Achievable Personal Lines

Homeowners Policy Definitions and Conditions

11 min read

This chapter covers two parts of the homeowners policy studied in Home Owners Policies (HO): the definitions that decide who and what the policy covers, and the conditions that set out what the insured and the insurer must each do after a loss or an occurrence, how property losses are valued and paid, and how the policy can be cancelled or changed. Both follow the ISO homeowners forms, 2011 edition.

Definitions

A homeowners policy defines the words it puts in quotation marks. The definitions decide who is covered, where and for what.

“You” and “your” mean the named insured shown in the declarations, and the named insured’s spouse if the spouse lives in the same household. “We,” “us” and “our” mean the insurer.

“Insured” means:

You, and residents of your household who are your relatives, or other persons under 21 in the care of you or of a resident relative
A full-time student who lived in your household before moving out to attend school, if the student is under 24 and your relative, or under 21 and in the care of you or a resident relative
Under Section II, a person legally responsible for animals or watercraft owned by an insured, and certain persons using an insured’s motor vehicle that the policy covers

“Residence premises” means the one-family dwelling where you reside, the two-, three- or four-family dwelling where you reside in at least one of the units, or that part of any other building where you reside, if it is shown as the residence premises in the declarations. It includes other structures and grounds at that location. Under HO-6, it is the unit where you reside.

“Insured location” is a list:

The residence premises
Other premises you use as a residence that are shown in the declarations or acquired during the policy period for use as a residence
Any premises you use in connection with the residence premises or with those other residences
Any part of a premises not owned by an insured where an insured is temporarily residing
Vacant land, other than farm land, owned by or rented to an insured
Land on which a one- to four-family dwelling is being built as a residence for an insured
Individual or family cemetery plots or burial vaults
Any part of a premises occasionally rented to an insured for other than business use

Other definitions:

“Bodily injury”: bodily harm, sickness or disease, including required care, loss of services and resulting death
“Property damage”: physical injury to, destruction of, or loss of use of tangible property
“Occurrence”: an accident, including continuous or repeated exposure to substantially the same general harmful conditions, that results in bodily injury or property damage during the policy period
“Business”: (a) a trade, profession or occupation, whether full-time, part-time or occasional; or (b) any other activity engaged in for money or other compensation, except activities for which no insured received more than $2,000 in total in the 12 months before the policy period, volunteer work paid only for expenses, home day care given without pay or for a mutual exchange of services, and home day care for a relative of an insured
“Residence employee”: an employee whose duties relate to the maintenance or use of the residence premises, including household or domestic services
“Employee”: an employee of an insured other than a residence employee
“Motor vehicle”: a self-propelled land or amphibious vehicle, and a trailer being carried on or towed by one
Aircraft, hovercraft, motor vehicle and watercraft liability: liability arising out of owning, using, loading or entrusting those vehicles or craft, which Section II largely excludes

Homeowners policy conditions

Section I conditions

Duties after loss. After a property loss, the insured must give prompt notice to the insurer or its agent; notify the police of a theft; protect the property from further damage and keep a record of repair expenses; cooperate in the investigation; prepare an inventory of damaged personal property; show the damaged property and submit to examination under oath as often as the insurer reasonably requires; and send a signed, sworn proof of loss within 60 days after the insurer requests it.

Loss settlement. Personal property, and items such as awnings, carpeting, appliances and outdoor equipment, are paid at actual cash value. Under HO-2, HO-3 and HO-5, buildings under Coverages A and B are paid at replacement cost if they are insured for at least 80% of their full replacement cost at the time of loss. (HO-6 pays Coverage A at the actual cost to repair if the damage is repaired within a reasonable time, otherwise at actual cash value, with no 80% test; HO-8 pays functional replacement cost.)

If the amount of insurance is 80% or more of the replacement cost, the insurer pays the cost to repair or replace without deduction for depreciation, up to the limit
If it is less than 80%, the insurer pays the greater of the actual cash value of the damage, or the proportion of the replacement cost that the amount of insurance bears to 80% of the replacement cost

Example: A home with a replacement cost of $200,000 is insured for $120,000, and a covered loss costs $20,000 to repair (actual cash value $14,000). Eighty percent of $200,000 is $160,000, so the home is underinsured. The insurer pays the greater of $14,000 and ($120,000 / $160,000) x $20,000 = $15,000. It pays $15,000, less the deductible.

