Dwelling Policy Conditions

Other coverages

All dwelling policy forms include a section titled “Other Coverage.” This section lists coverage extensions built into the dwelling policy.

All policies are subject to a deductible, unless the policy says otherwise. The fire department service charge, for example, is paid with no deductible.

Some of these coverages are included within the existing policy limits. Others (such as Fire Department Service Charge) pay in addition to those limits.

There are eight other coverage extensions on the DP-1. The DP-2 and DP-3 carry the same eight and add four more, which follow them below:

1) Other structures

The insured may use up to 10% of the Coverage A limit for detached structures such as garages or sheds, even if no separate Coverage B amount is shown. On the DP-1, this amount is part of the Coverage A limit, so a payment reduces the Coverage A limit by the amount paid for the same loss. On the DP-2 and DP-3, it is additional insurance.

2) Debris removal

The insurer will pay the cost of removing debris when insured property is damaged or destroyed by an insured peril.

This “Other Coverage” is generally included within the limit of liability that applies to the damaged property. On the dwelling forms, debris removal is not paid in addition to the limit.

For example, if a DP-1 policy provides $100,000 of coverage on the dwelling and an insured suffers a $10,000 fire loss to the dwelling while also incurring debris removal charges of $1,000, the policy will pay $11,000 (less any applicable deductible).

3) Alterations and improvements

If the insured is a tenant and makes improvements to the dwelling at their own expense, 10% of the amount of coverage the tenant carries on contents may be applied to cover those improvements. On the DP-1, a payment reduces the Coverage C limit. On the DP-2 and DP-3 it is additional insurance.

4) World wide coverage

Up to 10% of the contents coverage amount for loss by a covered peril may be used when the property damaged or destroyed was away from the premises.

This applies only to personal property insured under Coverage C. Using this coverage reduces the available Coverage C limit for that same loss, but it does not reduce the overall policy limit.

5) Reasonable repairs

If covered property is damaged by a covered peril, the insurer will pay the reasonable cost the insured incurs for necessary measures taken solely to protect the property against further damage.

6) Removal

The insurer will cover property against direct loss from any cause while it is being removed from premises endangered by a covered peril.

The DP-1 form provides coverage for up to 5 days, while the DP-2 and DP-3 forms extend this coverage to 30 days.

This coverage does not change the limit of liability that applies to the property being removed.

7) Rental value

The insured may use up to 20% of the Coverage A limit for loss of fair rental value, the loss Coverage D describes. On the DP-1, no more than 1/12 of that 20% is paid for each month the rented part is unfit for its normal use, and the payment reduces the Coverage A limit. On the DP-2 and DP-3, this Other Coverage is named Rental Value and Additional Living Expense: the 20% applies to both losses together and is additional insurance.

8) Fire department service charges

The insurer will pay for the insured’s assumed liability for fire department service charges.

The policy pays up to $500, in addition to the policy limits and with no deductible, for fire department charges the insured has agreed to pay by contract or agreement when the department is called to save or protect covered property from a covered peril. It does not apply if the property is within the limits of the city, municipality or protection district that sent the fire department.

Other coverages added by the DP-2 and DP-3

The broad and special forms list four more Other Coverages:

• Trees, shrubs and other plants: up to 5% of the Coverage A limit, and no more than $500 for any one tree, shrub or plant, for loss by fire or lightning, explosion, riot or civil commotion, aircraft, vehicles not owned or operated by the insured or a resident of the described location, or vandalism or malicious mischief. Windstorm is not one of the perils. This is additional insurance.
• Collapse: direct physical loss from the abrupt collapse of a building or part of a building, for the causes listed in Dwelling Policies (DP). It does not increase the limit that applies to the damaged property.
• Glass or safety glazing material: breakage of glass that is part of a covered building, storm door or storm window. It does not increase the limit, and it does not apply if the dwelling has been vacant for more than 60 consecutive days immediately before the loss, unless earth movement broke the glass.
• Ordinance or law: up to 10% of the Coverage A limit for the increased cost of construction, demolition or repair that a building code or similar law requires after a covered loss. It does not pay for a loss in value caused by the law. This is additional insurance.

The DP-1 has none of these four. It does not cover lawns, plants, shrubs or trees outside of buildings.

Vandalism and malicious mischief (VMM)

Vandalism and malicious mischief is a peril insured against, not one of the Other Coverages. Vandalism and Malicious Mischief (VMM) is a covered peril in the DP-2 and DP-3 forms and may be added to the DP-1 form for an additional premium.

VMM does not cover theft. On the DP-1 it also does not cover breakage of glass that is part of the building, but the DP-1 does pay for damage burglars do to the building. The DP-2 and DP-3 cover glass breakage under their glass Other Coverage and list damage by burglars as a separate peril.

