INSURANCE LAW: THIRD PARTY COVERAGE IN TEXAS OVERVIEW OF THE HOMEOWNER S POLICY

Transcription

1 INSURANCE LAW: THIRD PARTY COVERAGE IN TEXAS OVERVIEW OF THE HOMEOWNER S POLICY I. HOMEOWNER S FORM A (HO-A) This is commonly referred to as a dwelling policy. This form provides named-peril property-damage coverage. The named perils include: 1. Fire and lightening 2. Sudden and accidental damage from smoke 3. Windstorm, hurricane, and hail 4. Explosion 5. Aircraft and vehicles 6. Vandalism and malicious mischief 7. Riot and civil commotion 8. Theft The measure of loss for property damage is the lesser of actual cash value or cost to repair or replace, after deducting depreciation. There are two principal differences between the HO-A and HO-B: (1) Dwelling items are covered only for named perils rather than "all risk," and (2) there is no replacement cost coverage for dwelling items. A. SECTION l-perils INSURED AGAINST 1. COVERAGE A (DWELLING) AND COVERAGE B (PERSONAL PROPERTY) We insure against physical loss to the property described in Coverage A (Dwelling) and Coverage B (Personal Property) caused by a peril listed below, unless the loss is excluded in Section I Exclusion: This differs from the Homeowners Form B in that Dwelling items and unscheduled personal property are covered only for the listed named perils and subject to the specific limitations and exclusions shown for each peril. (The bolded comments were found in Texas Homeowners Policy Handbook, Fifth Edition, Texas Association of Insurance Agents, 1994.) 1. Fire and Lightning. This differs from the Homeowners Form B in that the common law exclusion of damage by a Afriendly@ fire would apply to the dwelling as well as personal property. 2. Sudden and Accidental Damage from Smoke. This peril does not cover loss caused by smog or by smoke from industrial or agricultural operations. 3. Windstorm, Hurricane and Hail. This peril does not cover: a. loss to the following: (1) cloth awnings, greenhouses and their contents, buildings or structures located wholly or partially over water and their contents. (2) radio and television towers, outside satellite dishes, masts and antennas, including lead-in wiring, wind chargers and windmills. b. loss caused by rain, snow, sand or dust, whether or not driven by wind, unless the direct force of wind or hail makes an opening in the roof or wall and the rain, snow, sand or dust enters through this opening and causes the damage.

2 This differs from the Homeowners Form B in that the Awind driven rain@ exclusion applies to dwelling items as well as personal property. 4. Explosion. This could apply in blasting or mining operations. 5. Aircraft and Vehicles. This peril does not cover loss caused by any vehicle owned or operated by an occupant of the residence premises. The vehicle causing damage must be owned or operated by someone other than an occupant of the premises. 6. Vandalism and Malicious Mischief. 7. Riot and Civil Commotion. 8. Theft, including attempted theft and loss of property from a known place when it is likely that the property has been stolen. This peril does not cover: a. personal property while away from the residence premises at any other residence owned by, rented to or occupied by an Insured, except while an Insured is temporarily living there. b. personal property while away from the residence premises and unattended in or on any motor vehicle or trailer, other than a public conveyance, unless all as doors, windows and other openings are closed and locked and there are visible marks of forcible entry. This differs from the Homeowners Form B in that a Alocked car@ warranty applies unless the vehicle is situated on residential premises or a parking lot where the attendant keeps the keys. Property is not unattended when the Insured has entrusted the keys of the vehicle to a custodian. c. building materials and supplies not on the residence premises. B. EXTENSIONS OF COVERAGE. 1. LOSS OF USE. If a loss caused by a Peril Insured Against under Section I makes the residence premises wholly or partially untenantable, we cover: a. additional living expense, maintaining any necessary and reasonable increase in living expense you incur so that your household can maintain its normal standard of living. b. fair rental value, meaning the fair rental value of that part of the residence premises usually rented to others by you, less any expenses that do not continue. The total limit of liability for all loss of use is 10% of The Coverage A (Dwelling) limit of liability. This is additional insurance and does not reduce the Coverage A (Dwelling) limit of liability. The deductible clause does not apply to loss of use coverage. This differs from the Homeowners Form B in that the limit for the extension is only 10% of the Coverage A amount in lieu of 20%. Payment will be for the reasonable time required to repair or replace the damaged property. If you permanently relocate, payment will be for the reasonable time required for your household to become settled. The periods of time for loss of use are not limited by expiration of this

