Understanding Homeowner Policy Exclusions & Endorsements

Transcription

1 Introduction Understanding Homeowner Policy Exclusions & Endorsements Many homeowners feel that when they purchase a homeowner insurance policy it automatically provides coverage for all risks of physical loss. The purpose of this course is to determine how companies use exclusions, limitations, and endorsements to control the exposure that is being accepted. We want to develop a better understanding of what the standard policy covers and the use of some of the available endorsements to modify the coverage for an exposure of the client. Companies also use some limitations to control the amount of exposure they are willing to accept. We want to develop an understanding of these as well. This is important to the agent because he or she serves as the risk manager for the insured. It also is important to the adjuster because this is the way he or she determines if the loss is covered. Eligibility Homeowner policies may only be issued to cover premises which are principally used for private residential purposes such as the following: 1. Owner-occupants of one, two, three or four family structures which do not contain more than 4 families nor more than two boarders or roomers per family. So a single family dwelling, a duplex, a triplex and a 4 unit building are eligible as long as the owner is the occupant of the structure or at least one of the units in the structure. Companies will use forms HO-2, HO-3, HO-5, and HO-8 to cover these residential dwellings. 2. Tenants in non-owned buildings used primarily for residential purposes (HO-4); 3. Owner-occupants of condominiums are eligible for coverage for their interest in the condominium as well as contents (HO-6); 4. Dwellings under construction; 5. Dwellings purchased under installment contracts and/or land contracts when purchaser is occupant of the dwelling. 6. An occupant of a dwelling under a life estate; or where the property is deeded to a trust 7. Seasonal dwellings when the insured is covered under a Homeowner Policy for their primary dwelling

2 8. Mobile homes are eligible with the attachment of the mobile home endorsement. These risks are usually subject to individual company underwriting guidelines. 9. The dwelling must be used exclusively as a residence, except for certain incidental occupancies such as offices, professional or private schools or studios. Note: Except for incidental farm liability, farm property is not eligible under any of the homeowner forms. A separate farm insurance program is available for these types of risks. Definitions The homeowner policy contains several definitions. The following are very important for this discussion: 1. Insured means: a. You and residents of your household who are: Your relatives; or Other persons under the age of 21 and in the care of any person named above. b. A student enrolled in school full time, as defined by the school, who was a resident of your household before moving out to attend school, provided the student is under the age of: 24 and your relative; or 21 and in your care or the care of a person described in a. above. c. Under Section II (personal liability): With respect to animals or watercraft to which this policy applies, any person or organization legally responsible for these animals or watercrafts which are owned by you or any person included in a. or b. above. Insured does not mean a person or organization using or having custody of these animals or watercraft in the course of any business or without consent of the owner; or With respect to a motor vehicle to which this policy applies: 2. Insured Location means: Persons while engaged in your employ or that of any person included in a. or b. above; or Other persons using the vehicle on an insured location with your consent. a. The residence premises. b. The part of other premises, other structures and grounds used by the insured as a residence; and - 2 -

3 (1) Which is shown in the Declarations; or (2) Which is acquired by the insured during the policy period for the insured s use as a residence; c. Any premises used by the insured in connection with the premises described in a. and b. above. d. Any part of a premises: (1) Not owned by an insured ; and (2) Where an insured is temporarily residing; e. Under Section II Liability Vacant land, other than farm land, owned by or rented to an insured is an insured location; f. Land owned by or rented to an insured on which a one, two, three or four family dwelling is being built as a residence for an insured. g. Individual or family cemetery plots or burial vaults of an insured ; or h. Any part of a premise occasionally rented to an insured for other than business use. 3. Business means: a. A trade, profession or occupation engaged in on a full-time, part-time or occasional basis, or any other activity engaged in for money or other compensation where an insured receives more then $2,000 in total compensation for the 12 months before the beginning of the policy period. This definition does not apply to: (1) Volunteer activities for which no money is received other than payment for expenses incurred to perform the activity (2) Providing home day care services for which no compensation is received other than the mutual exchange of such services or the rendering of home day care services to a relative of an insured. 4. Residence employee means: a. An employee of an insured or an employee leased to an insured by a labor leasing firm, under an agreement between an insured and the labor leasing firm whose duties are related to the maintenance or use of the residence premises including household and domestic services or one who performs similar duties elsewhere not related to the business of an insured. This definition does not apply to: (1) A temporary employee who is furnished to an insured to substitute for a permanent residence employee on leave or to meet seasonal or shortterm workload conditions