Sidenote

Know this...

If the dwelling has been vacant for more than 60 consecutive days immediately before the damage occurs, there is no VMM coverage.

Dwelling property conditions

All dwelling policies include a conditions section that explains the obligations and duties of the insured and the insurer in the event of a loss. These policy provisions include:

1) Appraisal

Each party appoints an appraiser within 20 days after receiving a written request from the other.

If the appraisers cannot agree on an umpire, either party may request a court of competent jurisdiction to appoint one. An agreement by any two of the three (the two appraisers and the umpire) determines the amount of loss, and the parties share the cost of the umpire equally.

2) Loss settlement condition

States that covered property losses are valued at actual cash value, but not to exceed the amount necessary to repair or replace. That is the rule on the DP-1. On the DP-2 and DP-3, buildings are settled at replacement cost if they are insured for at least 80% of their replacement cost; personal property is settled at actual cash value.

3) Our option

Gives the insurer the right to repair or replace damaged property with material or property of like kind and quality, if it gives the insured written notice of that choice within 30 days after it receives the insured’s signed, sworn proof of loss.

4) Deductible clause

The insurer will pay up to policy limits after the insured has satisfied the deductible.

5) Pair or set condition

States that if there is a loss to an item that is part of a pair or set, the insurance company is not obligated to pay the value of the entire set. The insurer may either repair or replace part of the set or pay the difference between the value of the property before the loss and the value of the remaining property.

6) Liberalization clause

This provision in property insurance policies states that if an insurer adopts new policy forms that broaden coverage during the policy term (or within 60 days prior to the effective date), existing policies will have the broadened coverage without an extra premium.

7) Suit against insurer

Must be started within two years after the date of loss, and only after the insured has complied with all of the policy’s terms.

8) Death of the insured

Policy will transfer to the legal representative.

9) Assignment

Also known as transfer of rights and duties, this provision stipulates that an assignment of the policy to another party is not valid without the written consent of the insurer.

10) Loss payment

States that the loss is payable 60 days after the insurer receives the insured’s proof of loss and either reaches agreement with the insured on the amount of loss, a final judgment is entered, or an appraisal award is filed.

11) Other insurance

States that if a loss is covered by other fire insurance, the insurance company will pay only its proportionate share of the loss. The policy is excess over any amount payable under a service agreement, such as a home warranty.

12) Abandonment

This provision states that the insurer does not have to accept property the insured abandons to it. The insured cannot simply turn damaged property over to the insurer and demand its full value.

13) Recovered property

States that if the insured or insurer recovers lost property, the other party must be notified. Insured’s options when property is recovered:

1. Keep the money and return the recovered property to the insurance company
2. Keep the recovered property, with the loss payment adjusted based on the amount the insured received for that property

14) Duties after loss

After a loss, the insured must give prompt notice to the insurer or its agent, protect the property from further damage and keep a record of repair expenses, cooperate in the investigation, and prepare an inventory of damaged personal property. As often as the insurer reasonably requires, the insured must show the damaged property, provide records and submit to examination under oath. The insured must also send a signed, sworn proof of loss within 60 days after the insurer requests it. The insurer has no duty to provide coverage if a failure to carry out these duties is prejudicial to it.

15) Concealment or fraud

The policy provides coverage to no person insured under it if, before or after a loss, any person insured has intentionally concealed or misrepresented a material fact, engaged in fraudulent conduct, or made false statements relating to the insurance.

16) Mortgage clause

If a mortgagee is named in the policy, a loss under Coverage A or B is paid to the mortgagee and the insured as their interests appear. If the insurer denies the insured’s claim, the mortgagee can still recover, provided it notifies the insurer of any change in ownership, occupancy or substantial change in risk it knows of, pays any premium due on demand if the insured has not, and submits a signed, sworn statement of loss within 60 days after the insurer notifies it that the insured failed to do so. The insurer must notify the mortgagee at least 10 days before it cancels or does not renew the policy.

17) Cancellation and nonrenewal

The insured may cancel at any time by returning the policy or by written notice. The insurer may cancel only for the reasons the form lists, by written notice:

• for nonpayment of premium, at any time, with at least 10 days’ notice
• for any reason while a policy that is not a renewal has been in effect less than 60 days, with at least 10 days’ notice
• once the policy has been in effect 60 days or more, or at any time on a renewal, only for a material misrepresentation that would have caused the insurer not to issue the policy or a substantial change in the risk, with at least 30 days’ notice
• on a policy written for more than one year, for any reason at an anniversary, with at least 30 days’ notice

The premium for the unexpired period is refunded pro rata. To nonrenew, the insurer gives written notice at least 30 days before the policy expires. State law often replaces these reasons and notice periods.

