny Kline are running neck and neck down the Komars’ driveway racetrack. Tony and Bunny collide and smash against the apple tree that is next to the driveway. Both are taken to a nearby emergency room for treatment, including stitches. While Bunny’s medical expenses are covered, Tony’s are not since he’s an insured.

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: The Parkers had an unfortunate event at the annual friends and family fest they hold at their home. They receive notice of a lawsuit. The Farleys, former friends who attended the last fest, claim that the Parkers were negligent. The Parkers, as they usually do at the fests, made plenty of games and sports equipment available to their guests. At the last fest, one of the Farley children was playing a very aggressive form of tag. She chased down one of the Parker children and tagged him with a baseball bat. The Parkers sued the Farleys and the Farleys then filed their own suit against the Parkers since the incident occurred on their property. The Parkers’ policy will not respond to the Farley complaint.

c. liability held by an insured due to entering a contract or an agreement. However, an exception exists via the protection provided by the Incidental Liability Coverage for Contracts.

d. damage to property that any insured owns

e. costs and expenses for actions taken at owned property to prevent injuries and damages to others.

Such efforts should be handled by insureds without expecting payment from the insurance carrier.

Examples:

An insured installs a self-locking, 8-foot fence around his new, in-ground swimming pool.
An insured gives up a dog that continuously snaps and barks at visitors.
An insured repairs the stone path in front of his home since the old one often caused visitors to trip.

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.

Example: An insured is a member of Rainyday Acres. He receives an assessment for $2,500 to help pay for renovation of the community’s playground. This assessment does not qualify for insurance coverage as it does not involve a loss.

j. 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

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

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 a loss or possible loss is handled by an insured is critical to making sure that the policy properly responds to a loss.

1. PROPERTY COVERAGES

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 its insured is actually liable for payment under the policy. The quick reporting 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 Special 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.

Example: The insured reports an injury to a guest who trips while at their home for a dinner party. The insurer asks for an appointment to come inspect the area where the guest tripped (a loose dining room floorboard) and to interview the insured. The insured keeps putting off the insurer and, after a half dozen attempts (over three months), the claims adjuster sends a letter threatening to deny coverage if an appointment isn’t made (and kept) within 10 days of receiving the letter.

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 to confirm these.

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: 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 with any reasonable insurance company effort of recovery. In many instances where insurers make payments to their clients, other parties are responsible for the damage or injury. When possible, insurers act to recover payments from these other parties and they often need the insured’s help to do so.

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, and

· 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).

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. EVEN when an insured agrees to make payments out of his or her own pocket, he or she needs to be aware of the ramifications of such payments. Certain actions may be interpreted as an admission of guilt or responsibility for a loss when that interpretation 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.

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.

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 exercise 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.

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

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 building been rebuilt where the loss occurred.

Related Article: Replacement Cost Valuation

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). 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.

Example: Emma and Dirk Fairplay's home is insured by a special form policy with a Coverage L limit of $100,000. One day they threw a party for their 6-year-old daughter and invited all her 1^st grade classmates. In order to provide plenty of entertainment, Emma and Dirk bought a deluxe play set. They spent two days putting it together to have it ready in time. The play set was a smash….then it was a "crash." The Fairplays didn't assemble it properly and it collapsed, seriously injuring a half-dozen children. Every family filed a suit against the Fairplays in the following manner:
Plaintiff	Damages Sought	Defendant (named in suit)
Family A	$34,000	Emma
Family B	$16,500	Dirk
Family C	$29,500	Emma & Dirk
Family D	$9,000	Dirk
Family E	$41,000	Dirk
Family F	$22,000	Emma & Dirk
Total	$152,000	Dirk (3), Emma (1), Both (2)
The fact that there are six separate suits and that Emma and Dirk have been sued both singly and as a couple has no effect on the policy limit of $100,000 being the most available to respond. The policy treats the event as one loss. One area that will be substantially affected is the amount provided for defense costs because the carrier could, conceivably, have to defend all six suits.

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.

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.

Example: The Petersons’ family reunion was quite an event. According to Felix, a distant cousin from another state, it was life altering. Several of the guys decided to chase Felix around like they used to when kids. Felix panics and runs blindly into a huge BBQ fire pit. He is severely burned, and he sued all of the residents of the Peterson household. While all five members are each covered by the policy’s $300,000 Coverage L limit, that limit is the maximum, total amount available for the Petersons’ lawsuit.
Felix vs. Peterson HO Loss Settlement
Insured	Amount Awarded	Applicable Several Limit
J. Peterson	$85,000	$85,000
P. Peterson	$120,000	$120,000
A. Peterson	$215,000	$215,000
O. Peterson	$15,000	$15,000
R. Peterson	$45,000	$45,000
Total Awarded		$480,000
Total Paid Under Policy		$300,000

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: The Pelis sold their house to the Franks on July 30^th. A hailstorm started prior to the closing and didn’t end until after the papers were signed. When the Franks inspected the house, they discovered considerable hail damage to the roof and the siding. The Pelis’ homeowners policy carried a Coverage A limit of $200,000 and the Franks’ Coverage A limit was $300,000. Since coverage was overlapping both insurance companies respond on a proportional basis as follows:
Amount of loss (replacement cost of house)	$100,000
Total amount of coverage applicable to loss	(1) $500,000
Percent of coverage supplied by Franks’ policy	(2) 60%
Amount of loss paid by Franks’ policy	$60,000
(1)- [$200,000 from Pelis’ policy + $300,000 from Franks’ policy] (2) - [$300,000 divided by $500,000]

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.

