PM 0002–AAIS PERSONAL PROPERTY COVERAGES FORM ANALYSIS

(May 2023)

Agreement

Definitions

Property Covered

Additional Property Covered

Property Not Covered

Coverage Extensions

Optional Coverages and Premium Credits

Perils Covered

Perils Excluded

What Must Be Done in Case of Loss

Valuation

Loss Payment

Conditions

AGREEMENT

The form’s opening advises that the policy is subject to all of its terms and will provide the coverages described in the policy. Its protection is contingent on receiving payment from the named insured.

These coverages may be affected by various amendments (endorsements) and schedules (detailed property descriptions and limits) that are made part of a policy. The agreement also points out that there are a number of terms and references with special meaning and they are explained in the policy’s Definitions section.

DEFINITIONS

The definitions section appears immediately after the Agreement.

1. You and Your

The person(s) who appears 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 named insured's household.

2. We, Us, And Our

The company providing the personal property coverage.

3. Declarations

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

4. Earth Movement

This term refers to various sources that create vibrations or shifts in the earth’s surface including earthquakes, volcanic-related activity (shock waves and tremors), land or mudslides, mudflow, subsidence, erosion, and other movement (rising, sinking, expansion, contractions, etc.)

5. Insured

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 and relatives of the named insured’s residential spouse are insureds but only when they live in the same household

· Non-relatives of the named insured who are under the age of 21, live in the household and are in the care of the named insured or in the care of a relative of the named insured who also lives in the household.

6. Domestic employee

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

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

Example: Amy wants to sort the huge amount of clothing and other property that’s been stored in the attic for years. She hires Jenny to do the work for her. While it will take Jenny several days to complete the job, she does not qualify as a domestic employee.

7. Limit

The policy merely defines this as the amount of insurance.

8. Residence

The living space that appears on this coverage form’s declarations.

9. Sinkhole Collapse

Refers to an area of earth that supports covered property which suddenly falls in. The movement must be the result of underground voids (caverns, spaces) created by water erosion. The term does not apply to land value or hole fill-in expenses.

10. Terms

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

11. Vermin

Refers to a wide variety of creatures which, by their nature, damage property because of their tendency to infiltrate structures as a source for food or housing. Policy examples include raccoons, possums, skunks, snakes, bats and…. armadillos.

Example: If your residence is filled with critters that look like what is pictured, you’re suffering from a vermin infestation.

Related Article: Animal-Related Property Damage

12. Water Damage

This detailed term applies to both flood and surface water. It also refers to waters, tides, water overflows and any source of water spray. Such sources are still considered water damage, regardless of the involvement of winds. It also refers to water from underground that may put pressure on, seep or leak onto or into covered property (including, buildings, walks, pools, appurtenant structures, driveways and foundations).

PROPERTY COVERED

Personal Property

1. Coverage

The policy insures against tangible loss to property that appears under the policy’s Described Classes of Personal Property section. However, such property must be owned or used by an insured. Further, coverage applies only to such property that is normally located at the insured’s residence. Coverage continues to apply even when the property is temporarily anywhere in the world.

Examples:

Furniture permanently located at an insured’s vacation cabin – ineligible as it is not part of the primary residence property.
Camping equipment that was borrowed from a brother-in-law to use on an out-of-state vacation – ineligible. A temporary situation, but the property is not owned by an insured.

2. Coverage Limitation

The insurer is obligated to respond to a loss involving qualifying property ONLY when a coverage amount (limit) is specified and appears in the policy area reserved for describing covered property.

3. Limits

Whatever limit appears in the policy for a given class of unscheduled property acts as the highest possible amount that may be paid for the loss or destruction of that property in a single occurrence.

4. Described Classes of Personal Property

Here are the general categories of personal property that qualify for protection under the personal property form:

a. Audio and Video Equipment – includes only televisions, projectors, screens, DVD players/recorders, VCRs, audio systems (including speakers), CD players, audio tape players, vinyl records and video game systems (hardware and software).

Note: Since this class merely refers to “audio systems,” retro equipment such as vintage and modern record turntables should qualify. However, there may be some question regarding other equipment, such as public address (P.A.) systems, karaoke equipment and digital systems.

b. Bedding and Linens – includes sheets, blankets, covers, quilts, pillows, throw pillows, mattresses, box springs and similar property

c. Building Additions and Alterations – refers to structural property and modifications that are made, purchased and/or installed in a residential area by the named insured (including installed on his or her behalf). The modification must affect either the living area rented and occupied by the named insured or his or her owned condominium unit.