4 5. Residence premises means: a. The one family dwelling where you reside b. The two, three, or four family dwelling where you reside in at least one of the family units; or c. That part of any other building where you reside And which is shown as the residence premises in the declarations. Residence also includes other structures and the grounds at that location premises Under both Sections I and II, when the word an immediately precedes the word insured, the words together mean one or more insureds. Homeowner Policy Forms The named peril policy covers losses caused to covered property by the perils listed and named in the policy. Exclusions spell out what is not covered. In some cases, a peril might be listed as covered but certain situations can trigger and exclusion of coverage. For example: Fire is a covered peril but damage caused by a hostile fire not a friendly fire. A friendly fire is one that is intentionally set and in its intended area such as a fire in a fireplace. The policy would not cover the damage to the chimney liner caused by the repeated use of the fireplace. That is damage done by a friendly fire. The moment fire, flame or sparks leave the intended area and damage property; this is now a hostile fire and covered by the policy. In a named peril policy the insured is responsible to prove the peril that did the damage is listed on the policy and prove the value of the damaged property. The open peril policy is different in that it covers direct damage caused by all risk of physical loss to covered property. These policies also contain a list of exclusions that are not covered. It is the adjuster who determines coverage based on these policy exclusions. So, just as the perils are important to know it is also imperative for us to understand what is excluded from coverage under the policy. With endorsements, some of the exclusions can be bought back for an additional premium to coincide with the specific needs of the insured. Broad Form Peril Form HO-2 The broad form HO-2: This is a named peril form. All the perils that form the property insuring agreement are named. As you can see by reviewing the following chart the perils are: Fire Lightning Windstorm or hail (interior damage from windstorm or hail is only covered if the wind or hail first makes an opening in the building. Watercraft, outboard motors and related equipment are covered for these perils only while inside fully enclosed buildings). Explosion (both inside or outside the covered property) Riot and civil commotion Aircraft damage - 4 -

5 Vehicle damage (except damage to fences, driveways and walks when caused by a vehicle owned or operated by a member of the household). Smoke (except smoke from agricultural smudging or industrial operations). Also covers puff back - the release of soot, smoke vapor, or fumes from a furnace, boiler or similar equipment. Vandalism or malicious mischief (unless the premises has been vacant - i.e. no people and no contents - for 60 or more consecutive days. Pre-2000 homeowner policies allow for only 30 days of vacancy.) Theft - The theft peril includes loss of property from a known place when it is likely that the property has been stolen. It also includes attempted theft. It does not cover theft from a dwelling under construction. A mysterious disappearance (losing something) may be covered if it apparent that the item may have been stolen. Volcanic eruption - Excludes earthquake damage, land shock waves or tremors Falling objects that damages the covered property. (a tree falls on the house) (damage to contents is also covered if the falling object makes an opening in the roof or outside wall) Weight of ice and snow or sleet that damages the covered property. (does not cover damage to an awning, fence, patio, pavement, swimming pool, foundations, retaining walls, piers or docks) Accidental discharge of water or steam from a heating, air conditioning or plumbing system. (A water pipes bursts or a water pump on a dishwater suddenly leaks) Sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system, air conditioning system, sprinkler system or an appliance for heating water. Freezing of plumbing, heating, air conditioning systems, household appliances or sprinkler systems provided the insured maintains heat in the building or shuts off the water and drains all systems of water. Sudden and accidental damage from artificially generated electrical current. Does not cover damage to tubes, transistors, electronic components or circuitry. Note: Lightning would cover these items. Collapse - An abrupt falling down or caving in of the structure or a part of the structure caused by: 1. The perils insured against; 2. Hidden decay; 3. Hidden insect or vermin damage; 4. Weight of contents, equipment, animals or people; 5. Weight of rain which collects on a roof; or 6. Use of defective material or methods in construction or remodeling or renovation if the collapse occurs during the course of the construction or renovation

6 The Perils of the Different Homeowner Forms at a Glance Perils Covered HO-2 HO-3 HO-4 HO-5 HO-6 HO-8 Dwelling Personal Property Dwelling Personal Property Fire X Open Open Open X X Peril Peril Peril X X Lightning X X X X X Windstorm or X X X X X Hail Explosion X X X X X Riot or Civil X X X X X Commotion Aircraft X X X X X Vehicles X X X X X Smoke X X X X X Vandalism & Malicious X X X X X Mischief Theft X X X X X Volcanic Eruption X X X X X Falling Objects X X X X Weight of Ice, X X X X Snow, or Sleet Discharge of X X X X Water or Steam Sudden, X X X X Accidental Rupture Freezing of X X X X Plumbing and Related Systems Artificially Generated Electrical Current X X X X Collapse: This is covered under the additional coverages. It is found in the HO-2, HO-3, HO- 4, HO-5 and the HO-6. The coverage is not included in the HO-8 which is the most limited Homeowner form. The collapse must be as a result of an abrupt falling down or caving in of the structure or a part of the structure. Special Form HO-3 This form is a combination of the broad perils discussed above and the open peril approach. All of the structures are covered on an open peril basis. This means that if a cause of loss is not excluded, then coverage would apply. The burden of proof is up to the insurance company to prove that the loss is excluded. Contents coverage applies on a broad peril basis