Appraisal. If the insured and insurer disagree on the amount of loss, either may demand appraisal. Each chooses an appraiser within 20 days; the appraisers choose an umpire, and if they cannot agree within 15 days, a judge chooses one. An agreement of any two sets the amount of loss.

Other insurance. If other insurance covers the loss, the insurer pays only its pro rata share: the proportion its limit bears to the total insurance.

Suit against us. An action must be started within two years after the date of loss, after full compliance with the policy’s terms.

Our option and loss payment. Within 30 days after receiving the proof of loss, the insurer may give notice that it will repair or replace the property instead of paying for it. A loss is payable 60 days after the insurer receives the proof of loss and the amount is settled by agreement, court judgment or an appraisal award.

Abandonment of property. The insurer need not accept property abandoned by an insured.

Mortgage clause. If a mortgagee is named, a covered loss to the dwelling or other structures is paid to the mortgagee and the insured as their interests appear. The policy:

Requires the insurer to notify the mortgagee at least 10 days before it cancels or does not renew the policy
Protects the mortgagee’s claim even if the insured’s own claim is denied, if the mortgagee reports known changes in ownership, occupancy or risk, pays any premium due on demand if the insured has not, and submits a sworn statement of loss within 60 days after the insurer’s request

This is the standard mortgage clause, covered further in Common Policy Provisions.

Other Section I conditions include the deductible, loss to a pair or set, recovered property, the 72-hour volcanic eruption period, the policy period (covering loss that occurs during it), no benefit to bailee, and the loss payable clause.

Concealment or fraud. Under Section I, the policy covers no insured if, before or after a loss, an insured has intentionally concealed or misrepresented a material fact, engaged in fraudulent conduct, or made false statements relating to the insurance.

Section II conditions

Limit of liability: the Coverage E limit is the most paid for all damages from one occurrence, however many insureds, claims or injured persons; the Coverage F limit is the most paid for one person from one accident
Severability of insurance: the insurance applies separately to each insured, without increasing the limit for one occurrence
Duties after an occurrence: give written notice as soon as practical, cooperate, forward every notice and summons, and help with settlement and suits. An insured who voluntarily pays a claim or assumes an obligation does so at the insured’s own cost, except first aid at the time of the injury
Duties of an injured person (Coverage F): give written proof of the claim, under oath if required, authorize the insurer to obtain medical records, and submit to a physical exam by a doctor the insurer chooses as often as reasonably required
Bankruptcy of an insured does not relieve the insurer of its obligations
Concealment or fraud: under Section II, the insurer does not cover an insured who, before or after a loss, has intentionally concealed or misrepresented a material fact, engaged in fraudulent conduct or made false statements relating to the insurance. Unlike the Section I condition, it removes coverage only from that insured

Sections I and II conditions

Liberalization: a change that broadens coverage without extra premium applies automatically to the policy, if it takes effect within 60 days before or during the policy period
Waiver or change: a waiver or change must be in writing by the insurer
Cancellation: the insured may cancel at any time. The insurer may cancel for nonpayment at any time with 10 days’ notice; for any reason in the first 60 days of a new policy with 10 days’ notice; after 60 days, or on a renewal, for a material misrepresentation or a substantial change in risk with 30 days’ notice; and, on a policy written for more than one year, for any reason at an anniversary with 30 days’ notice. Return premium is pro rata
Nonrenewal: written notice at least 30 days before the policy expires
Assignment: not valid without the insurer’s written consent
Subrogation: an insured may waive rights of recovery in writing before a loss; otherwise the insurer may require an assignment of those rights to the extent it pays. Subrogation does not apply to Coverage F or damage to property of others
Death: if the named insured or resident spouse dies, the policy covers the legal representative for the deceased’s premises and property, and resident household members who were insureds remain insureds while they live on the residence premises

State law may change some of these conditions. A state’s cancellation and nonrenewal rules, for example, often replace the form’s notice periods.