Example: George rents the largest unit in a four-unit apartment building. He lives in the front area and rents out the rear portion of his unit. In order to define the separate living spaces, George has two ceiling to floor, mahogany bookcase/room dividers permanently installed in both areas. The divider that’s located in the portion of the apartment he rents out to others would not qualify for coverage under the personal property form.

d. Cameras – this class includes only cameras (conventional film, digital and motion picture), camcorders, projectors, portable sound equipment, binoculars, microscopes/telescopes (lenses used with cameras), digital photo printers, CDs, DVDs, memory devices, video tapes, film and other related accessories

e. China and Glassware – besides china, this category also includes porcelains, glassware, miscellaneous, small display items (bric-a-brac) and similar property

Example: The item pictured would qualify under this category of property.

f. Clothing – includes not only apparel but also shoes, outerwear and other accessories

g. Computers – computers (desk and laptops) as well as PDAs, monitors, projectors, printers, scanners, mice, keyboards, internal and external memory devices, blank media and other equipment

Note: There may be some confusion over items such as smartphones. However, most phone providers offer coverage/replacement plans for such devices.

h. Draperies and rugs – as well as similar property

i. Fine Arts – paintings/pictures, etchings, art glass (including windows), statues/sculptures, antiques, silver, rare books/manuscripts and similar property

j. Furniture – regular household furnishings. However, furniture with vintage or artistic features should be covered under item i. fine arts above.

k. Major Appliances – refrigerators, dryers, freezers, garbage disposals and more

l. Musical Instruments - all items designed and normally used to create musical or rhythmic tones

m. Professional Personal Property – any personal property such as books, equipment and instruments that is related to income-generating activity, but only while it is located in the defined insured’s residence.

Example: A policyholder’s surveyor’s equipment that is issued and owned by her employer but used by the policyholder.

n. Silverware – besides silver/silverplate ware, includes goldware, platinum ware (plated ware also qualifies), pewter ware, if containing precious metals or alloys, flatware, hollowware and trophies.

ADDITIONAL PROPERTY COVERED

The following, additional property qualifies for coverage under the personal property form but is subject to a sublimit. If a limit for the coverage is entered on the declarations it supercedes the referenced amount. Coverage applies to each of these for only direct physical damage caused by a covered peril. Further, the additional coverage only takes effect for such property that is owned/used by an insured.

1. Money, Precious Metals and Coins

This category consists of money, cards (gift, store credit and smart), bullion, gold, silver and other metals and numismatic property. Precious metal that is part of item n. Silverware is not part of this additional property. This category is subject to a per occurrence limit of $100.

2. Jewelry, Furs and Precious/Semi-precious Stones

This category consists of jewelry, furs, watches, precious/semi-precious stones and gems. This category is subject to a per occurrence limit of $500.

3. Securities, Stamps, and Valuable Papers

This category consists of securities, notes, accounts, deeds, bills, debt-related documents, letters or credit, postal stamps, passports, tickets, manuscripts, personal records and similar papers that are considered valuable property. This category is subject to a per occurrence limit of $500. Regarding the limit, it applies in the same manner, regardless whether the information exists on paper or on software. When the latter is involved, the modest limit applies to the expense of replacing/restoring lost data.

PROPERTY NOT COVERED

Some categories of property are ineligible for coverage under the Personal Property form.

1. Aircraft, Watercraft and Trailers

All such property is excluded from coverage, including campers.

2. Animals

No creatures, including aviary and marine life, are eligible for coverage.

3. Business Property

Refers to items that are owned by or leased to the named insured when those items are used for business purpose. Such property is ineligible for coverage regardless whether it is connected to a full-time, part-time or infrequent activity. This exclusion refers to the exception it makes for professional property while located in the residence.

4. Contraband

Illegal (stolen or illegally held) property is ineligible for coverage. There’s no valid insurable interest in either stolen property or in property that, even if actually owned by an insured, is held in violation of the law (such as smuggled property).

5. Parts, Accessories, and Furnishings of Vehicles, Aircraft, Watercraft, and Trailers

It may have been simpler to just mention this under the item 9. Vehicles below but this item exclusion has a distinct exception that does not appear elsewhere. Coverage is provided for such parts, accessories and furnishings when detached from a given vehicle, craft or trailer and is located at the applicable insured’s residence.

6. Property More Specifically Insured

Personal property, regardless the category, that has separate, dedicated coverage, is ineligible for protection under this form.

