And you thought selling Homeowners Insurance was simple! OCTOBER 2015 PRESENTED BY: SHARON A....

And you thought selling Homeowners

Insurance was simple!

OCTOBER 2015

PRESENTED BY: SHARON A. KOCHES, CPCU, RPLU, AAI, AU, ITP

Acknowledgements and permissions:

Used with permission of:

Bill Wilson, CPCU, ARM, AIM, AAMDirector of Virtual University, IIABA

ISO Files Most Important Homeowners Change in 40 Years

“Unclear and Inconspicuous…The Potentially Catastrophic ‘Where’s Waldo’® Homeowners ‘Exclusion’ You Didn’t Know Existed But Could Cause You To Lose Your Home!”

Insureds unexpectedly confined to nursing homes. Forced relocations. Foreclosures. Temporary rentals. Home purchases for children or parents. Allowing a homebuyer to move in before the closing. Renovations and remodeling. These are all situations where adjusters have denied claims and some courts have upheld these denials. What’s the problem and solution?

Background

• March 2001"Rent Your Home, Void Your Insurance Policy?“

• June 2005Big “I” Technical Affairs Committee

• October – December 2009“Where You Reside” white paper and webinar

• November 2014ISO/IIABA resolution

• October 2015New mandatory and optional HO endorsements effective in most states

ISO HO-3 Coverage A

• 1976 Insuring Agreement“This policy covers the described dwelling building, including additions in contact therewith, occupied primarily as a private residence.”

• 1984, 1991, 2000, 2011 Insuring Agreement“We cover…The dwelling on the ‘residence premises’ shown in the Declarations….”

Definitions…“‘Residence premises’ means…The one family dwelling where ‘you’ reside….”

Exposure Scenarios

• Nursing homes• Relocations• Foreclosures• Rentals• Child occupies parents’

home• Parent occupies child’s

home• Divorce• Illness of insured• Death of insured

• Trusts• Unoccupancy• Vacancy• Military deployment• Seller moves out before

closing, and/or…• Buyer moves in before

closing• Homes owned by LLCs• Renovations and homes

under construction

Case Law

NO COVERAGE• Bryan v. United States Fire Ins. Co. (Texas,

1970)• Fisher v. Indiana Lumbermens Mutual Ins.

Co. (Texas, 1972)• Doyle v. Members Mutual Ins. Co. (Texas,

1984)• Epps v. Nicholson (Georgia, 1988)• Shepard v. Keystone (Maryland 1990)• Nancarrow v. Aetna Casualty & Surety Co.

(Arkansas, 1991)• Georgia Farm Bureau Mutual Ins. co. v.

Kephart (Georgia, 1993)• Heniser v. Frankenmuth Mutual Ins. Co.

(Michigan, 1995)• Ivanov v. Phenix Mutual Ins. Co. (Maine,

2007, remanded 2008)• Schuchman v. State Auto Prop. & Cas. Ins.

Co. (Illinois, 2012)• Null v. Auto-Owners ins. Co. (Michigan,

2013)

COVERAGE• O'Neil v. Buffalo Fire Ins. Co. (New York,

1849)• Joyce v. Maine Ins. Co. (Maine, 1858)• German Ins. Co. v. Russell (Kansas, 1902)• Reid v. Hardware Mutual Ins. Co. (South

Carolina, 1969)• Insurance Co. of North America v. Howard

(Oregon, 1982)• Farmers Ins. Co. v. Trutanick (Oregon,

1993)• FBS Mortgage Corporation v. State Farm

(Illinois, 1993)• Hill v. Nationwide Mutual Fire Ins. Co.

(Georgia, 1994)• Lunquist v. Allstate Ins. Co. (Illinois, 2000)• Dean v. Tower (New York, 2014)

Claims Experience

• Total loss while insured was in a nursing home (KY)• $100,000+ condo rental claim (FL)• 5-figure loss while home was being remodeled (AZ)• $186,000 renovation claim (GA)• $150,000 ten-month house rental (FL)• $135,000 four-year house rental (FL)• $123,000 two-year house rental (FL)• $300,000 “nonclaim” with daughter occupancy (NY)• $229,000 total loss with niece occupancy (MN)• Small fire loss (NC)• Fire loss with daughter’s temporary occupancy (PA)• Fire loss while house was undergoing renovation (RI)

Reasons FOR Coverage

• “Where you reside” are words of description, not a warranty of occupancy or a condition of coverage

• Hidden “exclusion” (unlike HO Section II)• Reasonable expectation principle• Eligibility vs. coverage• Precedents• PLRB• Tornados and meth labs• “Onerousness”

Proposed Solutions

• Remove “where you reside” language and rely on underwriting

• Nonresidency penalties• Grace period• Nonresidency endorsement• Education• Regulatory or legislative directive

ISO Solution

• Forms Filing HO-2015-ORPFR

– HO 06 48 10 15 – Residence Premises Definition Endorsement– HO 06 49 10 15 – Broadened Residence Premises Definition Endorsement