3 II. policy. C. SECTION I - CONDITIONS 1. LOSS SETTLEMENT. Our limit of liability and payment for covered losses under Section I Property Coverage will not exceed the smallest of the following: a. the actual cash value at the time of the loss determined with proper deduction for depreciation; b. the cost to repair or replace the damaged property with material of like kind and quality, with proper deduction for depreciation; or c. the specified limit of liability of the policy. This differs from the Homeowners Form B in that losses to dwelling items and personal property are settled on an actual cash value basis. HOMEOWNERS FORM B This form, which provides broader coverage, is the most commonly used form in Texas. It provides all-risk dwelling coverage and thus is referred to as an all risk policy, but named-peril coverage for personal property on the premises. The named perils are the same as in the HO-A form, with the addition of: (A) collapse of building, (B) accidental discharge, leakage, or overflow of water or steam, (C) falling objects, and (D) freezing of household appliances. The measure of loss for personal property is the same as under the HO-A, but the dwelling coverage, the measure of loss is replacement cost, without deduction for depreciation. To recover replacement cost, however, the insured must complete the repairs in one year. Until then, the insurer owes only actual cash value. This form is the most common policy in the State of Texas. It provides "all-risk" coverage on the dwelling and other private structures on the premises. A. SECTION I - PROPERTY COVERAGE 1. COVERAGE A (DWELLING) We cover: 1. the dwelling on the residence premises shown on the declarations page including structures attached to the dwelling: a. while occupied by an insured as a dwelling; or b. if an Insured intends to occupy the dwelling within 60 days after the effective date of this policy. "Residence premises" means the residence premises shown on the declarations page. This includes the one or two family dwelling, including other structures, and grounds where you reside or intend to reside within 60 days after the effective date of this policy. "Insured" means you and residents of your household who are: a. your relatives; or b. other persons under the age of 21 and in the care of any person named above. The term "Dwelling" is not defined. An item must be "legally a part of the building" such that its removal would leave damage or an unfinished aspect to the property. The following items are generally considered to be part of the building: built-in appliances, hot water heaters, central air conditioning units, lighting fixtures and ceiling fans.

4 2. Other structures on the residence premises set apart from the dwelling by clear space. This includes structures connected to the dwelling by only a fence, utility line or similar connection. The total limit of liability for other structures is the limit of liability shown on the declaration page or 10% of the Coverage A (Dwelling) limit of liability, whichever is greater. This is additional insurance and does not reduce the Coverage A (Dwelling) limit of liability. We do not cover other structures: a. used for commercial, manufacturing or farming purposes; or This exclusion to the extension is clearly applicable to an insured who operates a business venture in an unattached structure. A problem arises with "gray area" activities such as hobbies with occasional sales performed in a separate work shop or garage. An agent must be alert for any unusual activities taking place on residential premises. AFarming" is another undefined and troublesome word, and not necessarily confined to a farming "business." Communication with the underwriters for their opinion in such situations is vital, and a conservative approach of covering such structures in another manner is recommended. b. wholly rented to any person, unless used solely as a private garage. With regard to structures rented to others, note the limiting effect of the word "wholly" and the exception allowing a private garage to be rented. An example of a covered structure would be a garage apartment where the insured uses the garage to park his autos and rents a finished portion of that structure to a resident tenant. 3. wall to wall carpeting attached to a building on the residence premises. 2. COVERAGE B (PERSONAL PROPERTY) We cover: 1. a. personal property owned, worn or used by an Insured while on the residence premises. This includes window or wall air conditioning units. b. at your request, property of others while the property is on the part of the residence premises occupied by an Insured. 2. a. personal property owned, worn or used by an Insured anywhere in the world. b. at your request, personal property of a residence employee when: (1) the property is away from the residence premises of the residence employee and in the control of the residence employee; and (2) while the residence employee is performing work for you.

5 Our total limit of liability under 2.a. and 2.b. above is 10% of the Coverage B (Personal Property limit of liability or $1000, whichever is greater. This is additional insurance and does not reduce the Coverage B (Personal Property) limit of liability. Students supported by the insured are generally considered to still be members of the insured's household and would have full coverage under this extension while residing in an apartment or dormitory. SPECIAL LIMITS OF LIABILITY. These limits do not increase the Coverage B (Personal Property) limit of liability. The special limit for each numbered category below is the total limit for each loss for all property in that category. The types of property listed here are covered only up to the amounts shown in each paragraph. The deductible, if any, would apply to the total amount of loss before application of these limitations. These limited amounts are cumulative in the event a single loss involves more than one category of property. Endorsements are available to provide increased limits on these items. If an endorsement is attached, the total limit desired is shown in the Declarations and an additional premium is charged for the amount of increase. 1. Money/Bank Cards. $100 on money or numismatic property or loss by theft or unauthorized use of bank fund transfer cards registered to an insured. Use HO-112 for an increased limit up to $500. Coin collections have generally been considered "money or numismatic property" and should be scheduled on HO-160 for full coverage. 2. Bullion/Valuable Papers. $500 on gold or silver bullion, manuscripts, notes, securities, stamps, philatelic property, accounts, bills, deeds, evidences of debt, letters of credit, passports, documents, transportation or other tickets. Use HO-113 for an increased limit up to $1,000. Stamp collections can be scheduled on HO-160 for full coverage. 3. Jewelry/Watches/Furs. $500 for loss by theft of gems, watches, jewelry or furs. This limitation applies to loss caused only by theft (meaning any act of stealing). Use HO-110 for an increased limit up to $5,000. Full coverage for actual values and "all-risk" coverage is available by scheduling on HO Business Personal Property. $2,500 on business property or farm and ranch property. We do not cover any business property or farm and ranch property: a. that consists of samples or articles for sale or delivery; or b. if the property is away from the residence premises. This limitation clarifies that there is limited on premises coverage for business property except samples or inventory items. Use HO-111 for an increased limit of $5,000. Use HO-126 for full "all risk" coverage on computers, including business computers. Use HO-125 to provide off-