Note: Refer to “Insurance Under More Than One Policy” that appears below in the Valuation provision to learn how instances of duplicate coverage are handled.

Example: Felippa Coinville reports to her personal property form insurer that her stamp collection was destroyed in a fire. While investigating the loss, that company discovers that she belongs to a national stamp collector’s club and, as part of her membership, she receives protection according to the description and amounts she registered with them. The personal property form insurer tells Fellippa that the loss is denied under its policy due to the separate insurance.

7. Property Not at the Residence

Personal property does not qualify for coverage when it is, primarily, located away from the insured’s regular residence.

8. Property of Specified Persons or Organizations

Property that belongs to or is generally used by other entities is disqualified from coverage when such entities are listed in the personal property declaration’s “Property of Specified Persons or Organizations - Not Covered” section.

9. Vehicles

While the policy grants an exception for motorized devices used to assist elderly or physically impaired persons, the personal property form excludes all other such property. However, for the exception to apply, a vehicle cannot be a type that, by any law, is required to be registered for operation on public roads.

COVERAGE EXTENSIONS

This form provides some modest, additional amounts of protection to address certain loss situations. However, these limits are the maximum available for the described situations and can’t be used to supplement coverage found in either a base form or a form that has been modified by an optional endorsement.

1. Building Damage from Theft

a. This extension applies to tangible loss to the named insured’s residence that is caused by an attempt to break in and burglarize the premises. The extension also applies to acts of vandalism.

b. A maximum of $2,500 is available under this extension.

2. Newly Acquired Property

a. This extension applies to tangible loss to eligible personal property the named insured obtains during the policy period.

b. The coverage only applies when that newly acquired property matches the category of property that is already described on the policy and which has an insurance limit assigned.

c. The maximum coverage is either $2,500 or 10% of the policy’s total unscheduled personal property limit. However, this coverage does not increase the total amount available; it only makes a small amount of coverage available for new, unreported property.

Example: Pete and Lacy Collektibul have a personal property form with a total, unscheduled coverage amount of $32,000. During the policy period, they buy more property, resulting in owning unscheduled personal property worth $36,000. Later, they lose everything during a fire. While the Collektibuls could choose to apply up to $2,500 to replace the new property, that still will not affect their total, possible coverage of $32,000.

3. Newly Acquired Primary Residence

a. This extension applies to tangible loss to eligible personal property located at a residence that is obtained during the policy period. The new residence has to also be a primary residence.

b. The coverage only applies when that newly acquired property matches the category of property that is already described on the policy and which has an insurance limit assigned.

c. This extension is available only for a maximum of 30 days after the new, primary residence is acquired. However, the 30-day period is pre-empted by either the date the acquisition is reported or by the policy’s expiration.

d. The original policy limit remains unchanged even as it becomes applicable to a newly acquired property.

4. Property of Others

a. This extension applies to tangible loss to eligible personal property that belongs to either a named insured’s guest or domestic employee. The coverage only applies to property that is lost or damaged while located at the named insured’s covered residence.

b. The property must be of the same type that is protected by the insured’s personal property form and such coverage is applied only when it is requested by a named insured.

c. The policy’s unscheduled personal property limit for the class of property is the maximum available for protecting guest/domestic employee property.

OPTIONAL COVERAGES AND PREMIUM CREDITS

The Personal Property Form includes the following features that apply only IF the items are selected in the form’s declarations page:

1. Additional Living Expense Coverage

This option applies to instances when either the insured residence or a building housing such a residence is unavailable because of a type of loss that qualifies for coverage under the personal property form.

a. The coverage pays for the added costs to facilitate the insured household’s regular living standard.

b. The coverage is limited. It applies only for the time it takes to either find adequate, substitute living arrangements, or the residence can be occupied again after its repair/replacement. However, the coverage period is NOT subject to the policy expiration date.

c. The limit that appears in the declarations for the Additional Living Expense coverage is the maximum amount payable for a given loss.

2. Secondary Residence

a. When this option appears, coverage is provided for tangible loss to unscheduled personal property. Coverage applies to eligible property that is owned by an insured, but which is normally located at a secondary residence.

Example: An insured’s wardrobe of clothing located in a summer cabin.

b. Coverage only exists when the secondary residence is shown in the declarations and when the eligible class of property is also shown with a given limit of assigned coverage.

c. The limit that appears in the policy is the maximum amount of protection available for a given, covered incident.

