Home Owners Policies (HO)

Homeowners Insurance

Dwelling policies were a precursor to the homeowners policy. The homeowners policy provides much of the same coverage as the dwelling policies, but have evolved to cover the need for both property insurance and the insured’s legal responsibility for bodily injury or property damage to others. Thus, a homeowners’ policy is considered “multi-line” coverage.

Sidenote

Know this...

To purchase homeowners insurance, the dwelling or residence to be insured must be owner-occupied.

Section I of a homeowners policy provides property coverage. The personal liability coverage of the homeowners’ policy is referred to as Section II.

Section I Coverage

There are several policy forms available, and they differ according to the protection provided. Section I is comprised of four coverage sections which provide insurance on the insured’s residence and personal property.

Coverage A

Coverage A provides property insurance on the owner-occupied dwelling used for residential purposes. The location of the residence premises is identified in the declarations. This section of coverage provides protection against loss to any dwelling or structure attached to the dwelling and materials and supplies located on or next to the described premises used to construct, alter, or repair the dwelling or other structures on the residence premises. Coverage A appears in an HO2, HO3, and HO6 policy, which will be reviewed later.

Coverage B

This coverage area provides a specific limit of insurance coverage for detached structures on the residence premises. An automatic coverage limit of 10% of the Coverage A amount is provided for other structures for one or two-family dwellings and 5% of Coverage A for three or four-family dwellings. This coverage functions in a similar fashion to Coverage B under a DP form.

Coverage C

This coverage area protects all the unscheduled personal property of the insured while it is located in any part of the world. Coverage is 50% of coverage A for one or two-family dwellings, 30% for three-families, and 25% for a four-family dwelling, but includes “special limits” for certain types of property. There are several property exclusions applicable to Coverage C as well. For example, the policy does not cover loss to autos, itemized articles insured separately, or property belonging to a tenant not related to an insured.

Coverage D

This coverage area under a HO policy is referred to as loss of use or additional living expense. It functions in the same manner as the corresponding coverage found in a dwelling property policy and is also considered to be an indirect loss type of coverage. It provides coverage if the insured incurs additional expenses while living at another location if the residence premises are unlivable due to a covered peril. Only expenses incurred beyond an insured’s normal monthly living expenses will be paid.

Additional Coverages

All homeowners forms include supplementary coverages under Section I, in much the same manner as provided under the DP forms. These additional coverages are paid “in addition” to the other applicable coverage limits provided under each coverage area and include:

• Debris removal
• Reasonable repairs
• Trees, shrubs, and plants (5% of Coverage A, not to exceed $500 per item)
• Fire department service charges
• Removal
• Credit card forgery
• Loss assessment
• Collapse
• Glass or safety glazing material
• Landlord’s furnishings

The exclusions found in a homeowners form include:

• Ordinance or law (i.e. ordered destruction)
• Earth movement (if an earthquake causes fire, explosion, or glass breakage, this damage is covered)
• Water damage, including flood, sewer, or sump pump backup
• Neglect
• War
• Nuclear hazard
• Intentional destruction

Limit of Liability

Each coverage area of Section I in a homeowners policy possesses a specific limit of liability. Losses are paid for each coverage area up to their limits (per occurrence). Additional coverages (i.e., debris removal) are also provided, which may increase the claim payment, if applicable.

There are 5 primary policy forms. These policy forms will vary according to the perils insured against and the individual exposure to be insured. These policy forms are:

HO2 (Broad Form)

The homeowners insurance equivalent of the Dwelling Property Broad form, this policy is known as the HO2 form and is available for owner-occupied homes. It is a broad-form peril policy protecting an insured against all the perils previously reviewed in a Dwelling Broad Form plus theft, damage caused by bursting pipes, volcanic eruption, etc. If the insured covered his home for $100,000, Coverage B would automatically provide $10,000 of coverage, and there would be $50,000 of coverage for Coverage C. Section II functions the same as all HO policy forms.

HO3 Open Perils Dwelling Coverage (Special Form)

This policy form provides open-peril coverage on Coverages A, B, and D. Coverage C, however, is protected on a named peril basis. The HO3 policy provides the broadest scope of coverage since it provides all-risk insurance protection. This homeowners form includes the four coverage areas of Section I. The percentage limitations allocated to Coverages B, C, and D are the same as the HO2.

HO4 Renter Insurance (Tenant Form)

This policy form is known as an HO4. It provides coverage for a renter’s unscheduled personal property (Coverage C) and loss of use (Coverage D). It is a broad form peril policy. If the insured tenant carries $10,000 of coverage on personal property, the policy will provide up to $3,000 of coverage for loss of use under Coverage D.

HO6 (Condominium Form)

This policy is also a broad form peril plan. It is designed for the unit owners of condominiums to protect against loss to personal property arising from a covered peril. If the insured carries $20,000 on Coverage C, 50% or $10,000 of coverage would be provided for loss of use coverage. This form also provides coverage up to $1,000 for unit additions or alterations. This amount may be increased for an additional premium.

