General insurance #11

Lecture Overview – Comments from Dr. Zietz

 Homeowners Insurance

Welcome back to the third portion of our course where we will cover liability topics and some personal lines property topics as well. You will note that Chapter 20 covers Section I of the homeowners’ policy, and Chapter 21 covers Section II of the homeowners’ policy.

While we are basically going to cover the HO-3 special form homeowner’s policy, you need to be aware that there are several other homeowner policies. Examine Exhibit Twenty on page 429 and you will see there are now six different homeowner policies:

HO-2 basic form covers the dwelling, other structures, and personal property on a named perils basis.

Homeowner Policy Section I

The homeowners’ policy is a great place to get introduced to basic insurance terminology and learning your way around the policies and how to understand the policy. The HO-3 is broken down into two parts. It's fairly easy to look up specific losses or specific issues that you may want to read more about. For example, homeowner policy Section I provides four different categories of coverages. These four coverages are: A- dwelling coverage, B- other structures coverage, C- personal property coverage, D-loss-of-use coverage. There are some other coverages that will be included in these but those are the four broad categories of coverages in Section I of the homeowners’ policy.

You will note dwelling coverage today covers the building itself. Following through on page 432 you will see that the dwelling includes any structure that is attached to that dwelling. For example an attached garage would be covered under coverage. If the garage was not physically attached to the actual house, then that would be covered under coverage B as other structures. As a former claims adjuster these sections of the policy and the definitions within them were very important in determining whether a loss was covered, and if so to what extent was their coverage. You will see that under each of those coverages in Section I, there are limits, as well as additional special limits of liability. For example there's a $200 limit on money within the home. This would include a coin collection or just spare cash that you may hide under your mattress. There is also a special event for the theft of jewelry up to $1500 on most homeowner policies. You will also find a section entitled property not covered and should read through the eleven categories of property not covered there in this chapter. You should recall what we said in Chapter 1 about what we need to insert in a policy to prevent an insured from trying to make a profit from having a loss. Most of these exclusions or limits are for that purpose. There are other reasons for exclusions that are discussed here as well.

Coverage D provides protection when the residence premises cannot be used because of a covered loss. The amount of additional insurance under this coverage is 30% of the amount of insurance on the house itself, Coverage A.

If you keep going through the policy you will find that it's organized very nicely. You have specific information for coverage is A through D, then you have a section entitled additional coverages which specify how much coverage there would be if the fire department had to come to your home and charged for that trip, but you would also find additional coverages for things like trees shrubs and other plants, credit card, electronic fund transfer card or excess device, forgery, and counterfeit money. The section more clearly defines the coverage that would be provided for these types of items.

You want next come to a section that describes the perils insured. You'll also relate this to what we had in Chapter 1 regarding named peril versus all risk policies. It specifically states in the section that for the house and other structures, coverage A and B, the dwelling and other structures, are insured against "direct physical loss to the property." This means that direct physical loss is covered except if the loss is specifically excluded. Thus, if a loss to the dwelling or other structure is not excluded, the loss is covered under the policy. This is quite simply the definition of an open peril policy.

A more lengthy discussion is provided on the coverage that would apply toward personal property that is covered. Personal property is covered on a named peril basis. The policy compensates direct physical loss to personal property from this perils discussed or named in the policy. This indicates that coverage C is a named peril type of coverage. You will find a lot of perils listed here under the section including fire, lightning, wind storm, hail, explosion, aircraft, vehicle, smoke, and theft. There are many other perils named for coverage C of this policy.

The next segments of the homeowner policy includes a list of exclusions and conditions.  Keep in mind the homeowner policy is divided into Section I and Section II. Different conditions and exclusions will apply to each section. In the condition section you will find more specific information on things such as your duties after a loss, how a claim is settled, the appraisal clause, and your mortgage clause. You might be interested in reading in this section about how the mortgage clause is designed to protect the mortgagee’s insurable interest. The mortgagee is the bank or the holder of the loan on the house. Many people are not aware that their lender has a key role and has benefits in their homeowners’ policy. The laws have changed to protect a mortgagee from the acts of the insured in some cases.

As in all of these chapters, at the end you will find case applications. The case applications for Chapter 20 are exceptionally good! Look on page 448 and go through the examples given of Jack and Jane and their homeowner policy.

Homeowners Policy Section II

The homeowner policy information is continued in Chapter 21. While chapter 20 covered Section I of the homeowners’ policy, Chapter 21 covers Section II, which only includes two coverages, Coverage E and coverage F. These two coverages are for personal liability, and medical payments to others. While different limits might be available, a typical limit is $100,000.

As you will see in this chapter, some very interesting claims may occur in coverage, as is itemized on page 455. Your coverage if you would provide personal liability protection to you, meaning that if I third-party made a claim against you, this coverage could apply. Suppose your dog bites a small child, Coverage E may apply. This is a very common type of homeowner claim under Section II coverage. Also, if you're burning leaves in your yard and accidentally set your neighbor’s home on fire, Coverage E would apply. The big question that always arises in class is what if someone is hurt in your home or even worse, what if someone is drinking in your home and leaves and causes an accident. These are the types of things for which we all need to be very cautious and practice thorough risk management! Coverage E would generally apply to these types of situations, with some exclusions that are also noted in his chapter.

There are numerous exclusions listed for coverage under Section II and most of these you can see how directly they result from our concern back in Chapter 1 again that no one should be able to profit from having an insurance policy. Notice there are exclusions for watercraft liability, aircraft liability, and hovercraft liability, which would need to be covered under their own policy. Most people do not have those types of properties, therefore the average homeowner would prefer not having to pay for that coverage when they do not own a watercraft or an aircraft.

There are some additional coverages in Section II that are discussed in this chapter as well. Those include coverages for claims expenses, and one of my favorites, damage to property of others. When I was a claims adjuster and there had been a small loss to someone's property who wanted the insured to pay for, often the insured would not feel it was his or her responsibility to pay for the loss. I had one claim in which our insured went to visit his neighbor and the door handle just fell off. Our insured claimed he did not do anything to cause the damage. He said it was loose and it already been broken. He did not want to have to have his insurance company pay for his neighbor’s broken door when he did not feel responsible for it. This damage to property of others clause, what I like to call the good neighbor clause, allowed me to give the neighbor A few hundred dollars to fix the door with no liability admitted.

As you continue reading the chapter, pay careful attention to this Section II conditions, many of which we discussed in an earlier chapter, and typical endorsements that may be added to the homeowner policy. A homeowner can tailor this policy to fit his or her needs quite easily.

The final section of Chapter 2 covers the cost of homeowner insurance. The chapter also provides you hints on what to look for when purchasing the policy and provides some cost comparison between different companies. It would be worth your time to look online and see how prices may vary across companies for the same amount of coverage.

These two chapters provide a lot of information that I am confident you will refer to when you purchase a homeowners policy!