Cpcu 555 Ch. 8

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Dwelling Property 3 - Special form (Reasons for dwelling policies)

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Some residences are not eligible for HO coverage and some may not want a HO policy. Reasons for this: Residence is not owner-occupied, Value of dwelling is below minimum limit for homeowners coverage, Residence does not meet insurer's underwriting guidelines.

A HO policy may by too expensive for an insured, or offer more coverage than desired. Insured may not want all the coverages that come with HO policy, may want cheaper dwelling policy that has reduced coverage.

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Structures eligible (dwelling policy)

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Dwelling policies are designed to cover 1-4 family dwellings. With dwelling policy the home can be either owner-occupied or tenant-occupied.

Dwelling policy (DP) may also be used for: Dwelling in the course of construction. Mobilehomes at a permanent location. Houseboats (in some states). Certain incidental business occupies, if the business are operated by the owner-insured or by a tenant on insured location.

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DP-3 Policy

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The DP-3 policy offers coverage similar to those offered in HO-3 policy. DP-3 does not automatically include all coverages; they must be listed in Declarations, unlike HO-3 which automatically gives coverages A-F. Theoretically dwelling policy could cover only personal property, but this is rarely done.

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DP-3 Coverages

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The limit for each desired coverage must be shown on the dec page with appropriate premium charges.

Coverages in DP-3 policy:

Coverage A - Dwelling coverage for dwelling on described location shown in Declarations (Essentially the same as HO-3). No coverage for temporary repairs. If a mortgage is acquired to purchase a home the mortgagee and the insured are payable when a loss occurs.

Coverage B - Other structures: detached structures, such as detached garage, swimming pool and storage sheds, on the insured premises (Essentially the same as HO-3).

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DP-3 Coverages pt.2

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Coverages in DP-3 policy:

Coverage C - personal property: dwelling form has no special limits that apply to any specific type of personal property, unlike HO-3 where limits apply to some personal property. Provides up to 10% Coverage C limit for loss to property anywhere in the world. No theft coverage provided. Excludes coverage for money and excludes coverage for boats (other than rowboats and canoes that have limited coverage).

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CP-3 Coverages pt.3

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In HO-3 coverage E is part of section II for liab coverage. DP-3 does not have any section II coverages (liability/medical expenses). However in DP-3 loss of use is covered in 2 different sections D and E instead of HO-3 where loss of use is only under D.

Coverages in DP-3 policy:

Coverage D - fair rental value: covers value of a property rented to others. Provides 20% Coverage A limit. Covers 20% of loss of insured's income from the rental property.

Coverage E - additional living expenses: covers the increase in living expenses for the insured if property unfit for living. Coverages D and E correspond roughly to Coverage D - loss of use in HO-3 form. Provides up to 20% Coverage A limit (30% for HO-3).

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Other coverages

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DP-3 policy may offer other coverages:

Loss assessment - only covered if added by endorsement. Unendorsed DP-3 policy doesn't cover loss assessment. This is included automatically up to $1000 limit in HO-3.

Landlords furnishings, credit cards, forgery, counterfeit money - coverage not available on DP-3.

Debris removal - included in the limit that applies to the damaged property and no coverage provided for trees and shrubs (HO-3 provides an additional 5% of limit for debris removal).

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Other coverages pt.2

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DP-3 policy may offer other coverages:

Improvements, alterations, additions - 10% of Coverage C limit offered as additional insurance to cover tenant's improvements, etc. (not offered in HO-3). E.x. Insured rents home to someone who adds attached garage to the house.

Reasonable repairs - provides coverage for reasonable repairs to prevent further damage (also covered under HO-3).

Property removed - property protected up to 30days if removed from the premises because it is endangered by an insured peril (also covered under HO-3).

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Other coverages pt.3

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DP-3 policy may offer other coverages:

Trees, shrubs, other plants and lawns - maximum limit is 5% of Coverage A limit, limit for any one tree or plant is $500 (same as HO-3).

Fire dept service charge - covers up to $500 for fire dept service charges (same as HO-3).

Collapse - coverage for direct physical loss to covered property resulting from collapse (same as HO-3).

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Other coverages pt.4

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DP-3 policy may offer other coverages:

Glass or safety glazing material-breakage of glass or safety glazing material is covered, coverage does not apply if dwelling was vacant for more than 60 consecutive days (similar to HO-3).

Ordinance or law - coverage for increased costs the insured incurs because of the enforcement of any ordinance or law (similar to HO-3 coverage).