Sidenote

Know this...

Condominium association policy covers exterior wall and interior framing, while insured policy covers interior walls and content. The association policy is primary, and the insured is secondary

HO8 Historic Homes (Modified Coverage Form)

The HO8 insures against basic perils. It insures older home where replacement costs may exceed market value.

Section II Coverage

Section II of a homeowners’ policy form provides personal liability protection and medical payments to others. Section II of all homeowners’ forms are identical in the scope of coverage provided.

Coverage E Personal Liability

This coverage protects the insured if a legal suit is brought against him/her as a result of legal responsibility for BI or PD to others. The initial coverage limit available is $100,000, but can be increased. This coverage protects an insured if another person is injured on any insured location. It also would protect the insured, spouse and family who is legally responsible for the BI or PD to others arising out of personal, nonbusiness activities. Supplementary payments for legal defense costs are also provided.

Coverage E Exclusions:

• Any loss assessment charged against the insured as a member of an association, corporation, or community of property owners
• Any loss assumed under a contract or agreement except contracts that relate directly to the insured location or contracts where the liability of others is assumed prior to an occurrence
• Property damage to property owned by, used by, or in the care of the insured.
• Intentional injury or damage as defined by the policy
• BI and PD arising out of business pursuits or the rendering or a failure to render professional services, with some exceptions
• BI and PD arising out of the rental of any part of the premises except for rental of part of the insured’s premises as a residence
• Liability arising out of ownership, maintenance, use, loading, or unloading of aircraft, watercraft, and motor vehicles
• Communicable diseases
• Sexual molestation, corporal punishment, physical or mental abuse

Coverage F Medical Payments to Others

Also known as guest medical, this coverage pays when someone is injured in the insured’s home or due to activities of the insured or the insured’s family. Negligence does not have to be established in order for medical expenses to be paid. If an accident occurs during the policy period, necessary medical expenses will be paid up to three years following the accident.

The limit provided by the policy is $1,000 per person and may be increased with additional premiums. Medical expenses are defined in the policy. In addition, claim expenses and first aid expenses are also covered under this policy section.

Coverage applies to the following injuries:

• Sustained while at the insured location with the insured’s permission
• Sustained off the insured location and arising out of a condition on the insured’s location
• On a location immediately adjoining the insured location caused by the activities of an insured
• Caused by any resident employee in the course of his employment
• Caused by any animal owned by or in the care of the insured

Sidenote

Know this...

This is coverage to OTHERS…It does not cover anyone who qualifies as an insured.

Exclusions applying only to Coverage F

• Bodily injury to a resident employee that occurs off the insured location and does not arise out of or in the course of work the employee performs for the insured
• Anything covered by Workers’ Compensation
• Bodily injury due to nuclear reaction, radiation, or radioactive contamination, including any consequential injuries

Any payments under Section II may also include the supplementary cost of legal defense.

Lesson Summary

Homeowners insurance policies offer both property insurance and personal liability coverage for homeowners. Here are the key points regarding homeowners insurance:

• Homeowners insurance originated from Dwelling policies, covering property insurance and personal liability.
• Policy includes Sections I (property coverage) and II (personal liability coverage).
• Section I consists of coverage areas for dwelling (A), detached structures (B), personal property ©, and loss of use (D).
• Additional coverages are available under Section I, such as debris removal and fire department charges.
• Exclusions in homeowners policies include neglect, war, intentional destruction, etc.
• There are five primary policy forms under homeowners insurance: HO2, HO3, HO4, HO6, and HO8, each with varying coverage options.

Section II of homeowners policies offers personal liability and medical payments coverage:

• Coverage E (Personal Liability) protects against legal responsibility for injury or property damage to others. It includes defense costs.
• Coverage F (Medical Payments to Others) covers medical expenses for injuries occurring on the insured premises or due to insured activities.
• Coverage F applies to injuries caused by the insured, family, employees, or animals.
• Exclusions under Coverage E include losses covered by contracts, property damage to insured property, or injuries from business pursuits.
• Exclusions for Coverage F include injury to resident employees and injuries covered by Workers’ Compensation.

Chapter Vocabulary

Definitions

Condo Form

Homeowners insurance sold to condominium owners occupying the described property.

Homeowners Insurance

A package policy combining real and personal property coverage with personal liability coverage. Coverage applicable to the dwelling, appurtenant structures, unscheduled personal property, and additional living expenses are typical. Includes mobile homes at a fixed location.

Mortgagee Clause

Grants to a mortgagee under a Property contract issued to a mortgager by virtue of the mortgagee’s financial interest in the property.

Owner Occupied

Homeowners insurance sold to owners occupying the described property.

Renters Insurance

Liability coverage for contents within a renter’s residence. Coverage does not include the structure but does include any affixed items provided or changed by the renter.

Residence

The domicile location of a member as shown by his or her determination as a resident.

Tenants

Homeowners insurance sold to tenants occupying the described property.