6 premises coverage to physicians, surgeons and dentists on property pertaining to their profession. The following section specifies the types of property that are provided no coverage at all under Coverage B. 3. PROPERTY NOT COVERED. We do not cover: 1. articles separately described and specifically insured by this or other insurance. This exclusion prevents recovery under Coverage B for any item which is specifically insured. Typical items to which this might apply are watercraft, recreational vehicles and items scheduled on HO animals or birds. 3. motor or engine propelled vehicles or machines designed for movement on land, including attached machinery or equipment. However, we do cover such vehicles which are not subject to motor vehicle registration and are: a. devices and equipment for assisting the handicapped. b. power mowers. c. golf carts. d. vehicles or machines used for recreational purposes while located on the residence premises. e. farm equipment not designed for use principally on public roads. 2. trailers, semi-trailers or mobile homes. However, we do cover: a. trailers and semi-trailers that are designed for use principally off public roads. b. boat trailers while on the residence premises. Off-road trailers, such as the kind which would be towed behind a power mower or farm tractor and travel trailers, are covered either on-or off premises, subject to the business property limitation and the 10% off-premises limitation. Boat trailers are covered only on premises. 4. aircraft meaning any device used or designed for flight, except model or hobby aircraft not used or designed to carry people or cargo. 6. watercraft, including outboard motors and furnishings or equipment. We do cover watercraft, including outboard motors and furnishings or equipment, while located on land on the residence premises. 7. property of roomers or tenants 8. property usually rented to others off the residence premises. B. SECTION ICPERILS INSURED AGAINST 1. COVERAGE A (DWELLING) We insure against all risks of physical loss to the property described in Section I Property Coverage, Coverage A (Dwelling) unless the loss is excluded in Section I Exclusions.

7 2. COVERAGE B (PERSONAL PROPERTY) We insure against physical loss to the property described in Section I Property Coverage, Coverage B (Personal Property) caused by a peril listed below, unless the loss is excluded in Section I Exclusions. Coverage B items (unscheduled personal property) are covered only for the following named perils. The burden of proof is on the insured to apply one of these perils in order to successfully make a claim. Once the peril causing loss has been identified, the company may still apply one of the exclusions or limitations to the claim. The perils of fire, lightning, windstorm, hurricane, hail, explosion, aircraft and vehicles are not defined and have no limitations other than exclusions which might apply. The insured will have the broadest possible interpretation available. 1. Fire and Lightening. Fire and Lightning: Loss by fire is understood to include damage caused by firefighters. None of the exclusions apply to ensuing loss caused by fire. The peril of fire would be subject to the common law exclusion of damage by a "friendly" fire (one which is confined to the space for which it was intended). This applies to personal property only. 2. Sudden and Accidental Damage from Smoke. Smoke: The smoke damage must be sudden and accidental. Exclusion A1.b." removes coverage for smoke from industrial or agricultural operations. Some common sources of covered smoke claims include improper use of fireplaces and faulty operation of heating or cooking units. 3. Windstorm, Hurricane and Hall. Windstorm. Hurricane and Hail: A popular legal definition of windstorm is "a wind of sufficient violence to be capable of inflicting damage either by its own unaided action or by projecting some object." Refer to the discussion of exclusion "1.c.@ for limitations of these perils. The hurricane peril does not include damage by flood or tidal water; refer to exclusion A1.i.." These perils are eliminated by attaching endorsement HO Explosion Explosion: Without definition, this cause of loss can apply to anything that can reasonably be described as an explosion in any sense of the word. None of the exclusions apply to ensuing loss caused by explosion. 5. Aircraft and Vehicles. Aircraft and Vehicles: The aircraft peril would include objects falling from an aircraft. The most obvious example of a covered vehicle loss would be damage caused by a vehicle crashing through the house. A liberal interpretation would also cover personal property damaged while being carried in a vehicle or being run over by a vehicle, and there are many such successful claims on record. There is no exclusion of damage caused by a vehicle owned or operated by an insured.

