Dwelling Policy Conditions

All of the dwelling forms also include another section entitled “Other Coverage.” This section identifies various extensions of coverage that appear in the dwelling policy. All policies are subject to a deductible.

Some of these coverages are included within the existing policy limits, while others (such as Fire Department Service Charge) provide payment in addition to those limits.

There are eight other coverage extensions, including:

1) Other Structures

Up to 10% of the Coverage A limit automatically applies to detached structures such as garages or sheds. This coverage applies even if no separate Coverage B amount is shown, and it is in addition to the Coverage A limit.

2) Debris Removal

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

This “Other Coverage” is generally included within the limit of liability applying to the damaged property, although some forms may allow limited additional payment if the total loss and debris removal together exceed 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 his/her own expense, 10% of the amount of coverage carried by the tenant on contents may be applied to cover any improvements.

4) World Wide Coverage

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

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

5) Reasonable Repairs

In the event that covered property is damaged by a covered peril, the insurer will pay the reasonable cost incurred by the insured 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 being removed from a 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) Vandalism and Malicious Mischief (VMM)

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 by endorsement.

VMM does not cover glass breakage or theft, but the damage done to the premises by burglars is covered.

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 (or the limit shown) for fire department service charges when a department is called to protect covered property. Coverage applies regardless of city limits, but does not apply if the property is serviced by a fire department under contract with the insured.

Conditions

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

1) Appraisal

Each party appoints an appraiser within 20 days of notice to either party.

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.

3) Our Option

Gives the insurer the right to repair or replace damaged property with equivalent property within 30 days of receiving the insured’s 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 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.

6) Liberalization Clause

This is a provision present in property insurance policies that provides 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 brought within two years and only after the insured meets all conditions in the policy

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 the policy or its interests cannot be assigned or transferred to another party without the consent of the insurer.

10) Loss Payment

States payment of the loss will be made within 30 days after receiving the insured’s proof of loss and reaching agreement on the amount of loss or entry of a final judgment or appraisal award.

11) Other Insurance

States that if a loss is covered by other insurance, the insurance company will pay only its proportionate share of the loss

12) Abandonment

This provision states that an insurer may refuse to pay a claim if an insured abandons or “walks away from” his/her property following a loss.

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 and return the amount of the claim to the insurance company

DP 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 residence premises.
• Building Ordinance or Law covers losses resulting from ordinance or laws regulating construction, repair or demolition of property. Coverage is provided for the dwelling, other structures and 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 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
• Vandalism and Malicious Mischief
• Fire Department Service Charges

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
• Recovered property

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