Before discussing the exclusions (Chapter 7) applicable to the property coverages of homeowners policies, there are two additional categories of property coverage grants that need to be discussed. These are:
loss of use coverage and
miscellaneous additional coverages, frequently grouped under a heading in the policy referring to additional coveragesor additional protection.
LOSS OF USE COVERAGES
The loss of use coverages fall into three general categories:
additional living expense;
fair rental value; and,
loss due to civil authority.
In general, in order for loss of use coverages to be triggered, there must first be a covered loss to residence premises. In other words, a covered loss of use must be a consequence of a covered direct physical loss to residence premises.
Additional Living Expense Coverage
Under the ISO HO 2 and HO 3 homeowners policies, if a loss covered under the policy’s dwelling coverage renders the part of the residence premises where the insured resides unfit to live in, the insurer will pay any reasonableincrease in living expenses incurred by the insured so that the insured’s household canmaintain its normal standard of living. The insurer will make the additional living expense payments for the shortest time required to repair or replace the damage or, if the insured permanently relocates, the shortest time required for the insured’s household to settle elsewhere. These time periods are not limited by the expiration of the policy.
In some states, these time periods are made subject to an objective standard. In other words, the shortest time to repair or replace the damage would be the time that an objectively reasonable contractor would require to complete the repair or replacement work. In other states, the time period during which additional living expense payments will be made is held to be governed by what circumstances are or are not within the insured’s control. Such circumstances could range from the unavailability of materials or the unavailability of a qualified contractor, to a dispute with the insurer over coverage for the damage to the residence, which delays the repair work.
Fair Rental Value Coverage
Fair rental value coverage applies when there is covered damage to that part of residence premises that the insured rents or holds for rental to others that render the premises unfit to live in. The insurer will pay the fair rental value of the premises, less any expenses that do not continue while the premises remain unfit to live in. Such fair rental value payments will be made for the shortest time required to repair or replace the premises.
The same issues exist as to whether the shortest time required to repair or replace the damaged premises is governed by a theoretical objective standard or by some other standard that takes into account other factors.
Civil Authority Loss of Use Coverage
Under this coverage, additional living expense or fair rental value coverage is available for no more than two weeks if civil authority prohibits the insured from use of residence premises as a direct result of damage to neighboring premises by an insured peril. The loss of use coverages further provide that no coverage exists for loss or expense due to cancellation of a lease or other agreement.
The loss of use coverages of homeowners policies issued by insurers that do not use the standard ISO HO 2 or HO 3 policy forms often are substantially similar to the standard form policies. Some insurers impose a 12-month maximum period for which additional living expense or fair rental value payments will be made. Others do not include such a fixed maximum period of recovery limitation.
Some insurers’ policies base the availability of loss of use benefits due to order of civil authority on the existence of direct damage to a neighboring property that would constitute a covered lossunder their respective policies. Others do not use the covered loss to adjoining property limitation at all.
Homeowners policies contain several additional coverages, some of which relate to and are dependent on the existence of a covered building or contents loss and some of which are not. Many insureds probably fail to make claims that otherwise would be covered owing to the lack of knowledge that their policy covered such losses. These additional coverages are extensive, covering the better part of four pages in the ISO HO 2 and HO 3 policies, and include the following.
The policy’s coverage includes the costs of removing debris of covered property resulting from a loss caused by an insured peril. The debris removal coverage also applies to costs of removal of volcanic ash, dust, or particles from a volcanic eruption that has caused a direct physical loss to covered buildings or contents.
Debris removal expenses are included within the policy limits unless the total damage equals or exceeds the policy limits. In that case, the policy will pay debris removal expenses in addition to the policy limit, subject to the maximum of 5% of the limit applicable to the damaged property.
The debris removal coverage also extends to the costs of removal of the insured’s downed trees felled by windstorm, hail, weight of ice, snow, or sleet and neighbors’ trees felled by one of the policy’s named perils, if one of two circumstances exist:
- the felled tree damages a covered structure or
- the felled tree blocks a driveway, handicapped access ramp, or fixture.
This coverage is subject to a maximum of $1,000 for any one loss and a $500 maximum for the removal of any one tree. These amounts are payable in addition to the policy limit.
The heading for this category of additional coverages is not generally descriptive. These are really two distinct coverages. First, the policy covers the reasonable costs incurred by the insured to protect covered property that has been damaged by a covered peril from further damage.
Second, if the measures taken by the insured to prevent further damage also involve repair costs, those repair costs will be covered. Again, the property in question must be covered property and the damage must have been caused by a covered cause of loss.