8 6. Vandalism and Malicious Mischief. 7. Riot and Civil Commotion. Vandalism and Malicious Mischief: This peril suggests an element of intentional destruction with wanton disregard for the property rights of others. 8. Collapse of Building or any part of the building. Collapse of Building: This peril has been the source of much disagreement and litigation over the years. In fact, one state's Supreme Court cited the numerous cases as evidence that ambiguity exists and resolved a case in favor of the insured. The current controversy concerning AConcurrent causation" is not treated in the Texas homeowners policy so problems relating to collapse following flood or earth movement will continue. Refer to exclusions "l.f.," l.g.," and "1.h.."Cnone of these apply to ensuing loss caused by collapse. 9. Accidental Discharge, Leakage or Overflow of Water or Steam from within a plumbing, heating or air conditioning system or household appliance. A loss resulting from this peril includes the cost of tearing out and replacing any part of the building necessary to repair or replace the system or appliance. But this does not include loss to the system or appliance from which the water or steam escaped. Exclusions 1.a. through 1.h. under Section I Exclusions do not apply to loss caused by this peril. Accidental Discharge: There is no requirement that the discharge, leakage or overflow be sudden, therefore allowing coverage for constant or repeated seepage over a period of time. It is clear that the expenses relating to getting at the faulty system, pipes or appliance are considered a covered part of any accidental water discharge loss. The exception prevents the application of certain exclusions when the proximate cause of loss is discharge. 10. Falling Objects. This peril does not include loss to property contained in a building unless the roof or outside wall of the building is first damaged by the falling object. Falling Objects: The object must fall from some source outside the building. 11. Freezing of household appliances. Freezing: The damage to the domestic appliance by freezing is covered as well as any ensuing loss. Refer to exclusion "1.j." for a limitation. 12. Theft, including attempted theft and loss of property from a known place when it is likely that the property has been stolen. Theft: The language eases the insured's burden of proof in theft claims when circumstantial evidence is strong enough to establish theft as a reasonable explanation of the loss. Exclusion "1.d." removes theft coverage on property at a secondary residence and on building materials and supplies away from the described premises. C. SECTION ICEXCLUSIONS

9 1. The following exclusions apply to loss to property described under Coverage A (Dwelling) or Coverage B (Personal Property), but they do not apply to an ensuing loss caused by fire, smoke or explosion. These exclusions apply both to the all-risk coverage on the Dwelling as well as the named perils coverage on Unscheduled Personal Property, unless otherwise noted. None of the exclusions in Paragraph 1. apply to fire, smoke or explosion. a. We do not cover loss to electrical devices or wiring caused by electricity other than lightning. Damage caused by electrical shorts or surges is not covered unless the electrical disturbance was caused by the natural forces of lightning, either on-premises or off-premises. As mentioned previously, for appliances and devices and wiring which come under the all-risk building coverage, the insurance company must prove that lightning did not cause or contribute to the loss, while for personal property items, the insured must prove that lightning did the damage. b. We do not cover loss caused by smog or by smoke from industrial or agricultural operations. The word "operations" is important. It is not the intent of this exclusion to prevent recovery for damage caused by smoke from a "hostile" fire at a farm or factory premises. The policy will exclude damage from smoke emanating from operations which produce smoke as a normal part of the agricultural or industrial process. c. We do not cover loss caused by windstorm, hurricane or hail to: (1) cloth awnings, greenhouses and their contents, buildings or structures located wholly or partially over water and their contents. Use endorsements HO-121 and HO-122 to provide windstorm, hurricane and hail coverage on cloth awnings and greenhouses, respectively. Any building or structure built over water could be written as specific items on a Dwelling Policy. If the principal dwelling is built over water, a homeowner s policy should not be written at all. In the case of a dwelling built on the land with an attached structure such as a dock or boat house built over the water, a "gray" area exists and the insurance company should be consulted in advance for an opinion as to whether or not they will provide coverage on a Homeowners and what portion will require coverage on a separate policy. (2) radio and television towers, outside satellite dishes, masts and antennas, including lead-in wiring, wind chargers and windmills. Endorsement HO-120 is available to cover these

10 excluded items for a specific amount of insurance, including damage by windstorm, hurricane and hail, for an additional charge. See discussion in the endorsement section. (3) personal property contained in a building unless direct force of wind or hail makes an opening in a roof or wall and rain, snow, sand or dust enters through this opening and causes the damage. This is commonly called the "wind-driven-rain exclusion" and is applicable only to personal property, not items considered part of the Dwelling. There is no significance to the fact that this exclusion is shown here instead of as a limitation to the windstorm, hurricane and hail peril for unscheduled personal property. It has no application to the all-risk coverage provided on the Dwelling. There is no requirement for damage to the exterior of the dwelling, nor that the opening made by the wind or hail be permanent in order for damage to be covered. The force of the wind can raise shingles or eaves or separate doors or windows from their casings, blow water through such an opening and there should be coverage even if the opening closes to its normal position when the wind stops. d. We do not cover loss of the following property by theft, including attempted theft and loss of property from a known place when it is likely that the property has been stolen: (1) personal property while away from the residence premises at any other residence owned by, rented to or occupied by an Insured, except while an Insured is temporarily living there. This exclusion is to property in a secondary residence during those periods when the residence is not in use. The insured is not required to be physically present in the residence at the time of the loss, but must be ATemporarily residing" there. The exclusion does not apply to property used by a dependent student living away from home in an apartment or dormitory, with the possible exception of property left unattended at such a location for an extended period such as summer vacation. There is enough "gray area" in this exclusion to cause a problem whenever it is applied to a claim situation. The best solution to avoid a controversy is to purchase specific coverage on property at a secondary residence. (2) building materials and supplies not on the residence premises. The focus of this exclusion is on construction materials at