Lesson summary

“You” is the named insured and a resident spouse. Insureds also include resident relatives, residents under 21 in their care, and full-time students who lived in the household (under 24 if a relative, under 21 if in their care).
The residence premises is the one- to four-family dwelling (or the unit, under HO-6) where the named insured lives, shown in the declarations. Insured locations also include places where an insured is temporarily residing, vacant land, a home being built, cemetery plots and premises occasionally rented for non-business use.
An occurrence is an accident, including continuous or repeated exposure to the same harmful conditions.
After a property loss the insured gives prompt notice, protects the property, prepares an inventory, and files a sworn proof of loss within 60 days of the insurer’s request.
Under HO-2, HO-3 and HO-5, buildings are paid at replacement cost when insured to at least 80% of replacement cost; otherwise at the greater of actual cash value or the proportion of replacement cost the insurance bears to 80% of it. Personal property is paid at actual cash value.
Appraisers are chosen within 20 days, and a judge picks the umpire if they cannot agree within 15 days. Suit must be brought within two years of the loss.
The insurer may elect to repair or replace within 30 days of the proof of loss; a loss is payable 60 days after the proof of loss once the amount is settled.
The mortgage clause protects the mortgagee even when the insured’s claim is denied, and gives it 10 days’ notice of cancellation or nonrenewal.
Under Section I, concealment or fraud by any insured removes property coverage for all insureds. Under Section II, only the insured who committed it loses liability coverage.
Section II limits apply per occurrence (Coverage E) and per person (Coverage F), and the insurance applies separately to each insured.
The insurer may cancel for nonpayment on 10 days’ notice, for any reason in the first 60 days on 10 days’ notice, and after that for nonpayment, material misrepresentation or a substantial change in risk (30 days’ notice for the last two). Nonrenewal takes 30 days’ notice.
Broadened coverage applies automatically under liberalization; waivers must be in writing; the policy cannot be assigned without consent; an insured may waive recovery rights only before a loss.

Next | 11. Endorsements and Scheduled Property

Homeowners Policy Definitions and Conditions

Definitions

A homeowners policy defines the words it puts in quotation marks. The definitions decide who is covered, where and for what.

“Insured” means:

You, and residents of your household who are your relatives, or other persons under 21 in the care of you or of a resident relative
A full-time student who lived in your household before moving out to attend school, if the student is under 24 and your relative, or under 21 and in the care of you or a resident relative
Under Section II, a person legally responsible for animals or watercraft owned by an insured, and certain persons using an insured’s motor vehicle that the policy covers

“Insured location” is a list:

The residence premises
Other premises you use as a residence that are shown in the declarations or acquired during the policy period for use as a residence
Any premises you use in connection with the residence premises or with those other residences
Any part of a premises not owned by an insured where an insured is temporarily residing
Vacant land, other than farm land, owned by or rented to an insured
Land on which a one- to four-family dwelling is being built as a residence for an insured
Individual or family cemetery plots or burial vaults
Any part of a premises occasionally rented to an insured for other than business use

Other definitions:

“Bodily injury”: bodily harm, sickness or disease, including required care, loss of services and resulting death
“Property damage”: physical injury to, destruction of, or loss of use of tangible property
“Occurrence”: an accident, including continuous or repeated exposure to substantially the same general harmful conditions, that results in bodily injury or property damage during the policy period
“Business”: (a) a trade, profession or occupation, whether full-time, part-time or occasional; or (b) any other activity engaged in for money or other compensation, except activities for which no insured received more than $2,000 in total in the 12 months before the policy period, volunteer work paid only for expenses, home day care given without pay or for a mutual exchange of services, and home day care for a relative of an insured
“Residence employee”: an employee whose duties relate to the maintenance or use of the residence premises, including household or domestic services
“Employee”: an employee of an insured other than a residence employee
“Motor vehicle”: a self-propelled land or amphibious vehicle, and a trailer being carried on or towed by one
Aircraft, hovercraft, motor vehicle and watercraft liability: liability arising out of owning, using, loading or entrusting those vehicles or craft, which Section II largely excludes

Homeowners policy conditions

Section I conditions

If the amount of insurance is 80% or more of the replacement cost, the insurer pays the cost to repair or replace without deduction for depreciation, up to the limit
If it is less than 80%, the insurer pays the greater of the actual cash value of the damage, or the proportion of the replacement cost that the amount of insurance bears to 80% of the replacement cost

Other insurance. If other insurance covers the loss, the insurer pays only its pro rata share: the proportion its limit bears to the total insurance.