7 Comprehensive Form - HO-5 This is the broadest homeowner form. It provides open peril coverage on both buildings and their contents. Note: The HO-2, HO-3 and the HO-5 provide replacement cost coverage on the structures provided the insured carries at least 80% of the replacement cost value of the structure. Contents coverage under all of the homeowner forms provide actual cash value coverage on contents unless a separate replacement cost endorsement is purchased. Contents Broad Form HO-4 This form is designed to cover the contents of a tenant living in a non-owned structure. This could be an apartment or a dwelling. Since the tenant does not own the structure the form does not provide coverage except for the improvements and betterments that the tenant may have made to the structure at his or her expense. This form provides the named broad perils. Unit-Owners Broad Form HO-6 This form is designed for the condominium owner. It covers the structural portion of the condo owned by the insured as well as his or her contents plus any improvements and betterments. Like the HO-4 form, property is covered by the broad perils. Modified Coverage Form HO-8 This form is the most limited HO form. It provides very basic peril coverage (refer to the chart) and was designed to cover dwellings in which replacement cost value is much greater than the market value. Market value being what the property would sell for. If the property was insured for the replacement cost or at least 80% of the replacement cost which most policies require under the loss settlement provisions, an insured could receive a much larger amount if the property was damaged then they could get if they sold the property. The potential for fraudulent claims is much greater if that situation exists. This form will write the coverage on the dwelling at the market value which eliminates the potential for fraud claims since the insured would not receive any more if the house was damaged then if it was sold. However, claims for coverage on both buildings and contents are considered on an actual cash value basis only

8 Additional Coverages of the HO Forms Additional Coverage HO-2 HO-3 HO-4 HO-5 HO-6 HO-8 Debris Removal X X X X X X Reasonable Repairs X X X X X X Trees, Shrubs and Other Plants X X X X X X Fire Department Service Charge X X X X X X Property Removed X X X X X X Credit Card, Fund Transfer Card, Forgery, X X X X X X and Counterfeit Money Loss Assessment X X X X X X Glass or Safety Glazing Material X X X X X X Collapse X X X X X Landlord s Furnishings X X X X Building Additions and Alterations X X Ordinance or Law X X X X X Grave markers X X X X X Limits of Section I Property Coverage Section I of the Homeowner policy provides four major property coverages. You will note that three of the coverages are based on a percentage of the dwelling limit. These will also vary by the number of residential units in the dwelling structure. If these percentages provide inadequate limits, some can be increased by endorsement and the payment of an additional premium. Coverage A Dwelling Full replacement cost as long as the insured carries 80% to value. The insured selects a limit for Coverage A. The minimum amount is subject to each individual company s underwriting rules. Coverage B Other Structures 10% of Coverage A for one or two family dwellings and 5% of Coverage A for three or four family dwellings. Coverage C Personal Property 50% of Coverage A for one or two family dwellings, 30% for three family and 25% for a four family dwelling. Coverage D Loss of Use 30% of Coverage A on HO-2, HO-3 and HO-5; 30% of Coverage C on HO-4; 50% of Coverage C HO-6; 10% of Coverage A on HO

9 General Exclusions Exclusions are used because a homeowner policy is not designed to cover every risk the insured faces. The following general exclusions apply to all homeowner policies. Covering some perils may cause financial catastrophe for the insurer so the coverage is excluded under the policy. This section will list out the seven common Section 1 exclusions in detail for discussion. War - Losses that are a result of war, insurrection, rebellion or revolution are not covered because they are considered to be catastrophic in nature and therefore uninsurable. Nuclear Hazard - Under the terms of the policy, nuclear hazard means any nuclear reaction, radiation or radioactive contamination, all whether controlled or uncontrolled or however caused, or any consequence of any of these. Like war this is considered catastrophic in nature and therefore also uninsurable. Water Damage Including the following: a. Flood, surface water, waves, tidal waves and overflow of streams and other bodies of water; b. Water backed up from sewers or drains; c. Water below the surface of the ground, including seepage of leaks through sidewalks, walls, basements, floors or windows. (Direct loss by fire or explosion resulting from water damage is covered.) The water damage exclusion was modified under the 2002 forms to exclude water-borne material. It also excludes water or water-borne material that is discharged from a sump-pump or related equipment. The perils listed under this exclusion apply when caused by or resulting from humans, animals, or any act of nature. Earth Movement - Which means: a. Earthquakes including land shock, waves or tremors, before, during, or after a volcanic eruption; b. Landslide, mudslide, or mudflow; c. Subsidence or sinkhole; d. Any other earth movement including earth sinking, rising or shifting caused by or resulting from human or animal forces or any act of nature direct loss by fire or explosion ensues then payment will be made only for the ensuing loss. Power Failure - Any power or other utility service occurring off the residence premises that causes a loss is excluded unless a peril that is insured against follows on the premises. In that case, only damage caused by the covered peril applies