Neither of these coverages increases the policy limit applicable to the damaged covered property. Nor do these provisions relieve the insured of any of his or her duties stated in the policy’s conditions, which include keeping accurate records of expenses, including repair expenses.
Trees, Shrubs, and Other Plants
The standard ISO HO 2 and HO 3 policies also provide up to 5% of the dwelling policy limit for loss to trees, shrubs, plants, or lawns at the residence premises caused by the perils of:
fire or lightning;
riot or civil commotion;
vehicles not owned or operated by residents of the residence premises;
vandalism and malicious mischief; or,
This coverage is in addition to the dwelling policy limit and is subject to a maximum of $500 for any one tree, shrub, or plant.
Fire Department Service Charge
This additional coverage applies up to $500 for fire department service charges that the insured has assumed under contract. Covered fire department service charges must be incurred when the fire department is called on to save or protect covered property from a covered peril. No fire department service charges are payable if the insured property is located within the limits of the city of fire protection district furnishing the response. When this additional coverage applies, it is payable in addition to the policy limit and without application of a deductible.
Credit Card, Forgery, and Counterfeit Money
With the rise in identity theft, this additional coverage is one more policyholders should be aware of. Under this coverage, the insurer will pay up to $500 for the legal obligation of an insured to pay because of the theft or unauthorized use of credit cards or electronic fund transfer (EFT) cards issued to or registered in an insured’s name. This coverage is subject to limitations. In addition, it obligates the insurer to provide the insured with a legal defense in the event the insured is sued to collect the charges incurred by the unauthorized user.
This additional coverage also applies to loss caused by forgery or alteration of any check or other negotiable instrument and by an insured’s good faith acceptance of counterfeit United States or Canadian currency. This coverage is an addition to the policy limit and applies without a deductible.
The following restrictions apply—no coverage exists for use of a credit card, electronic fund transfer card, or access device:
by a resident of a named insured’s household;
by any person who an insured entrusts with a credit card or EFT card or device; or,
if an insured has not complied with all the terms and conditions under which the cards or devices are issued (such as, for example, disclosing personal identification members to others).
In addition, this coverage does not apply to loss arising out of business use or to loss arising out of dishonesty by an insured.
Loss assessment coveragecan be important to insureds who are members of a homeowners association or cooperative association and potentially subject to assessments for the costs of repairs to common areas that are jointly owned by all the members of the association. This could occur, for example, if the homeowners association’s own policy limits were not sufficient to repair or replace the damaged common area property. The insurer will pay up to $1,000 per loss (regardless of the number of assessments) for the insured’s share of a loss assessment that results from direct loss to common property of a type that would have been a covered peril (excluding earthquake and land tremors before or after a volcanic eruption).
This coverage only applies to assessments by the homeowners association against the members of the homeowners association. This additional coverage does not apply to assessments imposed by any governmental body or agency.
A single deductible applies per unit owned by an insured. This coverage is in addition to the policy limit.
The collapse coverage of the current ISO HO 2 and HO 3 policies has been redrafted in an attempt to address a legal debate that has existed as to whether the collapsecoverage required an actual falling down or caving in of all or part of the building or whether an imminentcollapse was sufficient to trigger coverage. The current edition of the ISO HO 2 and HO 3 policies contains clarifications intended to make clear that an actualcollapse is required for collapse coverage to apply.
The collapse coverage begins with a series of four definitions that state what is and is not considered to be a collapse. These definitions state that:
- collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of current intended purpose;
- a building or any part of a building that is in danger of falling down or caving in is not considered to be in a state of collapse;
- a part of a building that is standing is not considered to be in a state of collapse even if it has separated from another part of the building; and,
- building or any part of a building that is standing is not considered to be in a state of collapse even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage, or expansion.
The insuring agreement of the collapse coverage next provides that coverage will exist only if the collapse was caused by one or more of the named perils applicable to the personal property coverage or five additional specified perils. These five additional specified perils include the following:
- decay hidden from view, unless the presence of such decay is known to an insured prior to collapse;
- insect or vermin damage (i.e.,termite) that is hidden from view, unless the presence of such damage is known to an insured prior to collapse;
- weight of contents, equipment, animals, or people;
- weight of rain that collects on a roof; and,
- use of defective materials or methods in construction, remodeling, or renovation if the collapse occurs during the course of the construction, remodeling, or renovation.