3. Alarm or Sprinkler System Credit

a. For this credit to apply, naturally, an alarm or sprinkler system must be installed, and the insured must agree to properly maintain the system. Further, the system’s description must also appear on the declarations.

b. Per the premium credit agreement, an insured has to keep the insurance company informed of any system changes, failures or removal.

Example: An insured receives a discount on her personal property form policy. Later, the sprinkler systems become nonfunctional:

Scenario 1: She reports to her agent that the sprinkler system is not functional. The agent shares the information with her insurer, and she is billed for the amount of the former credit.

Scenario 2: She does not inform the agent. A loss occurs and the insurance company discovers that the sprinkler system had not been functioning for a while. The insurance company denies the loss because the named insured did not maintain the system as required.

PERILS COVERED

The personal property form obligates an insurer to pay for any tangible cause of loss to any covered property EXCEPT for any source that is specifically listed as being ineligible.

PERILS EXCLUDED

1. The personal property form does not respond to losses that involve a variety of sources. The policy wording attempts to make it clear that any instance of loss or destruction where an excluded cause of loss exists renders that situation ineligible for coverage. Where the excluded event occurs within a series of events and whether the excluded item occurs over a large area (i.e., catastrophic) has no effect, the exclusion still applies. The sources of loss that are ineligible for coverage include the following:

a. Civil Authority

If civil authorities confiscate, destroy, quarantine or seize property that is covered under the personal property form, there is no coverage. However, if the civil authority destroys property as a way to create a fire stop, the loss is covered, provided the fire would have been covered by the policy.

b. Earth Movement

The policy excludes losses due to earth movement no matter how the earth movement is caused – animal, human or act of nature. If fire or explosion occurs because of earth movement, there is coverage for the damage caused by that fire or explosion. Theft losses are also not limited by this exclusion.

Examples:

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 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 and all of the insured’s covered personal property. This loss is eligible for coverage.
Same example but instead of a minor tremor, it is major. Windows are broken and looters enter into an insured residence and steal items. This theft loss is eligible for coverage.

c. Intentional Acts

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

Note: Not only must the act be deliberate, but also the intent must be to cause a loss. Further, when one insured intentionally damages property that is owned or co-owned by another insured, all insureds are barred from collecting payment of that loss. Under this exclusion, even innocent insureds lose their protection.

d. Nuclear Hazard

If nuclear reaction, radiation or radioactive contamination causes a loss, such loss is not covered. It makes no difference how the nuclear reaction, radiation or radioactive contamination is caused and whether it occurs under controlled or uncontrolled circumstances.

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.

e. 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.

f. Water Damage

There is no coverage for water damage as defined in the definitions section. The exclusion applies regardless of any interaction between water and weather condition, humans or animals. An exception is made for direct loss to covered property caused by a subsequent fire or explosion.

Loss caused by theft is also covered.

Example: The Natcherlies’ apartment is on the third floor of an apartment building inundated by a flood. There is no damage to the Natcherlies’ apartment but while families are being kept from the premises, looters arrive and steal items from their apartment. This loss is covered.

2. There is not coverage when loss or damage is caused by the following. These exclusions are not subject to the anti-concurrent cause wording that appears in exclusion 1.

a. Acts or Decisions

There is no coverage for loss caused by actions or decisions made by governmental or other groups that affect covered property. However, coverage does apply when an act or decision creates a covered source of loss that, in turn, damages covered property.

b. Birds, Vermin, Rodents, Insects or Animals

Loss and destruction created by, well, critters and bugs are ineligible for coverage. Damage caused by animals that are owned or in the custody of an insured is also excluded.

Example: Jane’s new home entertainment system is insured under a personal property form. When Jane returns from a long day at work, she discovers that her dog, upset at being left alone so long, has clawed and chewed up every component. This loss is not eligible for coverage.

c. Breakage

Broken eyeglasses, statues, glassware, marble, porcelains and similarly fragile items are excluded except when breakage is due to fire, lightning, windstorm, explosion, collapse, transport vehicle collision/overturn, vandalism, riots, or theft (including attempted theft).

d. Electrical Currents

Damage due to electrical arcs (violent electrical current activity) is not eligible for coverage unless it is related to lightning. But coverage is provided if it results in loss by either fire or explosion.

e. Marring or Scratching

Neither marred nor scratched property is eligible for recovery from such damage.

