Perils Covered Under HO-2

Form HO-2 is known as the broad form.

The broad form insures the dwelling, other structures and personal property against loss by these 16 perils:

•   fire or lightning;

•   wind;

•   explosion;

•   riot or civil commotion;

•   aircraft (e.g., if a plane crash lands on the insured’s house);

•   vehicles (but not vehicle damage caused by any vehicle owned or operated by any resident of the insured premises);

•   smoke damage

•   vandalism or malicious mischief (known as VMM), but not if the dwelling has been vacant for 60 consecutive days or more;

•   theft

•   volcanic eruption—excluding losses caused by earthquake, land shock waves or tremors.

•   damage caused by falling objects (but damage to a building’s interior or its contents is covered only if the falling object first damages the roof or an exterior wall);

•   damage to a building or its contents caused by weight of ice, snow or sleet

•   accidental discharge or overflow of water or steam from a plumbing, heating or air conditioning system, or an automatic fire protection sprinkler system, or from a household appliance

•   sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system, an air conditioning system, an automatic fire protection sprinkler system or an appliance for heating water;

•   freezing of a plumbing, heating or air conditioning system, or an automatic fire protection sprinkler system, or of a household appliance (this coverage also is suspended whenever the home is vacant, unoccupied or being constructed, unless reasonable care was taken to maintain heat in the building, or to shut off the water supply and drain systems and appliances); and

•   sudden and accidental damage from artificially generated electrical current

Under an HO-2 policy, loss of use coverage is 20 percent of the amount of dwelling coverage purchased. However, indirect losses—as in the case of lightning shorting out the insured’s VCR or computer are not covered.

Perils Covered Under HO-3

HO-3 is called the special form and it is the most often purchased policy form. It typically costs 10 percent to 15 percent more than the HO-2 policy.

Instead of naming the perils that are covered, the HO-3 form names the perils that aren’t covered. Of course, this is still a long list, because insurance companies like to be very specific about what they will and will not pay for. This protects them in the event the insured sues for coverage.

While structures are insured for open perils under an all-risk policy, personal property is insured on a named-perils basis. This policy insures personal property against loss by all of the perils included on the broad form, HO-2—and expands the coverage a bit—the insured can also endorse it to special form. HO-3 also covers vehicle damage to a fence, driveway or walk—even when it is caused by a resident. And HO-3 also does not suspend coverage for personal property from certain perils, as HO-2 does, whenever the insured’s home has been vacant for 60 or more consecutive days—which is important if the insured travel for extended periods of time. (However, coverage for the dwelling and other structures is still excluded after 60 days of vacancy.)

 

California Residential Property Insurance Disclosure Statement

CIC 10101 and CIC 10102

No policy of residential property insurance may be first issued or, with respect to policies already

in effect on January 1, 1994, initially renewed in this state by any insurer unless the named insured is provided a copy of the California Residential Property Insurance disclosure statement as contained in Section 10102. 

(a)The disclosure required by Section 10101 shall be in no less than 10-point typeface and shall be provided prior to or concurrent with, the application for a policy of residential property insurance. In the event that an application is made by telephone, an insurer that mails a copy of the disclosure within three business days shall be in compliance with this section. For policies issued on or after July 1, 1993, the agent or insurer shall obtain the applicant's signature acknowledging receipt of the disclosure form within 60 days of the date of the application. When the insurer or agent establishes delivery of the disclosure form by obtaining the signature of the applicant or insured, or when an insurer or agent provides the applicant with the disclosure form and the applicant does not return a signed acknowledgment of receipt within 60 days of the date it was provided, there shall be a conclusive presumption that the insurer or agent has complied with the disclosure requirement of this chapter. The insurer or agent shall have the burden of demonstrating in accordance with California Rules of Evidence that the disclosure was provided to the applicant or insured. A signature shall not be required at the time of renewal.

If the disclosure is mailed to the named insured or applicant, it shall be mailed to the mailing address shown on the policy of residential property insurance or to the address requested by the applicant. First-class mail shall be deemed adequate for proof of mailing. The insurer shall have the burden of demonstrating in accordance with California Rules of Evidence that the disclosure was mailed to the applicant or insured.

The disclosure shall contain the following language:

CALIFORNIA RESIDENTIAL PROPERTY INSURANCE DISCLOSURE

This disclosure is required by California law (Section 10102 of the Insurance Code). It describes the principal forms of insurance coverage in California for residential dwellings. It also identifies the form of dwelling coverage you have purchased or selected.

This disclosure form contains only a general description of coverages and is not part of your residential property insurance policy. Only the specific provisions of your policy will determine whether a particular loss is covered and, if so, the amount payable. Regardless of which type of coverage you purchase, your policy may exclude or limit certain risks.

READ YOUR POLICY CAREFULLY. If you do not understand any part of it or have questions about what it covers, contact your insurance agent or company. You may also call the California Department of Insurance consumer information line at: 1-800-927-4357.

The cost to rebuild your home may be very different from the market value of your home since reconstruction is based primarily on the cost of labor and materials. Many factors can affect the cost to rebuild your home, including the size of your home, the type of construction, and any unique features. Please review the following coverages carefully. If you have questions regarding the level of coverage in your policy, please contact your insurance agent or company. Additional coverage may be available for an additional premium.