18) Subrogation

The insured may waive, in writing and before a loss, all rights of recovery against any person. If those rights were not waived, the insurer may require the insured to assign them to the insurer to the extent of its payment.

Dwelling property endorsements

The following are additional endorsements that may be added to a dwelling property policy form. The language that follows has been derived from actual endorsements as they appear in real policies.

• An automatic increase in insurance (also known as inflation protection) provides automatic percentage increases in coverage each year.
• Broad Form Theft Coverage may be added for owner-occupied dwellings to provide on- and off-premises theft coverage, with a minimum limit of $1,000. Limited Theft Coverage applies to non-owner-occupied dwellings.
• Permitted Incidental Occupancies provides coverage for an insured’s personal property when the structure is “incidentally” used for a business activity, such as providing piano or other music lessons, using a room as a “satellite” type of office or refinishing or woodworking related activities. This endorsement actually deletes exclusions in the policy as they pertain to a business activity conducted on the described location.
• Building Ordinance or Law covers losses resulting from ordinance or laws regulating construction, repair or demolition of property. The DP-2 and DP-3 already include a limited amount as an Other Coverage, which pays the increased cost to rebuild or repair a covered building or other structure, or a tenant’s improvements. It does not apply to personal property (i.e., contents).
• Premises Alarm or Fire Protection Systems A premium discount is provided under this endorsement for dwellings with approved and properly maintained installations of alarms or fire protection systems. The system utilized must be identified in the endorsement.
• Additional Insured Persons or organizations with insurable interests in the described location may be named as additional insureds in this endorsement.
• Sinkhole Collapse provides coverage for losses arising from the sudden settlement or collapse of the earth resulting from, as the endorsement states, “subterranean voids created by the action of water on limestone or similar rock formations.”

Lesson summary

All dwelling policies have a section titled “Other Coverage,” offering extensions of coverage that are subject to a deductible (except the fire department service charge) and may either be included within or extend beyond the policy limits, depending on the coverage type. The extensions include:

• Other Structures
• Debris Removal
• Alterations and Improvements
• World Wide Coverage
• Reasonable Repairs
• Removal
• Rental Value
• Fire Department Service Charges

The DP-2 and DP-3 add trees, shrubs and other plants, collapse, glass or safety glazing material, and ordinance or law. Vandalism and malicious mischief is a peril insured against, not an Other Coverage.

These policies also have conditions, including:

• Appraisal
• Loss settlement conditions
• Our option
• Deductible clause
• Pair or set condition
• Liberalization Clause
• Suit against insurer
• Death of the insured
• Assignment
• Loss payment
• Other insurance
• Abandonment
• Recovered property
• Duties after loss
• Concealment or fraud
• Mortgage clause
• Cancellation and nonrenewal
• Subrogation

Endorsements that may be added to dwelling policies include:

• Automatic increase in insurance
• Broad form theft coverage (for owner-occupied dwellings).
• Permitted Incidental Occupancies
• Building Ordinance or Law
• Premises Alarm or Fire Protection Systems
• Additional Insureds
• Sinkhole Collapse

Chapter vocabulary

Definitions

Appurtenant

The term appurtenant refers to something that belongs to or goes with something else. The appurtenant thing, or “appurtenance,” is less important than the property to which it belongs or is attached. It may be used in reference to “Other Structures”

Deductible

The amount of loss or expense that must be paid by the insured before benefits become payable. The insurance company pays benefits only for the loss in excess of the amount specified in the deductible provision. There are various types of deductible provisions.

Conditions

Requirements specified in the insurance contract that must be upheld by the insured to qualify for indemnification.

Debris removal

A section of a property insurance policy that provides reimbursement for cleanup costs associated with damage to property.

Endorsement

An amendment or rider to a policy adjusting the coverages and taking precedence over the general contract.

Ordinance or Law

Endorsement to a property policy, including homeowners, that pays for the extra expense of rebuilding to comply with ordinances or laws, often building codes, that did not exist when the building was originally built.

Pair or Set

This condition states that in the event of a loss to an item that is part of a pair or set, the insurance company is not obligated to pay the value of the entire set. The insurer may either repair or replace part of the set or pay the difference between the value of the property before the loss and the value of the remaining property.

Removal

The attempt to save threatened property by removing it from endangered area.

Reasonable Repairs

In the event of a loss, the insured is permitted and obligated to take action towards preventing, limiting and/or reducing the loss.

Vandalism

The malicious and often random destruction of another person’s property.