11 an off-premises building site. If the insured is constructing a private structure elsewhere and wants theft coverage, an All-risk" builders risk policy will be needed. e. We do not cover loss to machinery, appliances and mechanical devices caused by mechanical breakdown. This exclusion focuses only on damage to devices caused by mechanical breakdown, not any ensuing damage to other property that may result from the breakdown. f. We do not cover loss caused by: (1) wear and tear, deterioration or loss caused by any quality in property that causes it to damage or destroy itself. (2) Rust, rot, mold or other fungi. (3) dampness of atmosphere, extremes of temperature. (4) contamination. (5) rats, mice, termites, moths or other insects. These types of excluded perils represent no risk of loss as they are certain to happen over a period of time unless controlled with reasonable care. However, any ensuing loss as a result of accidental water discharge, fire, smoke, explosion, collapse or glass breakage is not excluded. We do cover ensuing loss caused by collapse of building or any part of the building, water damage or breakage of glass which is part of the building if the loss would otherwise be covered under this policy. g. We do not cover loss caused by animals or birds owned or kept by an Insured or occupant of the residence premises. The limitation of this exclusion to animals and birds owned or kept by residents of the household is significant since damage caused by other animals is clearly intended to be covered, with the exception of "rats and mice" specified in Exclusion Af". We do cover ensuing loss caused by collapse of building or any part of the building, water damage or breakage of glass which is part of the building if the loss would otherwise be covered under this policy. h. We do not cover loss under Coverage A (Dwelling) caused by settling, cracking, bulging, shrinkage, or expansion of foundations, walls, floors, ceilings, roof structures, walks, drives, curbs, fences, retaining walls or swimming pools. This exclusion is limited to dwelling items and the exception paragraph following makes it clear that ensuing loss by accidental water discharge, collapse and glass breakage are covered. We do cover ensuing loss caused by collapse of building or any part of the building, water damage or breakage of glass which is part of the building if the loss would otherwise be covered under this

12 policy. i. We do not cover loss caused by or resulting from flood, surface water, waves, tidal water or tidal waves, overflow of streams or other bodies of water or spray from any of these whether or not driven by wind. We do cover an ensuing loss by theft or attempted theft or any act or attempted act of stealing. j. We do not cover loss caused by or resulting from freezing while the building is unoccupied unless you have used reasonable care to: (1) maintain heat in the building; or (2) shut off the water supply and drain plumbing, heating and air conditioning systems of water. The key words in this exclusion are Aunoccupied" and "reasonable care." They are subject to the broadest possible interpretation in favor of the insured. Courts have ruled that there is a practical distinction between "unoccupancy" and Temporary absence" of the inhabitants with emphasis on the intent of the insured to return, more than the duration of the absence. k. We do not cover loss caused by earthquake, landslide or earth movement. Like the flood exclusion, there are enough court decisions regarding the earth movement exclusion to warrant a controversy anytime it is applied to a claim situation. The key point, with regard to the all-risk coverage for dwelling items, is that the burden of proof is on the company to prove that any damage was an independent result solely of an earth movement. Ensuing loss by fire, smoke or explosion is covered. 2. GOVERNMENTAL ACTION. We do not cover loss caused by the destruction of property by order of governmental authority. But we do cover loss caused by acts of destruction ordered by governmental authority taken at the time of a fire to prevent its spread, if the fire would be covered under this policy. An example of an excluded loss would be damage caused by law enforcement authorities in order to gain access to the premises if illegal activity is suspected. 3. BUILDING LAWS We do not cover loss caused by or resulting from the enforcement of any ordinance or law regulating the construction, repair or demolition of a building or structure. No allowance can be made in the loss adjustment process for the effect of building laws which might increase the cost to repair or replace damage. One example might be a requirement to replace roofing with a heavier grade of shingles; in such a case, the company would be liable only for the cost of replacing the roof with the same grade of shingles as was damaged. At the

13 present time, there are no standard endorsements available to the homeowners policy to cover these additional exposures. 4. WAR DAMAGE We do not cover loss resulting directly or indirectly from war. This includes undeclared war, civil war, insurrection, rebellion, revolution, warlike act by military personnel, destruction or seizure or use for a military purpose, and any consequence of these. Discharge of a nuclear weapon will be deemed a warlike act even if accidental. 5. NUCLEAR DAMAGE. We do not cover loss resulting directly or indirectly from nuclear reaction, radiation or radioactive contamination, all whether controlled or uncontrolled or however caused. We cover direct loss by fire resulting from nuclear reaction, radiation or radioactive contamination. D. SECTION I - DEDUCTIBLE DEDUCTIBLE CLAUSE 1CWINDSTORM, HURRICANE, HAIL OR WIND DRIVEN RAINC The amount shown on the declarations page for Deductible Clause 1 will be deducted from the combined amount of each loss under Coverage A (Dwelling) and Coverage B (Personal Property) that results from windstorm, hurricane, hail or wind driven rain. DEDUCTIBLE CLAUSE 2CALL OTHER PERILSC The amount shown on the declarations page for Deductible Clause 2 will be deducted from the combined amount of each loss under Coverage A (Dwelling) and Coverage B (Personal Property), unless the loss results from windstorm, hurricane, hail or wind driven rain. If a single event causes loss by windstorm, hurricane, hail or wind driven rain and loss by lightning, only the larger deductible will apply. Separate deductible amounts should be shown on the declarations page for Deductible Clause #1 and Deductible Clause #2. The standard deductible is 1% of the amount of insurance shown for Coverage A (Dwelling) but lesser deductible amounts are available for an additional premium. Deductible #1 applies to the aggregate loss under the policy when caused by windstorm, hurricane, hail and/or wind-driven-rain. The total loss to all insured property is computed (i.e., described dwelling, personal property, outbuildings, extensions) and the deductible is taken one time. Deductible #2 is taken in the same manner for all other types of losses except the perils listed in Clause #1. If a single storm causes lightning damage as well as loss caused by one of the four Clause # 1 perils, only the greater of the two deductibles will apply. E. EXTENSIONS OF COVERAGE These extensions of coverage broaden the policy to cover losses which would not be covered by the basic policy, due to limitations and exclusions. Each extension specifically states (1) if the broader coverage will increase the limit of liability, and (2) if the deductible clause does not apply. 1. DEBRIS REMOVAL. We will pay your expense for the removal from the residence premises of: Debris removal - the cost of removing debris which results from a covered loss to insured property. a. debris of covered property if a Peril Insured Against causes the loss.