Suit against us. An action must be started within two years after the date of loss, after full compliance with the policy’s terms.

Abandonment of property. The insurer need not accept property abandoned by an insured.

Mortgage clause. If a mortgagee is named, a covered loss to the dwelling or other structures is paid to the mortgagee and the insured as their interests appear. The policy:

Requires the insurer to notify the mortgagee at least 10 days before it cancels or does not renew the policy
Protects the mortgagee’s claim even if the insured’s own claim is denied, if the mortgagee reports known changes in ownership, occupancy or risk, pays any premium due on demand if the insured has not, and submits a sworn statement of loss within 60 days after the insurer’s request

This is the standard mortgage clause, covered further in Common Policy Provisions.

Section II conditions

Limit of liability: the Coverage E limit is the most paid for all damages from one occurrence, however many insureds, claims or injured persons; the Coverage F limit is the most paid for one person from one accident
Severability of insurance: the insurance applies separately to each insured, without increasing the limit for one occurrence
Duties after an occurrence: give written notice as soon as practical, cooperate, forward every notice and summons, and help with settlement and suits. An insured who voluntarily pays a claim or assumes an obligation does so at the insured’s own cost, except first aid at the time of the injury
Duties of an injured person (Coverage F): give written proof of the claim, under oath if required, authorize the insurer to obtain medical records, and submit to a physical exam by a doctor the insurer chooses as often as reasonably required
Bankruptcy of an insured does not relieve the insurer of its obligations
Concealment or fraud: under Section II, the insurer does not cover an insured who, before or after a loss, has intentionally concealed or misrepresented a material fact, engaged in fraudulent conduct or made false statements relating to the insurance. Unlike the Section I condition, it removes coverage only from that insured

Sections I and II conditions

Liberalization: a change that broadens coverage without extra premium applies automatically to the policy, if it takes effect within 60 days before or during the policy period
Waiver or change: a waiver or change must be in writing by the insurer
Cancellation: the insured may cancel at any time. The insurer may cancel for nonpayment at any time with 10 days’ notice; for any reason in the first 60 days of a new policy with 10 days’ notice; after 60 days, or on a renewal, for a material misrepresentation or a substantial change in risk with 30 days’ notice; and, on a policy written for more than one year, for any reason at an anniversary with 30 days’ notice. Return premium is pro rata
Nonrenewal: written notice at least 30 days before the policy expires
Assignment: not valid without the insurer’s written consent
Subrogation: an insured may waive rights of recovery in writing before a loss; otherwise the insurer may require an assignment of those rights to the extent it pays. Subrogation does not apply to Coverage F or damage to property of others
Death: if the named insured or resident spouse dies, the policy covers the legal representative for the deceased’s premises and property, and resident household members who were insureds remain insureds while they live on the residence premises

State law may change some of these conditions. A state’s cancellation and nonrenewal rules, for example, often replace the form’s notice periods.

