HOMEOWNERS POLCIES

A One Hundred Dollar Bill

Although the original idea of fire insurance came from the Great Fire of London in 1666, it is the American version that is the most fascinating.

A vast majority of policies for insuring jewelry are connected to Fire Insurance (also called Homeowners Insurance). How did this come about? Ben Franklin, an American historical figure, in 1751 meet with others and formed a fire insurance company.¹ He had prior to that event formed one of the first volunteer firefighting companies in America in 1736 - a private fire department.² Thus Fire Insurance and Homeowners policies are the one and the same.

And a precedence setting court case reveals that "replacement cost minus normal depreciation," specifically applies to insurance and was first used in 1853.³

First Policies to Learn

A first breakdown of policy type begins with Commercial and Personal Lines.⁴

Commercial Lines - insurance for businesses or individuals which cover commercial property or business activities.

Personal Lines - insurance for non-business purposes.

There are numerous types of insurance policies available. However, as an appraiser, it is important to concentrate on just a few and understand them - starting with the commonplace Homeowners Policy.

Homeowner's Policies - really it is a Fire Insurance Policy for real property that has evolved to encompass personal property associated with the real property. Several states have insurance codes for Homeowners Policies - often called Fire Insurance Policies. The terms are synonymous.

"Homeowners Insurance Policy package policy that combines (1) coverage against the insured's property being destroyed or damaged by various perils, and (2) coverage for liability exposure of the insured. Homeowners policies cover both individuals as well as property. In addition to the insured, those covered include his/her spouse, their relatives, and any others under 21 who are residents of the insured's household.."⁵

Several types of Homeowners Policies exist. Here is an outline of the various types and what they cover.

HO-1 (Basic or Standard Form)

It is the most basic policy. It insures both real and personal property against (usually) eleven perils:

1. Fire or lightning,
2. Windstorm or hail,
3. Explosion,
4. Riot or civil disturbance,
5. Damage from an aircraft,
6. Damage from vehicles (others),
7. Smoke damage,
8. Vandalism or malicious mischief,
9. Theft,
10. Glass breakage (windows), and
11. Volcanic eruption.

HO-2 (Broad Form)

It is also called the "Broad Form" policy.

Coverage exists for both real and personal property, against the same eleven perils that the HO-1 covers, but usually an additional six:

1. Falling objects,
2. Weight of snow, ice, or sleet,
3. Freezing of plumbing, heating, or air conditioning systems,
4. Accidental discharge or overflow of water or steam from a plumbing heating, or air conditioning system,
5. Sudden and accidental discharge from an artificially generated electric current,
6. Sudden and accidental tearing apart, cracking, burning, or bulging of a heating, air conditioning, or sprinkler system.

HO-3 (Special Form)

It is also called the Special Form.

The most often purchased homeowners policy, which includes all-risk coverage.⁶ It has two exceptions to peril coverage, namely:

1. Earth movement, and
2. Water damage.

This is the reason for most homeowners policies having to add earthquake and flood insurance to have adequate coverage. This applies to both real and personal property.

Personal property is only covered against named perils and is not all-risk. Except for glass breakage, only if a casualty loss or damage occurs within one of the seventeen perils listed for HO-1 and HO-2 can one collect.

HO-4 (Contents Broad Form)

It is also called Renter's or Contents Broad Form.

Perils listed for HO-1 and HO-2 are not covered for real property, but only for personal property.

The owner of the real property assumes responsibility for coverage of the real property - called Rental Insurance (also called Rental Dwelling) - It covers loss of rent as well as real property that is rented from:

1. Fire,
2. Malicious mischief,
3. Vandalism and
4. Windstorm.

HO-5 (Comprehensive Form)

This policy is called the Comprehensive Form.

It provides coverage with all seventeen perils listed for HO-1 and HO-2 for both real and personal property. It also includes two perils, earth movement and water (flood).

HO-6 Condominium Unit Owner's Form

This policy is often referred to as Condominium Unit Owner's Form.

It has coverage for all seventeen perils in HO-1 and HO-2 policies but for personal property only. The association usually carries insurance on the dwellings and common areas, which the HO-6 does not provide.