14 b. a tree that has damaged covered property if a Peril Insured Against causes the tree to fall. Tree removal - the cost of removing a tree from the premises if its falling has damaged any covered property and the falling was caused by a covered peril as respects the damaged property. This can be a peril other than one for which the value of the tree would be covered, as provided for under Extension of Coverage #4. This does not increase the limit of liability that applies to the damaged property. These extensions are not payable in addition to the limit of liability, but are included as a part of the loss within the limit. In either extension, if no insured property is damaged, the removal clause is not applicable. 2. LOSS OF USE. If a loss caused by a Peril Insured Against Section I makes the residence premises wholly or partially untenantable, we cover: a. additional living expense, meaning any necessary and reasonable increase in living expense you incur so that your household can maintain its normal standard of living. b. fair rental value, meaning the fair rental value of that part of the residence premises usually rented to others by you, less any expenses that do not continue. The total limit of liability for all loss of use is 20% of the Coverage A (Dwelling) limit of liability. This is additional insurance and does not reduce the Coverage A (Dwelling) limit of liability. The deductible clause does not apply to loss of use coverage. Payment will be for the reasonable time required to repair or replace the damaged property. If you permanently relocate, payment will be for the reasonable time required for your household to become settled. The period of time for loss of use are not limited by expiration of this policy. The two conditions for activation of this extension are (i) there must be actual direct physical damage to insured property which is covered by the policy, and (ii) the insured must incur an increase in living expenses or lose rental income as a direct result of the damage. The damaged property does not have to be the described dwelling, but could be one of the outbuildings covered on the extension or could even be personal property items, such as might occur if lightning caused electrical damage to all of the appliances. There is no coverage under this extension if the insured chooses to leave due to an off-premises power failure nor due to the threat of damage, such as an adjacent fire or impending hurricane. The limit for this extension is 20% of the Coverage A amount and is payable in addition to all other payable claims. The benefits of this extension are payable until the damaged property is repaired or

15 replaced or the insured moves into new permanent quarters, and are not limited by policy expiration. 3. REASONABLE REPAIRS. If a Peril Insured Against causes the loss, we will pay the reasonable cost you incur for necessary repairs made solely to protect covered property from further damage. This coverage does not increase the limit of liability that applies to the property being repaired. This extension makes it clear that any expenses incurred as a result of the conditions imposed by YOUR DUTIES AFTER LOSS are covered. 4. TREES, SHRUBS, PLANTS AND LAWNS. We cover trees, shrubs, plants and lawns, on the residence premises, only for loss caused by the following Perils Insured Against: Fire or Lightning, Explosion, Aircraft, Vehicles not owned or operated by a resident of the residence premises, Vandalism and Malicious Mischief, Riot and Civil Commotion and Theft or attempted theft. The maximum limit of liability for this coverage is 5% of the Coverage A (Dwelling) limit of liability. We will not pay more than $250 for any one tree, shrub or plant, including the cost of removal. We do not cover property grown for business purposes. This is not additional insurance and does not increase the Coverage A (Dwelling) limit of liability. The deductible clause does not apply to trees, shrubs, plants and lawns. This extension does not provide an additional amount of insurance; the limit of 5% of the Coverage A amount is included within that amount. There is coverage for named perils only, and windstorm, hurricane or hail damage is not included, nor is damage caused by a vehicle which is owned or operated by an occupant of the premises. The $250 per item sub-limit does not apply to the lawn. The focus of the extension is for plants growing in the ground outdoors; indoor potted plants should be treated as items of unscheduled personal property. There is no deductible for loss payable under this extension. 5. PROPERTY REMOVED. We pay for expense and damage incurred in the removal of covered property from an Insured location endangered by a Peril Insured Against. This coverage exists on a pro rata basis for 30 days at each location to which such property is removed for preservation. This is not additional insurance and does not increase the Coverage B (Personal Property) limit of liability. This clause supersedes the 10% limitation and would provide the full amount of Coverage B limit at any location to which covered property is moved to escape damage by a covered peril. The clause also furnishes additional coverage for the peril of "damage by removal" which is essentially an all risk, no-exclusion grant of protection for this limited situation. In addition, the insured will be reimbursed for any reasonable expenses related to the move. 6. CONSEQUENTIAL LOSS. We insure: a. property contained in a building on the residence premises against loss due to change in temperature as a direct result of physical