Lesson summary

“You” is the named insured and a resident spouse. Insureds also include resident relatives, residents under 21 in their care, and full-time students who lived in the household (under 24 if a relative, under 21 if in their care).
The residence premises is the one- to four-family dwelling (or the unit, under HO-6) where the named insured lives, shown in the declarations. Insured locations also include places where an insured is temporarily residing, vacant land, a home being built, cemetery plots and premises occasionally rented for non-business use.
An occurrence is an accident, including continuous or repeated exposure to the same harmful conditions.
After a property loss the insured gives prompt notice, protects the property, prepares an inventory, and files a sworn proof of loss within 60 days of the insurer’s request.
Under HO-2, HO-3 and HO-5, buildings are paid at replacement cost when insured to at least 80% of replacement cost; otherwise at the greater of actual cash value or the proportion of replacement cost the insurance bears to 80% of it. Personal property is paid at actual cash value.
Appraisers are chosen within 20 days, and a judge picks the umpire if they cannot agree within 15 days. Suit must be brought within two years of the loss.
The insurer may elect to repair or replace within 30 days of the proof of loss; a loss is payable 60 days after the proof of loss once the amount is settled.
The mortgage clause protects the mortgagee even when the insured’s claim is denied, and gives it 10 days’ notice of cancellation or nonrenewal.
Under Section I, concealment or fraud by any insured removes property coverage for all insureds. Under Section II, only the insured who committed it loses liability coverage.
Section II limits apply per occurrence (Coverage E) and per person (Coverage F), and the insurance applies separately to each insured.
The insurer may cancel for nonpayment on 10 days’ notice, for any reason in the first 60 days on 10 days’ notice, and after that for nonpayment, material misrepresentation or a substantial change in risk (30 days’ notice for the last two). Nonrenewal takes 30 days’ notice.
Broadened coverage applies automatically under liberalization; waivers must be in writing; the policy cannot be assigned without consent; an insured may waive recovery rights only before a loss.

Definitions

A homeowners policy defines the words it puts in quotation marks. The definitions decide who is covered, where and for what.

“Insured” means:

You, and residents of your household who are your relatives, or other persons under 21 in the care of you or of a resident relative
A full-time student who lived in your household before moving out to attend school, if the student is under 24 and your relative, or under 21 and in the care of you or a resident relative
Under Section II, a person legally responsible for animals or watercraft owned by an insured, and certain persons using an insured’s motor vehicle that the policy covers

“Insured location” is a list:

The residence premises
Other premises you use as a residence that are shown in the declarations or acquired during the policy period for use as a residence
Any premises you use in connection with the residence premises or with those other residences
Any part of a premises not owned by an insured where an insured is temporarily residing
Vacant land, other than farm land, owned by or rented to an insured
Land on which a one- to four-family dwelling is being built as a residence for an insured
Individual or family cemetery plots or burial vaults
Any part of a premises occasionally rented to an insured for other than business use

Other definitions:

“Bodily injury”: bodily harm, sickness or disease, including required care, loss of services and resulting death
“Property damage”: physical injury to, destruction of, or loss of use of tangible property
“Occurrence”: an accident, including continuous or repeated exposure to substantially the same general harmful conditions, that results in bodily injury or property damage during the policy period
“Business”: (a) a trade, profession or occupation, whether full-time, part-time or occasional; or (b) any other activity engaged in for money or other compensation, except activities for which no insured received more than $2,000 in total in the 12 months before the policy period, volunteer work paid only for expenses, home day care given without pay or for a mutual exchange of services, and home day care for a relative of an insured
“Residence employee”: an employee whose duties relate to the maintenance or use of the residence premises, including household or domestic services
“Employee”: an employee of an insured other than a residence employee
“Motor vehicle”: a self-propelled land or amphibious vehicle, and a trailer being carried on or towed by one
Aircraft, hovercraft, motor vehicle and watercraft liability: liability arising out of owning, using, loading or entrusting those vehicles or craft, which Section II largely excludes

Homeowners policy conditions

Section I conditions

If the amount of insurance is 80% or more of the replacement cost, the insurer pays the cost to repair or replace without deduction for depreciation, up to the limit
If it is less than 80%, the insurer pays the greater of the actual cash value of the damage, or the proportion of the replacement cost that the amount of insurance bears to 80% of the replacement cost

Other insurance. If other insurance covers the loss, the insurer pays only its pro rata share: the proportion its limit bears to the total insurance.

Suit against us. An action must be started within two years after the date of loss, after full compliance with the policy’s terms.

Abandonment of property. The insurer need not accept property abandoned by an insured.

Mortgage clause. If a mortgagee is named, a covered loss to the dwelling or other structures is paid to the mortgagee and the insured as their interests appear. The policy:

Requires the insurer to notify the mortgagee at least 10 days before it cancels or does not renew the policy
Protects the mortgagee’s claim even if the insured’s own claim is denied, if the mortgagee reports known changes in ownership, occupancy or risk, pays any premium due on demand if the insured has not, and submits a sworn statement of loss within 60 days after the insurer’s request

This is the standard mortgage clause, covered further in Common Policy Provisions.