10 Neglect - The insured must make every attempt to safeguard his/her property during and after a covered loss. If the insured fails to use all reasonable means to protect the property during and after a loss then no coverage applies for the subsequent damage. Intentional Loss - Any loss arising out of any act committed: a. By or at the direction of the named insured or any person or organization named as an additional insured; b. With the intent to cause a loss. Ordinance or Law (Applies only to the homeowner form HO-08) - The laws in some jurisdictions hold that a substantially damaged dwelling cannot be repaired or replaced but need to be improved to current building codes. The homeowner form HO-08 excludes loss resulting either directly or indirectly from laws that regulate the construction, repair or demolition of a building or other structure. (Homeowner forms HO-02, 03, 05 also exclude these damages but will include 10% of the dwelling limit in the additional coverage section.) Exclusions Applying to Open Peril Coverage There is a separate set of exclusions applying to the open peril homeowner forms HO-03, and 05. The homeowner Special Form HO-03 provides coverage as follows: Open peril coverage on real property (dwelling or other structures.) Named perils coverage on personal property. These covered perils are the same as those provided on the Broad Form HO-02. The homeowner Deluxe Form HO-05 provides coverage as follows: Open peril coverage on building and contents. The following exclusions apply only to building on the Form HO-03 and building and contents on the Form HO Losses excluded by the general exclusions previously discussed. 2. Gradual and expected losses such as: a. Wear and tear, marring, deterioration, rust, mold, rot and contamination; b. Inherent vice(a characteristic of a given piece of property that causes it to self destruct) and latent defect; c. Smoke from agricultural smudging or industrial operations; d. Smog; e. Mechanical breakdown

11 3. Settling, cracking shrinking, bulging or expansion of pavements, patios, foundations, walls, floors roofs or ceilings. 4. Loss caused by birds, vermin, rodents, insects, or domestic animals. 5. Wind, hail, ice, snow or sleet damage to antennas, lawns, plants, shrubs and trees. 6. Freezing, thawing or damage caused by weight of ice, snow or sleet to awnings, fences, pavements, patios, swimming pools, foundations, retaining walls, bulkheads, piers, wharf and docks. 7. Theft of property not actually part of the dwelling or to a dwelling under construction. The theft peril includes loss of property from a known place when it is likely that the property has been stolen. It also includes attempted theft. Theft of watercraft of all types and their furnishings, equipment and outboard engines or motors occurring off the premises is also not covered. Property while at any other residence owned by, rented to, or occupied by an insured is excluded except while the insured is temporarily living there. 8. Vandalism and malicious mischief, burglary damage and glass breakage if the dwelling has been vacant for more than 60 consecutive days. 9. Any loss involving collapse, other than as provided under the additional coverage for collapse provided in the policy. 10. Discharge, dispersal, seepage, mitigation release or escape of pollutants, meaning any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. This displays how the insurer is able to control what exposures are acceptable and insurable. As discussed, the first set of exclusions is the general exclusions on all homeowner policies. The second set of exclusions affects only the open peril homeowner forms. The reason for the second set is that all perils of physical loss are covered unless specifically excluded. So the second sets of exclusions are important because without these exclusions, those perils would be covered if they caused damage to covered property. When the policy tells the insured that all risk of physical loss is covered, the insured takes that literally and the courts would rule in the insured s favor in any coverage dispute. So it is imperative that the insurer specifically list what is not covered so as to not cause any ambiguities in the interpretation of coverage. Excluded Personal Property Now we will discuss some excluded personal property under the homeowner policy forms. The following are all excluded for personal property: a. Animals, birds, and fish. b. Automobiles and other motorized vehicles (except motorized vehicles pertaining to service of the premises or for use of the disabled, such as a wheelchair). c. Electronic apparatus (including accessories, antennas or tapes, wires, records, discs or other media for use with any electronic apparatus) designed to be used with a motorized vehicle s electrical system and or upon the vehicle. Note: $1,500 coverage is provided when such items are not in or upon a vehicle

12 d. Aircraft and parts including hovercrafts (hobby aircraft is covered) e. Property of roomers/boarders not related to the insured. f. Property located in an apartment regularly rented by an insured other than the insured premises. g. Property rented or held for rental to others off the residence premises. h. Business data, including data stored in: Books of account, drawings or other paper records. Computers and related equipment including electronic data processing tapes, wires records, discs or other software media. The cost of blank recording or storage media and of prerecorded computer programs available on the retail market is covered. i. Credit cards or fund transfer cards Except as provided in Additional Coverage j. Property scheduled elsewhere. Note: If a piece of jewelry is separately insured under a personal article floater, coverage is then taken completely taken out of the homeowner policy. k. Loss of water or steam. Coverage C (Personal Property) uses limitations of certain property instead of exclusions. Limitations are way the insurer can limit their exposure without totally removing coverage. These are provided for by the Special Limits of Liability which are listed below. NOTE: Some property is only limited for loss caused by the peril of theft. If those items were destroyed by another peril covered under the policy, they would be covered for their full value. $200 - money, bank notes, bullion, gold (other then gold ware) silver, (other then silverware) platinum (other then platinum ware) coins, medals, scrip, stored value cards and smart cards. $1,500 - securities, accounts, deeds, evidences of debt, letters of credit notes (other then bank notes) manuscripts, personal records, passports, tickets and stamps. This dollar limit applies to these categories regardless of the medium (such as paper or computer software) on which material exist. This limit includes the cost to research, replace or restore information from the lost or damaged material $1,500 watercraft of all types, including their trailers, furnishings, equipment and outboard engines or motors. $1,500 for trailers and semi-trailers not used with watercraft of all types $1,500 for loss by theft of jewelry, watches, furs, precious and semiprecious stones $2,500 for loss by theft of firearms and related equipment $2,500 for loss by theft of silverware, silver plated ware, gold ware, gold plated ware, platinum ware, platinum-plated ware and pewter ware. This includes flatware, hollowware, tea sets, trays trophies made of or including silver, gold or pewter $2,500 - property, on the residence premises used at any time or in any manner for any business purpose