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Perils insured against

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The DP-3 policy insures the following perils: Coverage A and Coverage B - special-form (open perils) coverage (same as HO-3).

Coverage C - names-perils coverage (however, theft is not covered under DP-3).

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General exclusions

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General exclusions in DP- policy are similar to Section I exclusions in HO-3 policy: Ordinance or law (except as provided). Earth movement, such as an earthquake. Water damage, such as flood. Power failure occurring off the location. War, neglect, nuclear hazard and intentional loss. Faulty construction, planning, materials or maintenance.

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Personal liability coverage

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DP-3 does not provide coverage for liability or theft losses unless an endorsement is added.

Liability is covered under section II of HO-3 however in DP-3 there is no liability coverage at all. Have to get separate policy if you want liability w/ DP-3.

Liability coverage may be written as a separate policy using the personal liability supplement. Personal liability supplement provides: Coverage L - personal liability and Coverage M - medical payment to others. Coverage L and M are essentially the same as E and F on HO-3. Loss assessment coverage is not provided on DP-3.

An insured who has a HO policy on a residence can obtain liability coverage for a rental by purchasing a homeowners endorsement.

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Theft Coverage

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Endorsements to the dwelling form can provide theft coverage.

Broad theft coverage - provides coverage for theft and vandalism as a result of theft on-premises and off-premises.

Limited theft coverage - covers only on-premises theft or vandalism as a result of theft (includes special limits for watercraft and trailers).

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Overview (inland marine floaters)

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Inland marine insurance is insurance that covers property generally involving some element of transportation. Covers property with special value or that frequently moves. Includes jewelry, furs, arts, silverware, collectibles and musical instruments. This property is covered under a homeowners policy but with certain limitations. E.x. in HO policy jewelry covered for up to $1500 in case of theft, but this may not be enough coverage so inland marine policy may be needed.

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Characteristics (Inland Marine)

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Coverage may instead be obtained through an endorsement to a homeoweners policy. E.x. insured has HO policy but may need endorsement for limit of $45k on jewelry and insurer will not write. Insured with jewelry may be living in senior assisting facility and can't get HO policy at all to add endorsement to.

Inland marine policy characteristics: Coverage is tailored to the type of property (highly flexible). Provides higher limits for certain property. Insured may select the appropriate limits. Often written without a deductible. Usually insures property worldwide with ope perils coverage.

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Exclusions (Inland Marine)

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General exclusions apply to losses caused by: War. Nuclear hazard. Governmental action. Intentional loss. Neglect.

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Conditions (Inland Marine)

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Generally, the amount paid for a covered loss is the least of 4 different amounts: Actual cash value. Amount for which the property could be repaired. Amount for which the property could be replaced. Amount of insurance stated in the policy (limit).

Property may have unscheduled coverage where coverage provided on a blanket basis. In some inland marine forms property is not listed out separately, items are covered in a group, may cover collection like camera collection. May be suitable for stamp collection, baseball card collection. One overall limit applies to collection.

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Coverages

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Coverages in the ISO inland marine program can be specialized or general.

Specialized forms - forms cover a single category of personal property, such as cameras (highly customized).

General forms (standardized) - broad forms that include: Personal articles standard loss settlement form, personal property form and personal effects form.

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Personal articles standard form

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The personal articles standard loss settlement form provides special form (open perils) coverage for several classes of personal property. Includes jewelry and musical instruments. Excludes losses caused by wear and tear, deterioration, inherent vice, insects or vermin. Specific amount of insurance is shown for each class of property. Typically the coverage is scheduled.

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Personal property form

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The personal property form provides special form (open perils) coverage on unscheduled property. Provides worldwide coverage when property is temporarily away from the premises.

Separate amounts of insurance are provided for 13 classes (clothing, appliances) of unscheduled property. Total amount of insurance in each category is maximum limit of recovery for any single loss to property in that category.

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Personal effects form

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The personal effects form provides special form coverage on certain person property (most appropriate for frequent travelers). Includes luggage, clothes and cameras normally carried by travelers. Excludes currency, securities, animals, artificial limbs, contact lenses, motor vehicles, bicycles, watercraft, furniture and certain other property.

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ISO Farm program (Farm insurance coverages)

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Farms are generally either owned by: families who both live and work on the farm or corporations with employees who may live on the farm.

Farm policies are typically modular (insured can pick and choose coverage). Can cover farm business loss exposures, residential loss exposures or both.