– HO 17 48 10 15 – Residence Premises Definition Endorsement – Unit Owners– HO 17 47 10 15 – Broadened Premises Definition Endorsement – Unit Owners

– MH 04 26 10 15 – Residence Premises Definition Endorsement – Mobilehome– MH 04 27 10 15 – Broadened Residence Premises Definition Endorsement –

Mobilehome

• Rules Filing HO-2015-RRPRU– Primarily address use of “Broadened” endorsements

during “temporary” nonresidency periods– Endorsements are premium bearing

HO 06 48 Mandatory Endorsement

HO 06 49 Optional Endorsement

Caveats

• Notice and education– Insurer and agency communications to insureds– HO N 009 10 15 – Residence Premises Questionnaire– ACORD forms

• Delays between closing and residency– Underwriting discretion– HO 06 49 “broadening” endorsement

• Renewal processing gap• Homes under construction

Next Steps…

• Continued education• Adoption of the “broadening” endorsement

eliminating the “where you reside” language

For more information…

Original White Paper and Webinar:http://tinyurl.com/WhereYouResideOriginal

2015 Article:http://tinyurl.com/WhereYouReside2015

Questions?Email [email protected]

Subscribe to the VU newsletter:http://tinyurl.com/VUnewsletter

http://tinyurl.com/WhereYouResideOriginal

http://tinyurl.com/WhereYouReside2015

mailto:[email protected]

http://tinyurl.com/VUnewsletter

Ownership Considerations

Trusts

Condominiums

Homeowner Associations

Trusts

Insurable Interest where the residence is owned by a Trust: One or more grantors who conveyed the property into

the trust Beneficiaries who receive benefits from the trust, such as

occupying the entrusted property Trustee, who has fiduciary responsibility

* IMPORTANT: Understand all the parties to a trust arrangement, and whether they fit into the definitions of the Homeowners Policy

HO 05 43 - Residence Held in Trust

Condominiums

What is the responsibility of the Unit Owner?

Coverage A – Structural Coverage – Legal Responsibility

Loss Assessment Coverage

Condominiums

HO 00 06 HO 00 06 Coverage A – Dwellinga. The alterations, appliances, fixtures and

improvements which are part of the building contained within the “residence premises”;

b. Items of real property which pertain exclusively to the “residence premises”;

c. Property which is your insurance responsibility under a corporation or association of property owners agreement; or

d. Structures owned solely by you, other than the “residence premises” , at the location of the “residence premises”.

Condominiums

HO 00 06 HO 00 06 Loss Assessment

Section I Property Coverages

Section II Liability Coverages

Up to $1,000. for your share of loss assessment

$1,000. most we will pay with respect to any one loss regardless of the number of assessmentsAs owner or tenant of “residence premises”By corporation or association of property owners“Does not cover assessments by any governmental body

Condominiums

HO 00 06 Section I – Property Coverages HO 00 06 Section I – Property Coverages

Coverage A – Dwelling – Loss Assessment

“as a result of a direct loss to property, owned by all members collectively, of the type that would be covered”

… other than Earthquake; or Land shock waves or tremors before during or after a volcanic

eruption

Condominiums

HO 00 06 Section II – Liability Additional HO 00 06 Section II – Liability Additional CoveragesCoverages

As a result of:

a. BI or PD not excluded

b. Liability for an act of a director, officer or trustee in the capacity as a director, officer or trustee, provided such person:

(1) is elected by the members of a corporation or association of property owners; and

(2) Serves without deriving any income from the exercise of duties which are solely on behalf of…..

Homeowners Associations

HO 00 03 Loss Assessment - Liability

$1,000. for your share of loss assessment charged against you , as owner or tenant of “residence premises” during policy period by a corporation or association of property owners, when the assessment is made as a result of:

a.BI or PD not excluded from coverage

b.Liability for an act of a director, officer or trustee in the capacity as a director, officer or trustee, provided such person …

Elected and Serves without deriving income

Loss Assessment

HO 04 35 Supplemental Loss Assessment

Can increase coverage up to $50,000

Property and Liability

Miscellaneous Coverage Issues

Home BusinessFoster CareHost LiquorAccidental OverflowOther

Home BusinessHome Business

“Business” Activities

Section I – Property Coverages

Coverage B – Other Structures

Coverage C – Personal Property

Section II – Liability


Definitions

B. 3. “Business” means:

a. A trade, profession or occupation engaged in on a full time, part-time

or occasional basis; or


b. Any other activity engaged in for money or other compensation, EXCEPTEXCEPT the following:

(1) One or more activities, not described in (2) through (4) below, for which no “insured”

receives more that $2,000. in total compensation for the 12 months before the beginning of the policy period;

(2) Volunteer activities for which no money is received other than payment for expenses incurred to perform the activity;


(3) Providing home day care services for which NO compensation is received , other than the mutual exchange of such services; or

(4) The rendering of home day care services to a relative of an “insured”.