13 $1,500 - for property, away from the residence premises, used for business purposes. The pre-2005 forms limited this exposure to $500. $1,500 on electronic apparatus and accessories, while in or upon a motor vehicle but only if the apparatus is equipped to be operated by power from the motor vehicle s electrical system while still capable of being operated by other power sources. Accessories include antennas, tapes, wires, records, discs or other media that can be used with any apparatus described in this category $1,500 on electronic apparatus and accessories used primarily for business while away from the residence premises and not in or upon a motor vehicle. The apparatus must be equipped to be operated by power from the motor vehicle s electrical system while still being capable of being operated by other power sources. Accessories include antennas, tapes, wires, records, discs or other media that can be used with any apparatus described in this category. Personal Property usually located at an insured s residence other than the residence premises is 10% of the limit of liability for Coverage C, contents, or $1,000 whichever is greater. However this limitation does not apply to personal property moved from the residence premises because the premises is being repaired, renovated or rebuilt and is not fit to live in or store property in. The limitation also does not apply if the personal property is in a newly acquired principal residence for 30 days from the time you begin to move the property there. Personal Property located in self storage facilities is 10% of the limit of liability for Coverage C, contents, or $1,000 whichever is greater. Deductible Section I A deductible will apply on all Section I property losses. The standard deductible is $500 which can be reduced for additional premium and increased for a premium reduction. The deductible is per occurrence not per piece of damaged property. Section II Personal Liability Introduction Section II of the homeowner policy includes Coverage E Personal Liability which pays on behalf of the insured all sums he/she is legally obligated to pay others because of bodily injury and property damage to others, caused by an occurrence. The minimum limit is $100,000 per occurrence. Coverage E will also pay legal defense expenses for the insured, even if the claim against the insured is groundless, false or fraudulent. These expenses are without limitation and not out of the insured s Coverage E limit of liability. The insurer may investigate and settle any claim or suit as it deems necessary, but the insurer's duty to defend ends when the limit of liability has been exhausted. Liability is third party coverage that takes care of medical bills, property damage, lost wages, pain and suffering, inconvenience, etc. that is incurred by a third party in an occurrence and caused by or is allegedly the fault of an insured and members of the insured s household

14 Occurrence an accident, including repeated or continuous exposure to similar harmful conditions. Bodily injury includes bodily harm, sickness, disease, and death. Property damage means physical damage to tangible property including loss of use. Coverage E Personal Liability Coverage E Personal liability covers insureds for claims of others due to bodily injury or property damage caused by an occurrence arising from: 1. The premises shown in the Declarations section of the policy as well as any location the insured occasionally rents. For example, a community building that the insured rented to hold a party. 2. Personal activities such as sports, social, etc., anywhere in the world. 3. Acts of residence employees acting within the scope of their duties; 4. Vacant land; 5. Individual or family cemetery plots or burial vaults of any insured. Covers both on premises and off premises activities. Coverage F Medical Payments to Others Coverage F is "good will" coverage that pays the medical bills incurred by others in an accident, regardless of the fault or liability of the insured. The minimum limit is $1,000 per person per occurrence. Coverage F will pay for the following as long as they are claimed within three years of the date of the accident, and the loss occurs to a guest, other individuals, or residence employees while they are working: 1. Medical and surgical care 2. X-rays 3. Dental services 4. Ambulance, hospital and professional services 5. Funeral services Liability Coverage Exclusions Under Section II - Liability Coverage exclusions are also used to limit or remove the exposure of the insurer. The liability exclusions come in three sets. The first are the excluded coverage for personal liability and the second set are the exclusions for medical payment of others coverage and the third set is the general Section II exclusions