Example: Jessy is playing tennis when she leaps to return a ball. As she lands, she falls and slides on the court, severely scratching her watch crystal. She turns in a claim but is told that the damage is ineligible for coverage.

f. Neglect

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

g. Repairing or Processing Work

Such handling of exposures is under an insured’s control, so are not deemed as accidental exposures. This exclusion does not apply to jewelry, watches and furs.

h. Temperature/Humidity

The policy has no obligation to respond to loss to property created by exposure to changes in temperature or air moisture content. An exception does exist for certain losses; those involving burst pipes, hail, rain, sleet, or snow.

Example: Ida turned in a claim due to severe damage to her collection of paintings. Her insurer turns her down because the cracking was caused by low humidity in the home she rented.

i. Wear and Tear, Deterioration or Inherent Vice

There is no coverage for loss caused, essentially, by the passage of time and handling/use of covered property, including wear and tear, deterioration (form refers to gradual deterioration, so a loss involving rapid deterioration may be excepted), inherent vice, or other property deficiencies.

WHAT MUST BE DONE IN CASE OF LOSS

1. 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, and
The notification must describe the property affected by the given loss

The above actions serve important functions. First, they permit the company to begin the loss investigation process, including any action to protect its rights. Second, quick notification to the police may increase the chance for property recovery and third, the reporting duty also minimizes fraud on the part of an insured.

2. You Must Protect Property

A named 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 named 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.

Example:

Juanita’s home is damaged by a storm that blows out several downstairs windows. She spends several hundred dollars to have someone come by to board up those windows in order to prevent further damage. Her insurer will pay this cost.
Same situation but Juanita anticipates the storm and spends several hundred dollars to have someone cover the windows in order to prevent the loss. There is no coverage for this expense.

3. Proof of Loss

If the insurance company requests it, the named insured is required to provide the insurer with a signed, sworn proof of loss. The proof of loss must be submitted within 90 days from the date of the insurer’s request and it must show the following information:

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
Detailed repair estimates and an inventory of lost items (other, similar information may also be requested by the insurer)

4. Examination

All insureds must agree to be questioned by the insurer with regards to a claim and the questioning can include answering questions under oath. This duty helps to protect a company against attempts 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.

5. Records

The named 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.

6. Damaged Property

The named insured must display 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.

7. Volunteer Payments

A named 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. The policy allows an insured some leeway to make payments in order to respond to emergencies or to help mitigate problems.

8. Abandonment

Property can not be abandoned to the insurer without the insurer’s permission. Of course, if the insurer agrees to accept the damaged property, the act is NOT abandonment.

Note: Agreeing to accept property relinquished by an insured must be in writing.

9. Cooperation

The named insured must cooperate with the insurer in performing all acts required by this policy. The policy requires that the named insured work with, rather than against, the insurer in order to investigate and process a possible claim. Of course, sometimes it takes judicial input to determine what is meant by cooperation.

VALUATION

1. Actual Cash Value

Property losses are adjusted on an actual cash value basis. That means that a current value determination includes consideration of depreciation, reducing any loss payment.

2. Loss to a Pair or Set

Under this provision, any property that is part of a pair or set that is lost or damaged is settled by either replacing the item or repairing the item. The insurer also has the option to pay an amount that reflects the difference between the pair or set’s pre-loss and post-loss value.

3. Loss to Parts

When a loss affects covered property that consists of components, the insurer is obligated to pay the value of only the damaged or destroyed part. The insurer also has the option of repairing or replacing the damaged part. In this instance, no consideration must be made of the pre- and post-loss value of the completed property.

HOW MUCH WE PAY

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

1. Insurable Interest

The insurance company’s obligation to pay for an eligible loss is constrained by the total insurable interest held by the named insured, regardless what may appear as limits or the property’s applicable value.

2. Deductible

This provision explains that any loss paid is net of any deductible selected and appearing for any given class of property that is protected by the personal property form.

3. Loss Settlement Terms

This provision explains that the applicable insurance company has the option to pay according to the property’s valuation (determined at the time of loss), what it takes to repair an item, what is needed to replace the property (substituting property that is comparable in value and quality), the policy’s applicable insurance limit or according to the cost to replace the property with the best substitute practically available. Further, the insurer has the right to use whichever option is the cheapest, though this term is subject to the policy’s other “How Much We Pay” provisions.

4. 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.

5. Insurance under More Than One Policy

Depending upon the source of coverage that is available (in addition to this policy), the policy responds proportionally. This means that the limit available under this insurance is divided by the total limits available from all policies to the cover this loss. The amount of the loss is then multiplied by that percentage to determine the amount paid by this coverage.

6. Coverage under a Service Plan

The policy’s available coverage is directly affected when a service plan or similar agreement (such as warranty plans and product protection plans) applies to an occurrence. In such instances, the policy responds on an excess basis and is subject to any applicable insurance limit.