Finally, if the cause of the collapse is one of the five specified perils, the collapse coverage provisions state that collapse coverage does not apply to:
This is unless the loss to these categories of property is the direct result of the collapse of all or a part of a building.
The inclusion of collapse coverage in the policy does not operate to increase the policy limits.
Glass or Safety Glazing Material
This provision affords coverage for glass breakage that is caused directly by earth movement and also extends to direct physical loss to property that is caused by the glass fragments. For purposes of this coverage, glass means glass or glazing material that is part of the building (i.e.,windows and sky-lights), storm doors, or storm windows. It does not include glass used in picture frames, mirrors, or glassware. No glass coverage, except as the result of earthquake or earth movement, exists if the building has been vacant for a period of sixty days prior to the date of loss. The glass coverage is included within the policy limit and is not in addition to the policy limit.
The landlord’s furnishing coverage affords a $2,500 per loss sublimit, within the personal property policy limits, for appliances, carpeting, and other household furnishings in apartments on the residence premises rented to others or held for rental to others. Protection from theft is not covered under this provision.
Ordinance or Law
This is an important coverage and one that the insured should check carefully with his or her agent, particularly with respect to the question of what form of replacement cost coverage the policy may provide. Many insurers have in the past experienced coverage disputes with policyholders over replacement cost policies. Often, these disputes have had their origins in the fact that the insured did not maintain policy limits consistent with increasing home values and increasing costs of labor and materials used in construction, rebuilding, and repair.
Further, as the result of various catastrophic kinds of losses stemming from hurricanes, tornadoes, major wildfires, and earthquakes, various governmental bodies have enacted building codes and other laws that have resulted in increased construction costs after a loss has occurred. Examples include prohibition of replacement of roofs with wood shake shingles and methods of construction intended to help resist the force of windstorms or earthquakes.
As the result of these combined factors, many homeowners insurers began modifying their replacement cost provisions and increased cost of construction provisions to include insurance-to-value requirements or eliminate so-called guaranteed replacement costprovisions. Often, these modifications to replacement cost coverage provisions have been implemented through endorsements and are not contained in the insurers’ basic policy forms.
It therefore is crucial that you determine what form of replacement cost coverage, if any, is included in your policy. You must determine whether that coverage includes coverage for the costs of compliance with changed building code requirements, and if not, whether more complete coverage is available.
This additional coverage provides that the insured may use up to 10% of the dwelling policy limit for increased costs incurred due to the enforcement of ordinances or laws that require or regulate the construction, demolition, remodeling, renovation, or repair of the part of the covered dwelling or other structure that has been damaged by a covered peril. This coverage also extends to the costs of demolition and reconstruction of an undamaged part of the building if:
such demolition is required by ordinance or law as a result of covered damage to another part of the dwelling or other structure or
it is necessary to complete the remodeling or repair of covered damage to another part of the building.
The ordinance or law coverage does not extend to loss in value of a covered dwelling or other structure resulting from compliance with the requirements of any ordinance or law, nor to costs of compliance with any ordinance or law requiring the insured to test for, monitor, or clean up pollutants. The ordinance or law coverage applies in addition to the policy limits.
Covering the personal property peril is a $5,000 sublimit applicable to grave markers, including mausoleums, whether on or off the residence premises.
Proprietary Homeowners Policy Forms
When it comes to additional coverages, the policies offered by insurers that use their own proprietary forms have additional coverages that are generally similar to the foregoing provisions of the ISO HO 2 and HO 3 homeowners policies. There is, however, more variation in these coverages from insurer to insurer than in any other portion of the policy. The variations include both the categories of property subject to limitation, as well as the limits of liability applicable to the limitations.
Some policies have no felled trees coverage. Others have more limited collapse coverage. Others do not include homeowners association loss assessment coverage, except as an optional coverage for a premium surcharge.
An important additional coverage included in some homeowners policies is sewer back-up coverage. This is often an excluded peril. It is a significant additional coverage that extends to loss caused by water that backs up through sewers and drains. Sewer backups can cause significant losses to both the structure and contents. When this coverage is included additionally, it is a significant broadening of coverage compared with what is afforded by the ISO HO 3 homeowners policy. In short, this is an area where comparison shopping based on coverages provided, rather than price, is well worth your time.
As stated, the additional coverages of homeowners policies can be extensive and complex, and include many coverages of which the average policyholder may not be fully aware. This section of your policy is worth taking a few minutes to review. It is also an area in which competitive price quotes can be highly misleading, unless you have specimen copies of the policies under consideration to review and compare.