Within the Homeowners Policies are commonplace sections that detail types of property. The one that covers personal property is Coverage C. They are:

Coverage A - " . . . the structure of the home."⁷
Coverage B - " . . . structures not attached to or part of the house . . ."⁸
Coverage C - " . . . contents or personal property . . ."⁹
Coverage D - " . . . coverage if the home is damaged or destroyed and the
                                  insured must seek temporary lodging."¹⁰
Coverage E - " . . . coverage in the event a suit is brought against the insured because of bodily injury
                                  and/or property damage resulting from the acts or non-acts of the insured."¹¹
Coverage F - " . . . coverage for reimbursement of reasonable medical expenses . . ."¹²
Coverage G - Like Coverage F - reimbursement for medical expenses.

Homeowners Policies usually:

1. Cover the home and its contents (see above under each type).
2. Cover the loss of "use" of one's home.
3. Protects insured from lawsuits filed by third parties concerning the insured property.

Exclusions exist. Usually excluded from coverage are:

1. Commercial articles,
2. Rental Property (rented TV for example),
3. Outdoor appliances (awnings for example),
4. Renter's property,
5. Personal property lost from an unlocked car,
6. Scheduled property,
7. Outside help (gardeners, for example),
8. Pets,
9. Property under construction,
10. Property being moved,
11. Property temporarily stored elsewhere,¹³
12. High risk areas,¹⁴
13. Injury to others by a motor vehicle,
14. Liability coverage for failure to render professional services,
15. Damages from floods or mud slides,
16. Earthquakes,
17. Nuclear radiation,
18. Subsequent damage after an initial loss,
19. Loss from power failure.

This chart illustrates the coverage type by policy class. See the Key and Perils below:

KEY:

R   = Real Property coverage
PP = Personal Property coverage

Perils

1. Fire or lightning.
2. Windstorm or hail.
3. Explosion.
4. Riot or civil disturbance.
5. Damage from an aircraft.
6. Damage from vehicles (others).
7. Smoke damage.
8. Vandalism or malicious mischief.
9. Theft.
10. Glass breakage (windows).
11. Volcanic eruption.
12. Falling objects.
13. Weight of snow, ice, or sleet.
14. Freezing of plumbing, heating, or air conditioning systems. Accidental discharge of overflow of water or steam from a plumbing heating, or air conditioning system.
15. Sudden and accidental discharge from an artificially generated electric current.
16. Sudden and accidental tearing apart, cracking, burning, or bulging of a heating, air conditioning, or sprinkler system.
17. Earth Movement.
18. Flood.

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<sup>1. Called the Philadelphia Contributionship.    Back to Text ↑ ↑ ↑
2. Called the Union Fire Company.    Back to Text ↑ ↑ ↑
3. 359 Wis.2d 179, 2014 WI App 125, 857 N.W.2d 896, footnote 7.    Back to Text ↑ ↑ ↑
4. Under Personal Lines exists Homeowners Policies.    Back to Text ↑ ↑ ↑
5. Barron's Dictionary of Insurance Terms, page 133.    Back to Text ↑ ↑ ↑
6. Not a true all-risk but rather a "most-risk" policy. The use of the terminology "all-risk" is being replaced with "risks of direct physical loss" due to numerous court decisions favoring insured.    Back to Text ↑ ↑ ↑
7. Barron's Dictionary of Insurance Terms, page 133.    Back to Text ↑ ↑ ↑
8. Ibid, page 133.    Back to Text ↑ ↑ ↑
9. Ibid, page 134.    Back to Text ↑ ↑ ↑
10. Ibid, page 134.    Back to Text ↑ ↑ ↑
11. Ibid, page 135.    Back to Text ↑ ↑ ↑
12. Ibid, page 135.    Back to Text ↑ ↑ ↑
13. This is not limited to storage facilities. For example, a daughter may come home and have her jewelry stolen. Because the jewelry was not stolen from the dormitory, she may not be covered.    Back to Text ↑ ↑ ↑
14. Either by exclusion or limiting cover to 10%. Special theft insurance would be necessary.    Back to Text ↑ ↑ ↑
15. Illustrations - Istockphoto.com.</sup>