15 Set 1: The following are exclusions applying to both Coverage E - Personal Liability and Coverage F -Medical Payments to Others: 1. Losses that are expected or intended; even if the resulting bodily injury or property damage is of a different kind, quality or degree than initially expected or intended or is sustained by a different person, entity, real or personal property than initially expected or intended. However this exclusion does not apply to bodily injury resulting from the use of reasonable force by an insured to protect persons or property. 2. Business pursuits of an insured; whether or not conducted from an insured location or engaged in by an insured or whether or not the business is owned or operated by an insured or employs an insured. The exclusion does not apply to the rental or holding for rental of an insured location on an occasional basis; or a regular basis as long as the rental unit does not contain more then one family or more then two roomers or boarders or if the residence premises is used in part as an office, school, studio or private garage. This exclusion also does not apply to an insured under the age of 21 and involved in a part-time or occasional, self-employed business with no employees. 3. Losses for the insured's failure to render professional services. 4. The ownership, maintenance, use, loading or unloading of motor vehicles. Liability coverage is provided, however, for the following: A trailer not towed by or carried on a motorized land conveyance; A motorized land conveyance designed for recreational use off public roads, not subject to motor vehicle registration which is: a. Not owned by an insured; b. Owned by an insured and on an insured location; c. A motorized golf cart when used to play golf on a golf course; d. A vehicle or conveyance not subject to motor vehicle registration which is: Used to service an insured's residence; Designed for assisting the handicapped; In dead storage on an insured location. 5. The ownership, maintenance, use, loading or unloading of watercrafts listed below: a. With inboard or inboard-outdrive motor power owned by an insured; b. With inboard or inboard-outdrive motor power of more than 50 horsepower rented to an insured; c. A sailing vessel, with or without auxiliary power, 26 feet or more in length owned by or rented by an insured; d. Powered by one or more outboard motors with more than 25 total horsepower if the outboard motor is owned by the insured. Therefore an outboard motor of 25 HP or less is covered. Outboard motors of more than 25 horsepower are covered for the policy period if:

16 The insured acquires them prior to the policy period and declares them at policy inception or reports to the insurer, in writing, within 45 days after insured acquires the outboard motors; The insured acquires them during the policy period. (This exclusion does not apply while the watercraft is stored.) 6. Ownership, maintenance, use, loading or unloading of an aircraft or hovercraft (doesn't include model or hobby aircraft as long as they are not designed to carry people or cargo). 7. War including accidental discharge of nuclear weapons; 8. The transmission of a communicable disease by an insured; 9. Sexual molestation, corporal punishment or physical or mental abuse; 10. The use, sale, manufacture, delivery, transfer or possession by any person of a controlled substance. Set 2: The following exclusions apply only to Coverage E (Personal Liability): 1. Property damage to property rented to, occupied by, used by or in the care, custody or control of an insured except property damage which is caused by a. Fire b. Smoke c. Explosion However, the insurer will pay, at replacement cost, up to $1,000 per occurrence for property damage to the property of others caused by an insured as long as: It is not recoverable under the property section of a policy; Is not caused intentionally by an insured age 13 or older; The property is not owned by an insured The property is not owned by or rented to a tenant of the insured or a resident of the insured s household; It is not involving the ownership, maintenance, occupancy, operation, use, loading or unloading of aircraft, hovercraft, watercraft or motor vehicles designed for use on public roads It is not arising out of a business engaged in by an insured including off premises rental properties 2. Bodily injury to people covered by workers' compensation, disability insurance, or nuclear energy liability insurance or would be an insured under any such policies but are not covered due to the exhaustion of its limit of liability 3. Bodily injury or property damage to an insured. 4. Contractual liability except: That which relates to ownership, maintenance or use of an insured location; Where the liability of others has been assumed by the insured prior to an occurrence

17 Set 3: The following exclusions apply only to Coverage F: (Medical Payments to Others): 1. To a residence employee not sustained in the course of employment or occurring offpremises. 2. To any person eligible to receive workers compensation or disability coverage. 3. From any nuclear reaction. 4. To anyone regularly residing on the insured premises. Endorsements Now we will discuss the use of endorsements to add back some of the coverage taken away by the exclusions. Endorsements can also be used to add to one of the internal limits in the policy as well. (Note: Flood cannot be added by endorsement because of the catastrophic nature but can be acquired by purchase a flood insurance policy from the Federal Flood Insurance Corporation.) The items that cannot be added by endorsement are typically items of a catastrophic nature (such as flood) that could provide for the ruin of an insurer. The items that can be added by endorsement are items acceptable to the insurer for an additional premium for the exposure basis. This is the reason some coverage can be purchased back through the endorsement process or built in limits can be increased so they can collect the proper premium for the exposure. Actual Cash Value Loss Settlement (HO ) This endorsement may be used with forms HO 00 02, HO 00 03, or HO if at the policy inception the insured selects less than 80% insurance to value. It provides that covered property losses will be settled at actual cash value, but not more than the amount required to repair or replace the damaged or lost property. It was once used primarily with the HO 00 08; that form now has its own loss settlement provisions. Actual Cash Value Loss Settlement Windstorm or Hail Losses to Roof Surfacing (HO ) This endorsement is used with all forms except HO It coverts the loss settlement provision to an actual cash value (ACV) basis when the forces of winds or hail cause direct damage to a roof s surface materials. Additional Insured (Residence Premises) (HO ) An individual or group other than the named insured may have an ownership interest in the dwelling. For example, when two persons buy a two-family dwelling, each intending to inhabit one unit, one insured buys a homeowner policy with building coverage, while the other buys contents and liability coverage under the HO form. The HO insured can protect his interest in the building and other structures, plus receive Section II coverage (but only with respect to the residence premises) by having this endorsement added to the other insured's