Section II conditions

Limit of liability: the Coverage E limit is the most paid for all damages from one occurrence, however many insureds, claims or injured persons; the Coverage F limit is the most paid for one person from one accident
Severability of insurance: the insurance applies separately to each insured, without increasing the limit for one occurrence
Duties after an occurrence: give written notice as soon as practical, cooperate, forward every notice and summons, and help with settlement and suits. An insured who voluntarily pays a claim or assumes an obligation does so at the insured’s own cost, except first aid at the time of the injury
Duties of an injured person (Coverage F): give written proof of the claim, under oath if required, authorize the insurer to obtain medical records, and submit to a physical exam by a doctor the insurer chooses as often as reasonably required
Bankruptcy of an insured does not relieve the insurer of its obligations
Concealment or fraud: under Section II, the insurer does not cover an insured who, before or after a loss, has intentionally concealed or misrepresented a material fact, engaged in fraudulent conduct or made false statements relating to the insurance. Unlike the Section I condition, it removes coverage only from that insured

Sections I and II conditions

Liberalization: a change that broadens coverage without extra premium applies automatically to the policy, if it takes effect within 60 days before or during the policy period
Waiver or change: a waiver or change must be in writing by the insurer
Cancellation: the insured may cancel at any time. The insurer may cancel for nonpayment at any time with 10 days’ notice; for any reason in the first 60 days of a new policy with 10 days’ notice; after 60 days, or on a renewal, for a material misrepresentation or a substantial change in risk with 30 days’ notice; and, on a policy written for more than one year, for any reason at an anniversary with 30 days’ notice. Return premium is pro rata
Nonrenewal: written notice at least 30 days before the policy expires
Assignment: not valid without the insurer’s written consent
Subrogation: an insured may waive rights of recovery in writing before a loss; otherwise the insurer may require an assignment of those rights to the extent it pays. Subrogation does not apply to Coverage F or damage to property of others
Death: if the named insured or resident spouse dies, the policy covers the legal representative for the deceased’s premises and property, and resident household members who were insureds remain insureds while they live on the residence premises

State law may change some of these conditions. A state’s cancellation and nonrenewal rules, for example, often replace the form’s notice periods.

Lesson summary

“You” is the named insured and a resident spouse. Insureds also include resident relatives, residents under 21 in their care, and full-time students who lived in the household (under 24 if a relative, under 21 if in their care).
The residence premises is the one- to four-family dwelling (or the unit, under HO-6) where the named insured lives, shown in the declarations. Insured locations also include places where an insured is temporarily residing, vacant land, a home being built, cemetery plots and premises occasionally rented for non-business use.
An occurrence is an accident, including continuous or repeated exposure to the same harmful conditions.
After a property loss the insured gives prompt notice, protects the property, prepares an inventory, and files a sworn proof of loss within 60 days of the insurer’s request.
Under HO-2, HO-3 and HO-5, buildings are paid at replacement cost when insured to at least 80% of replacement cost; otherwise at the greater of actual cash value or the proportion of replacement cost the insurance bears to 80% of it. Personal property is paid at actual cash value.
Appraisers are chosen within 20 days, and a judge picks the umpire if they cannot agree within 15 days. Suit must be brought within two years of the loss.
The insurer may elect to repair or replace within 30 days of the proof of loss; a loss is payable 60 days after the proof of loss once the amount is settled.
The mortgage clause protects the mortgagee even when the insured’s claim is denied, and gives it 10 days’ notice of cancellation or nonrenewal.
Under Section I, concealment or fraud by any insured removes property coverage for all insureds. Under Section II, only the insured who committed it loses liability coverage.
Section II limits apply per occurrence (Coverage E) and per person (Coverage F), and the insurance applies separately to each insured.
The insurer may cancel for nonpayment on 10 days’ notice, for any reason in the first 60 days on 10 days’ notice, and after that for nonpayment, material misrepresentation or a substantial change in risk (30 days’ notice for the last two). Nonrenewal takes 30 days’ notice.
Broadened coverage applies automatically under liberalization; waivers must be in writing; the policy cannot be assigned without consent; an insured may waive recovery rights only before a loss.