The Disclosure describes the principal forms of insurance coverage in California for residential dwellings and the form of dwelling coverage purchased. The form contains only a general description of coverage and is not a part of the residential policy. The disclosure must address the following:

 

Guarantee and Extended Replacement Cost Options – Guaranteed replacement cost policy or endorsement stipulates that should a building need to be replaced due to an insured loss, the insurer will replace it with like kind and quality, without consideration for depreciation and regardless of the policy limit in force at the time of loss.

 

Extended  Replacement Cost Coverage- pays the cost to replace the home or possessions with new items that are similar in kind and quality to the ones lost. It provides an extra cushion of insurance, usually 20-50%.

Normally for guaranteed and extended replacement cost coverage to apply at the time of loss the insured must have complied with each of the following conditions:

Insured agrees to insure the dwelling at the full (100%) of replacement value in accordance with property valuations made by the insurer

Insured agrees to accept whatever annual increases in value the insurer may deem necessary to keep coverage at 100% of replacement cost

The cost of these items is not included when measuring compliance with insurance to value requirement (coinsurance) and would have to be paid by the insured   

Cost of excavation

Underground flues, pipes, wiring and drains, and

Foundations, piers and other supports below the lowest basement floor or below the surface of the ground inside the foundation walls.

Insured must notify the insurer within 60 days of any inaccuracy or change in any information regarding the physical characteristics of the dwelling. 

Insured must notify the insurer within 60 days of the start of any physical changes which will increase the replacement cost of the dwelling $5000 or more.  This includes remodeling, renovating, additions, improvements, or alterations

Insured must actually, repair, rebuild, or replace the dwelling

Ordinance and Law Coverage – Building codes are updated periodically and may have changed significantly since a home was built.  If a home is badly damaged, the insured may be required to rebuild the home to meet new building codes.  Homeowner’s policies, even those with Guaranteed Replacement will not pay for the extra expense of rebuilding to code.  The ordinance and law exclusion found in these policies eliminates coverage for any loss resulting from any ordinance or law which regulates construction, demolition, remodeling, renovation or repair to of property including removal of debris.  Such as installing required fire sprinklers, non-combustible doors, larger size piping, electrical updating, etc.  Many insurers offer an Ordinance or law endorsement that pays a specific amount toward these costs.

The ordinance and law exclusion precludes payment for the following due to enforcement of building codes which would create a gap (more out of pocket expense for the insured).

            The value of the undamaged portion

            The cost to demolish the undamaged portion and remove the resulting debris

            The increase cost to reconstruct under new building codes

In California, insurers are required to give the insured 10% of ordinance and law coverage as an additional coverage.  The insured can endorse their policy to increase this amount up to 50% of Coverage A (dwelling) for an additional premium.  This is especially important when the home was built 20 or more years ago.

Additional Coverages

HO-3 provides the most complete coverage for the insured’s home and other structures. In addition to what is covered under an HO-2 policy, an HO-3 policy covers:

•   removal of debris from covered property if the debris was caused by a covered peril (for instance, if the insured’s house burns down and the debris needs to be removed before the insured can rebuild);

•   reasonable repairs to protect the insured’s home from further damage (this would include covering a hole in the roof, so rain or snow can’t come in and cause further damage);

•   trees, shrubs and other plants for up to 5 percent of the amount of dwelling coverage—though no more than $500 can be spent on any single tree, shrub or bush;

•   up to $500 for any charges the fire department bills the insured for being called to the insured’s home;

•   damage that occurs while the insured try to remove the insured’s personal items when the insured’s home has been damaged by an insured peril;

•   up to $500 if the insured’s credit card, fund transfer card, etc., is stolen and used and the card’s issuer wants the insured to pay the outstanding debt;

•   up to $1,000 for the insured’s share of loss assessments charged to the insured by a homeowners’ association or corporation; and

•   property lost due to the collapse of either all or part of the building, as long as the collapse is caused by perils insured against under HO-2 or due to hidden decay; hidden insect or vermin damage; weight of contents, equipment, animals or people; weight of rain that collects on the roof; or use of defective material or methods in construction, remodeling or renovation (as long as the collapse occurs during the construction, remodeling or renovation).

• Glass or Safety Glazing Material subject to the policy limit (not an additional amount of insurance)

• Landlord’s Furnishings if the owner of the house is also an occupant, but rents a portion of the house to others up to $2500 per loss in each unit (not an additional amount of insurance)

• up to 10% of Coverage A as an additional amount of insurance which allows for the increased cost to repair or rebuild to comply with building Ordinances or Laws that are new since the original structure was build
• up to $5,000 (not an additional amount of insurance) for grave markers

Increased Construction Costs due to Catastrophic events:  After a catastrophic loss , the cost to rebuild can increase dramatically for many reasons, shortages of raw materials, shortages of local labor, and difficulty shipping into a disaster area are some of the reasons that contribute to increased costs of construction.   This may result in a problem for an insured in that the cost to rebuild may exceed the limits of insurance in their policy.  To help avoid such problems, an insured may purchase extended replacement cost coverage