chapter 12 other property and liability insurance coverages

Chapter 12

Other Property and Liability Insurance Coverages

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Agenda

• ISO Dwelling Program• Mobile Home Insurance• Inland Marine Floaters• Watercraft Insurance• Government Property Insurance Programs• Title Insurance• Personal Umbrella Policy


Homeowners Insurance Basics( Review of Chapter 20)

• Homeowners insurance forms, drafted by the Insurance Services Office (ISO) are widely used in the US– They are designed for the owner-occupants of

family dwellings– A policy can be used to cover the dwelling, other

structures, personal property, additional living expenses, personal liability claims, and medical payments to others

– Six forms are availables


Current Homeowners Policies (Chapter 20)

• HO-2 (broad form): covers the dwelling, other structures, and personal property on a named perils basis

• HO-3 (special form): covers the dwelling and other structures on a risk-of-direct-physical loss basis. – All direct physical losses are covered except

those losses specifically excluded.

– Personal property is covered on a named perils basis


Current Homeowners Policies

• HO-4 (contents broad form): covers a tenant’s personal property on a named perils basis

• HO-5 (comprehensive form): provides open perils coverage (“all-risks coverage”) on the dwelling, other structures and personal property. – All direct physical losses are covered except

those losses specifically excluded


Current Homeowners Policies

• HO-6 (unit owners form): covers personal property on a named perils basis. – A minimum of $5,000 of insurance is also

provided on the condominium unit that covers improvements and additions

• HO-8 (modified coverage form): designed for older homes. – Dwelling and other structures are based on the

amount required to repair or replace using common construction materials and methods


Analysis of the Homeowner Policy

• The following persons are considered “insureds”under the policy:– Named insured and spouse– Resident relatives– Other persons under age 21– Full-time student away from home


ISO Dwelling Program(Chapter 12)

• Some dwellings that are ineligible for coverage under the HO policy can be insured under an ISO dwelling policy– The forms are narrower in coverage – The forms do not include coverage for theft or

personal liability without appropriate endorsements


ISO Dwelling Program

• Dwelling Property 1 (Basic Form) provides coverages similar to the Homeowners Policy– Coverages A and B insure the dwelling and other

structures– Coverage C covers personal property– Coverage D covers the fair rental value if part of

the dwelling is rented – Coverage E can be added to provide coverage for

additional living expenses– Only a limited number of named perils apply to

both the dwelling and the personal property– All covered property losses are paid on an actual

cash value basis, with some exceptions


Basic forms covers only a limited number of perils that apply to both the dwelling and personal property.

• Fire and lightening• Internal explosion• Windstorm or hail• Explosion• Riot or civil commotion• Aircraft• Vehicles • Smoke• Volcanic eruption• Vandalism or malicious mischief


ISO Dwelling Program• Dwelling Property 2 (Broad Form) covers

losses to the dwelling and other structures on a replacement cost basis

– The broad form includes all of the perils listed in the basic

form plus the following additional perils:-Damage by burglars -Falling objects -Weight of ice, snow, or sleet - Accidental discharge or overflow of water or steam - Explosion of a steam or hot water heating system, an air

conditioning or automatic fire protective sprinkler , or an appliance for heating water

- Freezing of plumping , heating, air conditioning or automatic fire protective sprinkler system or household appliance.

- Sudden and accidental damage from an artificially generated electrical current

- Volcanic eruption


Dwelling Property 3 ( Special Form) covers the dwelling and other structures on an “all risks” or “open perils” basis

Endorsements to the dwelling form include:

Theft coverage can be written on a limited or broad basis by an endorsement. Personal liability supplement provides personal liability insurance similar to the liability coverage found in the homeowner policy.


Mobile Home Insurance

• Cost less than conventional housing.• Purchased as an alternative for families as

a vacation home or second home.• Under the ISO program, mobile home

insurance is written by adding an endorsement to an HO-2 or HO-3 policy– The mobile home must be at least 10 feet wide

and 40 feet long, and capable of being towed on its own chassis

• The coverages are similar to those found in a homeowners policy


Mobile Home Insurance– Coverage A covers the mobile home on a

replacement cost basis– Coverage B insures other structures and is 10

percent of coverage A, with a minimum limit of$2,000. Example, a shed damaged in a windstorm would be covered.

– Coverage C insures unscheduled personal property

– Coverage D insures for loss-of-use– An additional coverage pays up to $500 for the

cost incurred in transporting the mobile home to a safe place to avoid damage when it is endangered by a covered peril, such as a fire

– Coverages E and F provide for comprehensive personal liability insurance and medical payments to others


Inland Marine Floaters

• An inland marine floater provides broad coverage on property frequently moved from one location to another and on property used in transportation and communications– Coverage can be tailored to the specific type of

personal property to be insured

Example: Personal property such as jewelry , coins, or stamps can be insured under a personal articles floater.


Desired amounts of insurance can be selected.

Homeowners policy has several limits on personal property

Example: $200 limit on money and coins, a $1500 limit on stamp collections, and a $2500 limit for the theft of silverware or goldware.

Broader coverage can be obtainedExample: A personal articles floater insures against risks of direct physical loss to covered property( all direct physical losses except losses specifically excluded).