LOSS PAYMENT

1. Loss Payment Options

This section may cause insureds confusion since it could be interpreted as treading the same ground as the earlier, “How Much We Pay” section’s “Loss Settlement Terms” provision.

a. Our Options

When a loss occurs, this provision states than an insurer may choose the most cost effective of the following:

· Pay the lost, damaged property’s immediate, pre-loss value

· Pay to repair the damaged property to its immediate pre-loss condition

· Pay the cost to replace the lose/damaged property with substitutes that are comparable in quality and nature

· Pay based on any value previously establish via agreement or appraisal (whether the situation involves partial or total loss).

b. Notice of Our Intent to Repair, or Replace

When an insurer decides to either repair or replace covered property, it must let the insured know of its intent. The notification has to take place within 30 days after the insurer receives a valid proof of loss.

2. Adjustment and Payment of Loss

This provision addresses settlement according to the ownership of the lost/damaged property:

a. Your Property

If no other insurable interest (including a loss payee) exists and if no third party exists (that is also responsible for payment), then any payment will be settled between the insurance company and the insured.

b. Property of Others

When the policy pays for damage to or loss of property that belongs to a third party, the insurer has the option of making payment either to the named insured (who is then responsible for getting payment to the applicable party) or directly to the property owner. This provision also states that such payments will not be duplicated. Only one party will be paid for a given, eligible loss. Finally, the provision states that the insurance company has the option to handle the expense of defending an insured against lawsuits that a third-party property owner might file.

Note: The property of other sections may cause confusion since the form:

· Doesn’t appear to have a section regarding liability coverage

· Has a separate provision that states it only makes payments according to an insured’s valid ownership (insurable) interest

3. Conditions for Payment of Loss

Here the form states that an insured is due payment for a loss no later than 60 days after the amount of a given loss is determined. The determination may result from a written agreement between the insurance company and the insured, the final filing (entry) of a judicial award or after an appraisal award has been filed with the insurer.

Related Court Case: Loss Settlement Delayed by Insurer (Classic)

CONDITIONS

In this portion of the policy, the policy’s general provisions are described.

1. 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.

Notes:

An appraisal is about the amount of an eligible loss not whether or not coverage applies.
No wording in this provision indicates that the results are binding on either the insurer or the insured.

2. 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).

3. Benefit to Others

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.

4. 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 insurer initiates either an appraisal or any examination under oath, the requests do not affect any other policy terms, so an insured may not consider other policy provisions to be waived or rendered moot.

5. 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 to match the state where the policy is used. However, there are instances where the condition is relied upon.

6. Death

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

Recognizing that the status of the residents in the household change in the policy once the named insured or spouse dies, the definition of insured is changed for the time of transition following the death. Specifically, the definition 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 until a legal representative is appointed.

7. 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 named 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 its 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.

8. Liberalization

Sometimes a program undergoes revisions that affect coverage for all policies, yet there may not be any additional premiums involved. If such a change occurs during a policy period or if it occurs no later than 60 days of the current term’s effective date, the applicable policy automatically changes to reflect those revisions.

Note: No changes take effect when overall program changes are implemented via a program edition change or via a separate endorsement.

9. 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.

10. 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, that act or omission may eliminate the insurer’s obligation to provide coverage for any insured. This may occur either before or after any loss (depending when an act or concealment is discovered).

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.

11. 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. In other words, a loss must take place within a stated policy period in order to qualify for coverage during that given period.

12. Recoveries

There are instances when the insurer pays for a loss and then, later, 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 comes 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.

13. Restoration of Limits

This provision states that partial losses have no affect on the total insurance limit available for subsequent, eligible losses.

14. Subrogation

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

Example: Tranh loses all of the clothing in his cabin after a fire. It turns out that his friend, whom he brought along on vacation, left something in a pan on the cabin’s stove when he went hiking. It caught fire and it spread throughout the cabin. Tranh’s insurer pays for his loss and, a few months later, informs Tranh that it is suing his friend to recover payment.

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. 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.

15. Suits against Us

While, during a serious dispute, an insured has a right to sue the insurer to resolve the situation, that right may only be sought AFTER complying with the personal article form’s terms. Also, any lawsuit has to be filed within two years of the date the insured first becomes aware of the applicable loss.

Note: The policy provision makes an important exception. It permits an insured to file a lawsuit according to the time period allowed by applicable state law.

Related Court Case: Parties Dispute Statute of Limitations