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Iso Farm Program pt.2

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The ISO farm insurance program consists of various farm insurance forms. Farm dwellings (Cov A), appurtenant structures (Cov B) and household personal property (Cov C) coverage form - covers farm residential and person property. May be appropriate if insured and their family lives on the farm. Similar to section I coverage of HO-3.

Farm personal property coverage form - similar to HO-3 cov C but also covers machinery, equipment and livestock (either scheduled or unscheduled coverage, this property can also be covered on its own under inland marine forms).

Livestock coverage form covers electrocution of, accidental shooting of, attacks of and loading/unloading of covered livestock.

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ISO farm program pt.3

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ISO farm insurance program: Farm liability coverage form - similar to HO-3 section II, combines elements of homeowners liability coverage and commercial general liability coverage for farm where employees may be (includes special provisions to address liability loss exposures unique to farms).

ISO farm program also has forms addressing barns, other structures, umbrella liability and excess liability.

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ISO homeowners endosements (farms)

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Some homeowners may have incidental farming loss exposures on their residence premises.

Incidental farming personal liability endorsement - covers farm operations that are not the insured's principal occupation. E.x. insured lives on the farm but has job as a CPA as well as grows vegetables on the farm and sells them, this is an incidental farming business b/c insured has another job, may still want liab coverage for business on farm.

Farmers personal liability endorsement - deletes standard business-related exclusion. Covers farming activities and employees, farm premises and employees must be scheduled for coverage to be provided. For incidental farming business that is a bit larger and includes employees.

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Specialty farm and ranch programs

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Some farms have loss exposures that are not covered by basic farm policies or endorsements. Specialty insurance is available from private insurers and from the U.S. government.

Types of specialty insurance (private insurers):

Crop-hail insurance - covers hail damage to growing crops and may cover fire, windstorm.

Multiple peril crop insurance - offered by the government, covers unexpected production losses resulting from natural causes, including drought or disease.

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Specialty farm and ranch programs pt.2

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Types of specialty insurance (private insurers): Animal mortality insurance - covers against loss of animals by death or theft. Provides much broader protection than livestock coverage under a farm policy.

Feedlot insurance covers bailee liability of animals in feedlot owner's custody. Feedlot is where farmer may send livestock to gain weight. Feedlot operators have a bailee liability exposure for animals in their custody. They may also assume liability by contract for loss resulting from causes that would otherwise not be a bailee's responsibility.

Federal crop insurance (livestock policies) - protects against loss of gross margin on covered livestock or price decreases on covered livestock during the policy period. Like loss of income policy offered by government.

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FAIR Plans (FAIR, beachfront and windstorm plans)

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FAIR plans make insurance coverage available when insurers in the voluntary market cannot profitably provide coverage at a reasonable rate (insured can't get voluntary coverage). E.x. urban areas susceptible to riots, coastal areas with exposures to windstorm, or wooded, suburban areas with the potential hazard of brush fires.

Property owner can apply for insurance under state's FAIR plan through an authorized agent.

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FAIR plans pt.2

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FAIR plan might operate as a policy-issuing syndicate. Plan itself issues policies and handles underwriting, processing and possibly claim handling.

In several states, FAIR plan contracts with insurers to act as servicing organizations. Insurance companies perform underwriting, policyholder service and claim handling functions.

In the majority of plans, all licensed property insurers must share payment for plan losses.

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FAIR plans pt.3

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To be eligible for coverage, property must be ineligible for coverage in the voluntary market. Policyholder must have the property inspected by FAIR plan administrator. If property fails to meet safety levels, homeowners can be required to make improvements to meet safety standards. If problems are not corrected, the state can deny insurance.

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FAIR plans pt.4

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Under most FAIR plans, the following are considered uninsurable:

Vacant property, susceptible to trespass.

Property that is poorly maintained of that has unpaired fire damages.

Property subject to unacceptable physical hazards, such as storage of flammable items.

Property that violates a law or public policy, such as condemned property.

Property not meeting building, safety codes.

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Beachfront and windstorm plans

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Beginning in the late 1960s, insurers in the voluntary market withdrew from writing property coverage in coastal areas due to hurricane damage being so catastrophic and costly. Numerous coastal states responses by developing beachfront and windstorm plans.

Provide coverage for windstorm and hail loss that cannot be obtained in voluntary market. In all plans, insurers that write property coverages in that state must share in plan losses.

Will not insure property that: is poorly maintained, is subject to poor housekeeping and violates a law or public policy.