Related Court Case: , Conflicting "Other Insurance" Clauses Disregarded

b. 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

a. 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 there is a dispute between the insured and the insurer and the appraisal condition is exercised, the insurer has to make payment within 30 days after the filing of an appraisal award. Unless there is a loss payee, payment is made to the named insured.

b. 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.

The insurance company has a right to take all or part of the damaged property at the agreed or appraised value. If the insurance company pays for or replaces property, it then belongs to them. This last option is another way to make certain that an insured is indemnified for, rather than enriched by a loss. Insurers also salvage property as one way to help recoup their loss payments.

c. 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.

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 available, applicable coverage.

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.

Related Court Case: , Insurer Did Mail Policy Termination

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 changes 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.

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 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.

An insurer asking for either appraisal or to formally interview and insured (examination under oath) does not waive any of the policy’s other applicable terms.

Related Court Case: , Suit Limitation Waived By Insurer

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 as 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.

Recognizing that the status of the residents in the household change in the policy once the named insured or spouse die, 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 inspect 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.

Related Court Case Inspection of Premises by Insurer Was Not Performance of a Duty Owed the Insured – although this involves a commercial situation, it illustrates how allegations that an inspection creates a distinct obligation is handled.

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.

Example: The Vegeltons hold a big basketball tourney watch party at their home. A friend brings his dog, dressed up just like the mascot of a favorite local college basketball team. While the crowd cheers for a last minute, winning basket, the dog gets upset and bites an attendee. The injured partygoer later sues the Vegeltons. Shortly after the Vegeltons’ insurer settles with the injured guest, they file a suit against the dog’s owner for reimbursement. They also advise the Vegeltons that they will need their assistance in the 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.

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.

Note: Appraisals are ONLY about resolving disputes over loss amounts. The process is not to determine any other issue between the insured and the insurer.

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.

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.

b. 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.

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

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.

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 policy isn’t clear as to who is paying the cost – does the cost come out of recovery prior to the dispersal or does the party who secured the recovery pay the cost?)

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.

What is important about recoveries 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 the 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 the 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 Rubblesons’ home has an insurance policy with a Coverage A limit of $110,000. A severe windstorm smashes through their neighborhood and the wind demolishes their neighbor’s house. The debris destroys the Rubblesons’ roof and upper story, destroys all their upstairs’ interior walls and floors and major debris is strewn across their entire premises. Their situation ends up as follows:
Policy Limit	$110,000
Coverage A Loss	$107,000
Debris Removal Cost	$19,000
Total Loss/Expense	$126,000
*Covered Amount	$115,500
* Since the combined loss exceeded the Coverage A limit, the policy makes a maximum of 5% of the applicable limit available for debris removal. In this instance, $107,000 is available for the Coverage A loss and $8,500 [remainder of policy limit and additional 5% of that limit] is available for the debris removal.

Example: An insured moves his furnishings from his home and places them in a large locker at a local storage facility. The locker is broken into and all of the furnishings are stolen. The insured had moved the property because his home was on fire and he saved the property from harm.
Scenario 1: The fire occurred on May 2, the same day he moved the property. The theft at the facility happened on May 29 and his policy expired on June 7. In this instance, the theft loss is covered.	Scenario 2: The fire occurred on May 2, the same day he moved the property. The theft at the facility happened on May 29 and his policy expired on May 24. In this instance, the theft loss is NOT covered.	Scenario 3: The fire occurred on May 2, the same day he moved the property. The theft at the facility happened on June 6 and his policy expired on July 10. In this instance, the theft loss is NOT covered.

Example: Consider the following policy information -
Items	Policy A	Policy B
Coverage A	$120,000	$100,000
Actual Damage	$80,000	$65,000
Increased Cost	$8,000	$20,000
Total Loss	$88,000	$85,000
Total Coverage	$88,000	$75,000
Under policy A, the entire loss is covered since the total combined loss is less than Coverage A and up to $12,000 (10% of coverage A) was available for increased costs. Under policy B, the amount of increased cost coverage is restricted to 10% of the Coverage A limits ($65,000 + $10,000).

HO 0003–AAIS SPECIAL FORM HOMEOWNERS ANALYSIS

TABLE OF CONTENTS

AGREEMENT

DEFINITIONS

PROPERTY COVERAGES

INCIDENTAL PROPERTY COVERAGES

PERILS INSURED AGAINST - COVERAGES A, B, C, AND D

EXCLUSIONS THAT APPLY TO PROPERTY COVERAGES

LIABILITY COVERAGES

Principal Coverages—Liability and Medical Payments To Others

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