18 policy. No additional premium is charged. The endorsement may also be used for a nonoccupant co-owner of the insured dwelling. The additional insured named in the endorsement will be notified in writing of the insurer's decision to cancel or not renew. However, there is no time limit for notification, such as that given to the named insured and mortgagee. Additional Insured - Student Living Away from the Residence Premises (HO ) This endorsement is new in the 2000 homeowner program. The new homeowner forms include a student under age 24 away at school within the definition of "insured." This endorsement may be used to broaden that definition by removing the age and full-time student restrictions. The name, address, and school attended should be scheduled on the endorsement. It will only apply if the student prior to school residency was either an insured or resident relative of the base policy insured s household. Additional Interests (Residence Premises) (HO ) This endorsement is used if persons or organizations with an interest in the property must be notified in the event that the insurer decides to cancel or non-renew the policy. In that case, the insurer notifies the specified parties in writing. However, there is no time limit for notification, such as that given to the named insured and mortgagee. Often the additional insured and additional interest endorsements are confused; the first provides limited property and liability coverage, but the second does not. Additional Residence Rented to Others (1-4 Families) (HO ) This endorsement provides personal liability and medical payments coverage with respect to the insured's liability arising out of the ownership of one or two, three or four family residence regularly rented to others. The mechanism for providing this coverage is a definition on the endorsement naming the listed premises an "insured location." Assisted Living Care Coverage (HO ) An endorsement new to the 2000 homeowner program is one that may be attached to an insured s homeowner policy to provide coverage for a person related by blood, marriage, or adoption to an insured. The relative must regularly reside in the facility, but need not have been a member of the insured s household prior to moving to the facility. The insured agrees to act as the covered person s representative in matters pertaining to the insurance. The name of the relative, the name and location of the facility, and the amount of Coverages C contents and E personal liability (the only options) are scheduled. As one might expect, the special limits of liability are expanded to include such things as eyeglasses and contact lenses ($100), hearing aids ($250), dentures or false teeth ($500), Medi-alert devices ($500), Wheelchairs ($500), walking aids such as walkers and/or canes($250). A limited amount of additional living expense is included: $500 per month for a maximum of twelve months. If an order of civil authority results in a claim for additional living expense, the maximum is $50 per day for a two-week period. The applicable deductible is that on the policy to which this endorsement is attached

19 Building Additions and Alterations (Other Residence) (HO ) This endorsement covers the insured s interest in additions, alterations, and improvements in a residence rented to the insured. The earlier (04 91) edition of this endorsement stated the one or two other residences, and the amount of insurance at each location, could be specifically designated. The current edition (10 00) appears to refer only to one "other residence." Coverage is provided for direct physical loss caused by a peril insured against. So, for example, if attached to an HO 00 02, named peril coverage applies. The HO endorsement is available for the HO 04 (tenant form) and would provide coverage for the building additions and alterations that a tenant made to their living area that would become the property of the landlord upon moving out. If a loss occurs while the tenant is still living there the HO would provide coverage for the additions and alterations the tenant has a financial interest in. Business Pursuits (HO ) Endorsement HO eliminates the homeowner Section II exclusion of coverage for liability "arising out of or in connection with a business... engaged in by an insured." It applies the policy's personal liability and medical payments coverages to the insured's business pursuits as described in the endorsement (essentially sales, clerical, and instructional occupations). Coverage does not apply with respect to a business owned or financially controlled by the insured, or in which the insured is a partner. (When coverage cannot be endorsed to the homeowner policy, as with home business coverage endorsement HO 07 01, the insured should cover business property and business liability under either a business owners or commercial policy. For certain types of businesses, the home would also be covered under either a commercial or business owners policy, and non-business contents would be covered under an HO policy.) The endorsement does not offer coverage for liability arising out of professional services (for example, architectural, medical, beauty shop, or barber services), but makes an exception for teaching. An optional coverage is available for bodily injury claims against teachers arising out of corporal punishment. Bodily injury to a fellow employee of the insured that occurs in the course of employment is excluded. When the insured is on the teaching staff of a school or college, an exclusion applies to liability claims arising out of the maintenance, use, loading, unloading, or entrustment by the insured of draft or saddle animals (or vehicles used with them); aircraft; hovercraft; motor vehicles or motorized land conveyances; or watercraft, if owned or operated, hired by or for the insured or the insured s employer, or used for instructional purposes. Canine Liability Exclusion Endorsement (HO 24 77) This form is a named dog exclusion. Space is provided to enter a name and description of a dog. When attached, it eliminates bodily injury and property damage caused by the described dog. The exclusion applies to that dog whether it is owned as well as in the care, custody or control of an insured. This is a new endorsement available with the 2011 homeowner edition. The form may be problematic to apply to non-owned animal situations and enforcement in situations where the dog s name is changed or an ambiguous description on the form