16 damage to the dwelling, caused by a Peril Insured Against. The deductible clause does not apply to this coverage. b. property contained in a building on the residence premises against a loss due to change in temperature as a direct result of physical damage to any power, heating or cooling equipment (including connections and supply pipes) not contained in or on the dwelling, caused by a Peril Insured Against. The total limit of liability for the coverage described in 6.b. above is $500. This is not additional insurance and does not increase the Coverage B (Personal Property) limit of liability. These two extensions cover the "consequential loss" of property (such as food) due to a temperature change as a result of damage to a building or equipment on the premises of the described dwelling or to off-premises power distribution apparatus. The damage must be caused by a peril covered by the Homeowners policy. If the source of the loss is off-premises, a limit of $500 applies to the claim, and the deductible applies. 7. AUTOMATIC REMOVAL. If you move from the residence premises shown on the declarations page to another location within the United States to be occupied as your principal residence, we cover: a. the personal property under Coverage B (Personal Property) at each location in the proportion that the value at each location bears to the total value of all the personal property covered under Coverage B (Personal Property). b. property in transit up to 10% of the Coverage B (Personal Property) limit, or liability of $1,000, whichever is greater. We provide coverage for only 30 days from the date the removal begins. This extension applies only if the insured is moving to a new principal residence anywhere is the U.S. The 10% off-premises limitation does not apply except while the property is in transit. If another policy covering unscheduled personal property is in effect at the new location, the "Other Insurance" clause would apply if both policies cover the same loss. Should the total value of property at both locations exceed the amount of insurance for Coverage B. The amount available to cover a loss at either location would be limited to a percentage of Coverage B based on the proportion of value at the location where the loss occurs compared to the total value. This following formula illustrates this provision: value at location available limit x coverage B limit total value This extension is active only for 30 days beginning with the date of removal from the described dwelling. F. SECTION I - CONDITIONS

17 1. Insurable Interest and Limit Liability. Even if more than one person has an insurable interest in the property covered, we will not be liable in any one loss: a. to the Insured for more than the amount of the Insured's interest at the time of loss; or b. for more than the applicable limit of liability. Each time there is a loss to any building insured under Coverage A (Dwelling), the amount of insurance applicable to that building for loss by fire will be reduced by the amount of the loss. As repairs are made, the amount of insurance will be reinstated up to the limit of liability shown on the declarations page. This provision applies only to real property. If a fire occurs before damages can be repaired from a previous loss, the amount of insurance available to cover the fire loss is reduced by the amount of the previous loss. Art Policy a Liquidated Demand. A fire insurance policy, in case of a total loss by fire of property insured, shall be held and considered to be a liquidated demand against the company for the full amount of such policy. The provisions of the article shall not apply to personal property. This "valued policy" clause is required in all Texas property policies by the Texas Insurance Code and applies only to real property which suffers a total loss by the peril of fire. The Coverage A limit is payable in such a case without regard to any question of over insurance. The only reduction allowed would be the value of previous damage which has not been repaired, as provided for in the above clause. 2. Residential Community Property Clause. This policy, subject to all other terms and conditions, when covering residential community property, as defined by state law, shall remain in full force and effect as to the interest of each spouse covered, irrespective of divorce or change of ownership between the spouses unless excluded by endorsement attached to this policy until the expiration of the policy or until canceled in accordance with the terms and conditions of this policy. This clause is required by the Texas Insurance Code. In the event that only one spouse is shown as the named insured, coverage would continue for the other spouse in the event of divorce and establishment of separate households. This applies to the Dwelling and Personal Property, subject otherwise to all conditions, exclusions and limitations. It does not apply to the liability coverage provided by Section II. This entire clause can be deleted by attaching HO Duties After Loss. The insured must comply with these conditions in order to effect settlement of any claim. a. Your Duties After Loss. In case of a loss to covered property caused by a peril insured against, you must: (1) give prompt written notice to us of the facts relating to the claim. (2) notify the police in case of a loss by theft. (3) (a) protect the property from further damage. Permission is given here to make temporary repairs in order to prevent further damage. Any expenses incurred in doing so should be reimbursed. (b) make reasonable and necessary repairs to protect the