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Beachfront and windstorm plans pt.2

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Properties eligible for coverage must be ineligible for coverage in the voluntary market. Must be located in designated coastal areas. In some states the property must be located within a certain distance of the shoreline.

Owners of property in coastal areas can obtain coverage fro most real and personal property through these plans. Property must conform to building codes.

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Beachfront and windstorm plans

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Perils insured against vary by state, but many plans provide only windstorm & hail coverage so insured would need separate coverage for fire and other perils. The maximum limits of insurance available, as well as deductibles vary among states.

Generally no application for new coverage or increase in limits will be accepted when a hurricane has formed within a certain distance. Trying to prevent adverse selection (only people susceptible to the loss purchase coverage).

In recent years, some states have merged their FAIR and beachfront and windstorm plans.

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Community eligibility (National flodd insurance program)

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How to get flood insurance.

Federal government provides flood insurance through national flood insurance program. May be written only in communities FEMA has designated as participating communities in the NFIP.

Community becomes eligible if: Applies to federal insurance administration or FEMA determines that an area is flood-prone and notifies the community that it has one year to decide whether to join the NFIP.

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Community eligibility pt.2

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If a community identified as flood-prone does not wish to participate it has two options: Contest the designation as flood prone area - if successful, won't be covered under program but community is still eligible for federal aid if a flood occurs or choose not to participate - access to federal funds is limits.

Some states require NFIP participation as part of their floodplan management program. Community participation in the program is mandatory when required as part of a state's floodplan management program.

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Emergency program

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Once a community has submitted an application for flood insurance o the FIA, the FIA prepared a flood hazard boundary map. Map defines areas where people can buy coverages.

Because it will take some time to determine premiums so during initial phase of participation in program there is an emergency program that comes into place immediately.

When community first joins the NFIP property owners in flood hazard areas can purchase subsidized insurance, w/ lower limits, under the emergency program (temporary program in place until the numbers and actuarial calculations can be determined for the regular program). FIA then arranges for a detailed study of the community and its susceptibility to flood.

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Emergency program pt.2

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Under emergency program amount of coverage is based on the type of building or contents. Emergency premium rates only apply for certain types of property. Rates are uniform in all eligible communities until normal program kicks in. Maximum limits are $35,000 for a single-or two- to four-family dwelling and $10,000 for its contents.

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Regular program

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After emergency program completed the community is eventually promoted from emergency program to regular program. The conversion from the emergecny program to the regular program depends on the community's agreement to adopt flood-control and land-use restrictions. After FEMA completes its assessment of a community's flood-prone area, establishes an accurate FIRM (Flood Insurance Rate Map) and calculates actuarial rates. Maximum limits of coverage are $250,000 for a single or two to four family dwelling and $100,000 for its contents.

Community must enact and enforce floodplain management regulations.

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Flood insurance coverage

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Available flood insurance policies:

Dwelling form - used for any dwelling having an occupancy of no more than four families such as single-family homes, townhouses, row houses and individual condominium units. Residential Condominium building associations are eligible for coverage under the residential condominium building association form.

General property form - used for multi-residential and nonresidential.

Residential condominium building association form - covers condominiums.

These policies do not cover additional living expenses, rent, rental value or enforcement of ordinance or law. Generally just property damage due to flood.

Policies under the NFIP provide coverage for the dwelling on a replacement cost basis and coverage for contents under an ACV basis.

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Flood insurance coverage pt.2

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To avoid adverse selection, NFIP generally requires 30-day waiting period for new policies (could be an issue if you just bought new house in flood prone area so 30 day rule doesn't apply to new homes). Also required for endorsements that increase coverage on existing policies. Exception for insurance purchased in connection with a property purchase or an increased mortgage on a property.

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Write-you-own (WYO) program

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The WYO program allows private insurers to write flood insurance under the NFIP. Government-underwritten flood insurance.

Two mechanism to offer insurance: Producer writes business directly through the servicing representative designated by FIA. Producer places business with an insurer participating in FIA's WYO program (insurers participating in the WYO program issue majority of NFIP policies in force).

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Write-your-own (WYO) program pt.2

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In the WYO program, the FIA determines rates, coverage limitations and eligibility. Insurers receive an expense allowance for policies written and claims processed. Insurers collect premiums, retain commissions and use the remainder of the premiums to pay claims. If losses exceed the amounts an insurer holds to pay flood claims, the federal government makes up the difference.