Most floaters cover insured property anywhere in the worldInland marine floaters are often written without a deductible


Inland Marine Floaters

• The personal articles floater (PAF) is an inland marine floater that provides comprehensive protection on valuable personal property– This coverage can be written as a stand-alone

contract– The PAF insures certain classes of personal

property on an “open perils” basis.– The classes of personal property that can be

covered include the following:– Jewelry– Furs


• Cameras• Musical instruments• Silverware• Golfer’s equipment• Fine arts• Stamp and coin collections

The coverage can also be added as a scheduled personal property endorsement to an HO policy


Watercraft Insurance

• A boatowners package policy combines physical damage insurance on the boat, medical expense insurance, liability insurance, and other coverages into one policy– Physical damage is covered on an “open perils”

basis– The insured is covered for property damage and

bodily injury liability arising out of negligent use of the boat

– The policy also includes medical expense coverage and may include uninsured boaters coverage


Watercraft Insurance

• Yacht insurance is designed for larger boats– Policies are not standard, but have many

common features– Hull coverage insures the yacht and its

equipment for property damage on an “all risks” or “open perils” basis

– The policy includes liability coverage, medical expense coverage, and uninsured boaters coverage


Government Property Insurance Programs

• Some government insurance programs are necessary because certain perils are difficult to insure privately– Coverage may not be available or may not be

affordable


National Flood Insurance Program

• The National Flood Insurance Program provides insurance coverage to property owners in flood-prone areas– Flood insurance is purchased from agents or

brokers who represent private insurers– Private insurers sell federal flood insurance under

their own names, collect the premiums, and receive an expense allowance

– The federal government is responsible for all underwriting losses

– The program is self-supporting for the average historical loss year

– In 2012, Congress acted to reform and extend the program for five years



– Federal law requires individuals to purchase flood insurance if they have federal guaranteed financing to build, buy, refinance, or repair structures located in special hazard flood areas

– Buildings and their contents can be covered by flood insurance if the community agrees to adopt and enforce sound flood control and land use measures

– A flood hazard boundary map shows the general areas of flood losses

– Residents can purchase limited amounts of insurance at subsidized rates under the emergency portion of the program



• A flood is defined in the Standard Flood Insurance Policy as:– A general and temporary condition of partial

or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from overflow of inland or tidal waters, from unusual and rapid accumulation or runoff of surface waters from any source, or from mudflow

• There is a 30-day waiting period for new applications and endorsements for flood coverage


Exhibit 24.1 Amount of Federal Flood Insurance under the Emergency and Regular Programs



• Flood insurance coverage is available in three Standard Policy Forms:– The Dwelling Form is used to insure one- to four-

family residential buildings and single family dwelling units in a condominium building

– The General Property Policy Form is used to insure five or more family residential buildings and non-residential buildings

– The Residential Condominium Building Association Policy Form is issued to residential condominium associations on behalf of association and unit owners


Exhibit 24.2 Summary of Property Covered under National Flood Insurance Program (NFIP)



• The federal flood insurance program faces several critical problems, for example:– The NFIP has a substantial deficit, largely due to

Hurricane Katrina in 2005– Many property owners do not pay premiums that

adequately reflect the risk of flooding– NFIP is required to insure multiple loss properties– Operational and management issues plague the

program



• The Biggert-Waters Act of 2012 extends the NFIP program through September of 2017

• Some key provisions of the Act include:– Rate subsidies on certain properties are phased

out over four years– Annual premium rate increases of up to 20

percent are allowed– A reserve fund is created to help fund claims in

years when catastrophic losses occur


FAIR Plans

• The Urban Property and Reinsurance Act of 1968 created FAIR plans (Fair Access to Insurance Requirements)– Plans provide coverage to urban property

owners who are unable to obtain coverage in the standard market

– Plans cover property for fire and extended-coverage perils, vandalism, and malicious mischief

– A building insured under a FAIR plan must meet certain underwriting standards

– A state with a FAIR plan creates a pool or syndicate of private insurers to provide basic property insurance


FAIR Plans

• FAIR plans have been established in 32 states and the District of Columbia

• Several states have beach and windstorm plans, where property is vulnerable to damage from severe windstorms and hurricanes

• Two states established insurance companies to write coverage– In 2012, Florida Citizens Property Insurance

Company insured 1.4 million policyholders


Title Insurance

• Title insurance protects the owner of property or the lender of money for the purchase of property against any unknown defects in the title to the property under consideration– If there is a defect in a title, the owner could lose

the property to someone with a superior claim– Examples of defects to the title include an

invalid will, incorrect description of the property, and undisclosed liens


Title Insurance

• A title insurance policy provides protection against title defects that have occurred in the past, prior to the effective date of the policy

• The insurer assumes no losses will occur• The premium is paid only once when the

policy is issued• The policy term runs indefinitely into the

future• If a loss occurs, the insured is indemnified in

dollar amounts up to the policy limits (usually the purchase price of the property)


Title Insurance

• Consumer advocates argue that the title insurance market has several major defects, including:– Homeowners do not shop around for title

insurance– Home buyers are over-charged for title insurance– The title insurance market is flawed by reverse

competition– Kickbacks to real estate agents, lenders, and

builders are widespread


Personal Umbrella Policy

• The personal umbrella policy provides protection against a catastrophic lawsuit or judgment– Excess liability insurance is provided in amounts

from $1–$10 million– Certain minimum amounts of liability insurance

must be carried on the underlying contracts– Coverage is broad and includes protection

against certain losses not covered by the underlying contracts

– A self-insured retention must be satisfied for losses covered by the umbrella policy but not by any underlying contract


Exhibit 24.3 Typical Underlying Coverage Amounts Required to Qualify for a Personal Umbrella Policy


Personal Umbrella Policy

• Insurers can use a standard Personal Umbrella Policy developed by the ISO– The policy pays for damages in excess of the

retained limit for bodily injury, property damage, or personal injury for which the insured is legally liable

– The policy covers some additional expenses including legal defense costs

– Exclusions include liability for expected or intentional injury, certain personal injury losses, business liability, and professional services

chapter 12 other property and liability insurance coverages

Documents

pearson education

personal property coverage

tenants personal property

ho policy

named perils basis slide

homeowners insurance

modified coverage form

named perils basis ho