Section I - Coverage B – Other Structures

2. We do not cover:

c. Other structures from which any “business” is conducted; or

d. Other structures used to store “business” property. However we do cover a structure that

contains “business” property solely owned by an “insured” or a tenant of the dwelling, provided that “business” property does not include gaseous or liquid fuel, other than fuel in a permanently installed fuel tankof a vehicle or craft parked or stored in the structure.

Home BusinessHome BusinessSection I - Coverage C – Personal Property

3. Special Limits of Liability:

h. $2,500. on property on the “residence premises”, used primarily for “business” purposes.

g. $1,500. on property away from “residence premises”, used primarily for “business” purposes.

However, this limit does not apply to antennas, tapes, wires, records, disks or other media that are:

(1) used with electronic equipment that reproduces, receives or transmits audio, visual or

data signals;


Coverage C – Personal Property

4.Property not covered:

f. Property of roomers, boarders and other tenants, except property of roomers and

boarders related to the “insured”;

g. Property in an apartment regularly rented or held for rental to others by an “insured”

except as provided in E.10. Landlord’s furnishings under Section I – Property

Coverage;

Home BusinessHome BusinessProperty not covered: (continued)

i. “Business” data, including such data stored in:

(1) Books of account, drawings or other paper records; or

(2) Computers and related equipment.

We do cover the cost of blank recording or storage media and of prerecorded computer

programs available on the retail market;

j. Credit cards, electronic fund transfer cards or access devices used solely for deposit, withdrawal or transfer of funds except as provided in E.6.


Property not covered: (continued)

j.Credit cards, electronic fund transfer cards or access devices used solely for deposit, withdrawal or transfer of funds except as provided in E.6. Credit Card, Electronic Fund Transfer Card Or Access Device, Forgery And Counterfeit Money under Section I – Property Coverages; or

Home BusinessHome BusinessHO 04 40 – Structures Rented to Others –

Residence Premise

HO 04 42 - Permitted Incidental Occupancies – Residence Premise

HO 04 97 - Home Day Care Coverage Endorsement

HO 04 12 – Increased Limits on Business Property

HO 05 46 – Increased Limits on Landlord Furnishing (Theft Excluded)

HO 07 01 Home Business Insurance Coverage


Section II – Liability

Coverage E – Personal Liability

Coverage F – Medical Payments to Others

Section II - Exclusions –

2. “Business”

a. “Bodily Injury” or “property damage” arising out of or in connection with a “business”

conducted from an “insured location” or engaged in by “insured”, whether or not

the “business” is owned or operated by an “insured” or employs an “insured”.


2. “Business” (Exclusions – continued)

This Exclusion E.2. applies but is not limited to an act or omission, regardless of its nature or circumstance , involving a service or duty rendered, promised, owed or implied to be provided because of the nature of the “business”.


b. This Exclusion E.2. does not apply to:

(1) The rental or holding for rental of an “insured location”,

(a) On an occasional basis if used only as a residence;

(b) In part for use only as a residence, unless a single-family unit is intended for use by the occupying family to lodge more than two roomers or boarders; or

(c) In part, as an office, school or studio or private garage; and


b. (2) An “insured” under the age of 21 years involved in a part-time or occasional, self- employed “business” with no employees.


Endorsements ALSO Afford Liability:

HO 04 40 – Structures Rented to Others – Residence Premise

HO 04 42 - Permitted Incidental Occupancies – Residence Premise

Liability only:

HO 24 71 – Business Pursuits

Foster Care

Homeowners Policy defines an “insured” to be anyone under the age of 21 and in the care of the named insured or resident relative.

Property – any property of any “insured” is covered on the same terms as the property of “you” or any other resident relative.

Liability – several exclusions could eliminate liability for a foster parent –

“insured vs. insured” exclusion. Assuming the validity of the exclusion, a suit brought by a foster child against the foster parent or other member of the foster parent’s household would be excluded

Host Liquor

HO 2000 and 2011 editions of HO 00 03 form

Expanded the Auto Liability Exclusion

Accidental Overflow

Backup of a sanitary sewer system maintained by a municipality off the residence premises because the system is clogged, broken or at capacity.

Endorsement HO 04 95 Water Back-Up and Sump Discharge or Overflow Coverage Originates from within the dwelling Clarifies Power Failure Exclusion with regard to Sump Pump

does not apply

Other

HO 05 27 Additional Insured -

Student Living Away from the Residence Premise

HO 04 50 Personal Property at Other Residence

Students away at school increased coverage

HO 04 59 Assisted Living Care Coverage

Property and Liability with special limits of liability

HO 04 58 Other members of your Household

Resources

Virtual University

Ask an Expert

IRMI

And you thought selling Homeowners Insurance was simple! OCTOBER 2015 PRESENTED BY: SHARON A....

Documents

Transcript of And you thought selling Homeowners Insurance was simple! OCTOBER 2015 PRESENTED BY: SHARON A....