20 Coverage B - Other Structures Away from the Residence Premises (Forms HO 00 02, HO 00 03, and HO only) (HO ) The homeowner forms provide blanket coverage for other structures located on the residence premises in the amount of 10% of the Coverage A limit. Endorsement HO may be used to extend this blanket coverage to structures that the insured owns and uses in connection with the residence premises but which are located elsewhere. Coverage is provided within the policy's Coverage B limit. Before the introduction of this endorsement, insureds were limited to the more expensive method of covering such property under a fire policy. The following types of other structures are excluded from coverage under the endorsement: (1) structures either used as or capable of being used as dwellings; (2) structures used to conduct a business or to store business property; or (3) structures rented to someone who is not a "tenant" of the dwelling (so that rental to a roomer, boarder, or a tenant of a multi-family home would not disqualify the structure from coverage under the endorsement). The endorsement deletes replacement cost coverage for these other structures and substitutes loss settlement on an actual cash value basis. If specific, rather than blanket coverage is more appropriate, insureds can add coverage for other structures under endorsement HO specific structures away from the residence premises (discussed later). Coverage C Increased Special Limits of Liability (HO ) Coverage C (personal property) imposes special sub limits with respect to certain categories of property. This endorsement may be added to increase these limits for some of these categories - money, precious metals, and coins (to $5,000); securities, accounts, deeds, evidences of debt, letters of credit, and other valuable papers (to $2,500); jewelry, watches, and furs (to $5,000; $1,000 per article limit); silverware, gold ware, and pewter ware (to $10,000); and firearms (to $10,000). The special limits are increased for the last three categories with respect to theft, since the special limit for such items applies only to theft losses. When Coverage C (personal property) is written on an open perils basis, the special theft limits for the last three categories apply to mysterious disappearance or losing as well as to theft. For this reason, a separate endorsement (HO 04 66, see below) is used to increase these limits when open perils coverage applies to personal property. The 1991 homeowner program introduced special limits ($1,000) that apply to electronic equipment while in a motor vehicle as long as it is adaptable so that it may either run off a car's electrical system or off of other power sources. The 2000 homeowner edition increased that to $1,500.The current edition of endorsement HO may also be used to increase the special limits to $5,000. For more information on these special limits, see ISO homeowner forms Section I. Use of this endorsement does not increase the total limit of liability available under Coverage C. It merely increases the sublimits that apply to the specified categories of property

21 Credit Card, Electronic Fund Transfer Card or Access Device, Forgery and Counterfeit Money Coverage (Increased Limit) (HO ) One of the additional coverages (6.) in the homeowner forms pays for loss resulting from the unauthorized use of an insured's credit card or bank transfer card. The policy's $500 limit for this coverage may be increased through the use of this endorsement. Coverage is provided for loss by forgery or alteration of any personal checks or similar written instruments made or drawn by or upon an insured s accounts. This coverage also protects the insured for losses caused by his or her acceptance, in good faith, of counterfeit United States or Canadian paper currency. In accordance with the wording of the homeowner 2000 forms, note the inclusion of "access device," which recognizes that modern technology allows access to funds by means other than a card. Deferred Premium Payment (HO ) This form allows an insured the option to pay the policy premium in installments that are identified on the declarations. The premium amounts are based upon rates in effect at the time the installment is due. If a policy is written for a three year term, the policy may be paid in annual installments and each annual installment amount with the date due will be listed on the declarations. Earthquake (HO ) There is no coverage for loss resulting from "earth movement" except when endorsed. An insured may add earthquake as an insured peril for Coverages A (dwelling), B (other structures), and C (contents) by adding this endorsement. The endorsement defines as a "single earthquake" all earthquake shocks occurring within a 72-hour period. The peril of earthquake is defined to include land shock waves or tremors accompanying a volcanic eruption. In the endorsement used with the 1991 edition (04 91), the base deductible is 5% of the limit that applies to all Section I coverages (but not less than $500). The deductible may be increased for a premium credit. No other deductible applies to earthquake loss. The edition of the endorsement eliminated the application of the deductible to Coverage D and the additional coverages, which was the case of the earlier edition, and clarified the intent of the application of the deductible to the limit of insurance, not to the amount of the loss. In the current edition, the percentage deductible is converted into a dollar deductible by multiplying either the Coverage A or Coverage C limit of liability, whichever is greater, by the deductible percentage. Again, $500 is the minimum. Like other forms of earthquake insurance, the endorsement excludes flood and tidal wave, even when caused by or contributed to by an earthquake. Masonry veneer coverage is optional; if excluded, the deductible applies to the applicable limit minus the value of this veneer. Stucco is not included within the meaning of masonry veneer. Coverage under the endorsement is provided within the applicable limits of liability and does not include the cost of filling land. The HO (now withdrawn) provided earthquake coverage for personal property. The HO 00 05, however, does not. Insured s must add the HO to obtain this coverage