18 property. (c) keep an accurate record of repair expenses. (4) furnish a complete inventory of damaged personal property showing the quantity, description and amount of loss. Attach all bills, receipts and related documents which you have that justify the figures in the inventory. (5) as often as we reasonably require: (a) provide us access to the damaged property. (b) provide us with pertinent records and documents we request and permit us to make copies. (c) submit to examination under oath and sign and swear to it. (6) send to us, if we request, your signed sworn proof of loss within 91 days of our request on a standard form supplied by us. We must request a signed sworn proof of loss within 15 days after we receive your written notice, or we waive our right to require a proof of loss. Such waiver will not waive our other rights under this policy. (a) This proof of loss shall state, to the best of your knowledge and belief: (i) the time and cause of loss. (ii) the interest of the Insured and all others in the property involved including all liens on the property. (iii) other insurance which may cover the loss. (iv) the actual cash value of each item of property and the amount of loss to each item. (b) If you elect to make claim under the Replacement Cost Coverage of this policy, this proof of loss shall also state, to the best of your knowledge and belief: (i) the replacement cost of the described dwelling. (ii) the replacement cost of any other building on which loss is claimed. (iii) the full cost of repair or replacement of loss without deduction for depreciation. a. Our Duties After Loss (1) Within 15 days after we receive your written notice of claim, we must: (a) (b) (c) acknowledge receipt of the claim. If our acknowledgment of the claim is not in writing, we will keep a record of the date, method and content of our acknowledgment. begin any investigation of the claim. specify the information you must provide in accordance with "Your Duties After Loss" (item 3.a. above). We may request more information, if during the investigation of the claim such additional information is necessary. (2) After we receive the information we request, we must notify you in writing whether the claim will be paid or has been denied or

19 whether more information is needed: (a) within 15 business days; or (b) within 30 days if we have reason to believe the loss resulted from arson. (3) If we do not approve payment of your claim or require more time for processing your claim, we must: (a) give the reasons for denying your claim, or (b) give the reasons we require more time to process your claim. But, we must either approve or deny your claim within 45 days after requesting more time. 4. Loss Settlement. Covered property losses are settled as follows: a. Our limit of liability and payment for covered losses to personal property, wall to wall carpeting, cloth awnings and fences will not exceed the smallest of the following: (1) the actual cash value at the time of the loss determined with proper deduction for depreciation; (2) the cost to repair or replace the damaged property with material of like kind and quality, with proper deduction for depreciation; or Paragraph "a." establishes an actual cash value or depreciated basis for loss to Personal property. Limited replacement cost coverage is obtained by attaching HO-101. (3) the specified limit of liability of the policy. b. Our limit of liability for covered losses to dwelling and other structure(s) under Coverage A (Dwelling), except wall to wall carpeting, cloth awnings and fences, will be at replacement cost settlement subject to the following: (1) If, at the time of loss, the Coverage A (Dwelling) limit of liability is 80% or more of the full replacement cost of the dwelling, we will pay the repair or replacement cost of the damaged building structure(s), without deduction for depreciation. (2) If, at the time of loss, the Coverage A (dwelling) limit of liability is less than 80% of the full replacement cost of the dwelling, we will pay only a proportionate share of the full replacement cost of the damaged building structure(s). Our share is equal to: Replacement Cost of the Loss x Coverage A (Dwelling) Limit of Liability 80% of Replacement Cost of the Dwelling. Paragraph "b." provides replacement cost coverage on dwelling items, specifically excluding wall-towall carpeting, cloth awnings and fences. The amount of insurance on the described dwelling must represent at least 80% of the dwelling's replacement cost (disregarding items below the surface of the ground) at the time of the loss. If this condition is not met, the claim amount may be reduced by a percentage determined by the ratio of the amount of

20 insurance carried compared to the amount of insurance required. The claim amount will never be less than that based on an actual cash value basis. The formula is demonstrated as follows: Cov. A amount amount recoverable x RC loss 80% of dwelling RC Amount recoverable ACV loss WHICHEVER IS MORE (3) If, at the time of loss, the actual cash value of the damaged building structure(s) is greater than the replacement cost determined under (1) or (2) above, we will pay the actual cash value up to the applicable limit of liability. In determining the amount of insurance required to equal 80% of the full replacement cost of the dwelling, do not include the value of excavations, underground pipes, and wiring and foundations which are below the surface of the ground. The fact that the 80% requirement allows the valuation to disregard the value of items below the ground in no way excludes them from coverage; these items are still subject to replacement cost recovery if they are damaged. We will pay only the actual cash value of the damaged building structure(s) until repair or replacement is completed. Repair or replacement must be completed within 365 days after loss unless you request in writing that this time limit be extended for an additional 180 days. Upon completion of repairs or replacement, we will pay the additional amount claimed under replacement cost coverage, but our payment will not exceed the smallest of the following: (1) the limit of liability under this policy applicable to the damaged or destroyed building structure(s); (2) the cost to repair or replace that part of the building structure(s) damaged, with material of like kind and quality and for the same use and occupancy on the same premises; or (3) the amount actually and necessarily spent to repair or replace the damaged building structure(s). A second condition for replacement cost coverage is that the repairs or replacement must actually be completed within 365 days (can be extended for 180 more days if the insured makes a written request to the company). In practice, many insurance companies may require two proofs of loss, one for the amount of ACV loss and another for the additional amount payable for replacement cost. The ACV claim is payable immediately but the replacement cost increment is not paid until the company inspects or proof of repair or OR