2.1 Arkansas Homeowners Insurance

How Arkansas Writes Homeowners Coverage

Arkansas does not publish its own homeowners contract. Insurers file Insurance Services Office (ISO) forms with the Arkansas Insurance Department, then add state endorsements. On the Property & Casualty producer exam, roughly 100 of 125 scored questions cover this general national content and 25 cover the Arkansas state-specific section; you must reach 70% on each portion. So you must know the ISO forms cold, then layer Arkansas rules on top.

The Six Coverage Parts of an HO-3

The HO-3 Special Form is the most common policy. It insures Coverage A (Dwelling) and Coverage B (Other Structures) on an open-perils basis — covered unless excluded — and Coverage C (Personal Property) on a named-perils basis (16 listed perils).

Trap: Coverage C limits of 50% of A and Coverage D of 30% of A are the ISO HO-3 defaults — exam options that say "75%" or "20%" are distractors unless an endorsement raised them.

The 80% Replacement-Cost Rule

For a partial dwelling loss to be paid at full replacement cost, the insured must carry at least 80% of the full replacement cost at the time of loss. If they carry less, the loss is paid by the larger of (a) actual cash value or (b) this formula:

Payment = (Carried / (0.80 × Replacement Cost)) × Loss − Deductible

Worked example: A home costs $400,000 to rebuild. The owner carries only $240,000. Required = 0.80 × $400,000 = $320,000. A $40,000 kitchen fire pays: ($240,000 / $320,000) × $40,000 = 0.75 × $40,000 = $30,000, minus the deductible. The owner eats the $10,000 shortfall for under-insuring.

Standard Exclusions to Memorize

• Flood — surface water and rising water; buy a separate National Flood Insurance Program (NFIP) or private flood policy.
• Earth movement — earthquake, landslide, sinkhole; add by endorsement.
• Ordinance or law — extra cost to rebuild to current code; add Coverage by endorsement.
• Neglect, intentional acts, war, nuclear hazard, and wear/tear.

Exam Tip: When a scenario names a single peril, first ask whether the damaged item is the dwelling (open perils — covered unless excluded) or personal property (named perils — covered only if the peril is listed). A burst pipe damaging the structure is covered under A; mysterious disappearance of jewelry is not a named peril under C.

Arkansas Claims-Handling Rules (Rule and Regulation 43)

The Arkansas state section leans heavily on Rule and Regulation 43, Unfair Claims Settlement Practices. It sets minimum standards that, if violated with enough frequency to form a general business practice, become an unfair claims settlement practice. A single late letter is not a violation; a pattern is. Memorize these deadlines — they are favorite state-section items.

Note the working-days versus calendar-days distinction — exams love to swap them. Acknowledgment and the coverage decision run on working days; proof-of-loss forms and the recurring status letters run on calendar days. If acknowledgment is made by phone rather than in writing, the insurer must note and date the acknowledgment in the claim file.

Other Arkansas Consumer Protections

• Windstorm/hurricane disclosure: Percentage hurricane or named-storm deductibles must be disclosed clearly; the insured must be told how the percentage is applied (to Coverage A, not to the loss).
• Cancellation and nonrenewal: A homeowners policy in force beyond the initial 60 days can generally be canceled mid-term only for nonpayment, material misrepresentation, or a substantial change in risk. Nonrenewal requires advance written notice.
• Prompt-payment / interest: Once liability and amount are reasonably clear, the insurer must pay promptly; unreasonable delay can expose the insurer to a 12% penalty and attorney fees under Arkansas bad-faith and penalty statutes.

Putting It Together — A Scenario

A Little Rock homeowner reports straight-line wind damage on March 1. The insurer must acknowledge by roughly March 22 (15 working days), send proof-of-loss forms by March 21 (20 calendar days), and after receiving completed proofs either pay or deny within 15 working days. If the adjuster needs more time, a status letter goes out at day 45 and every 45 calendar days thereafter. Wind is a covered peril under the HO-3 open-perils dwelling coverage, so the analysis turns on the deductible and the deadlines, not on whether wind is covered.

Exam Tip: When a state-section question gives you a date and asks "by when must the insurer act," identify which Rule 43 deadline applies, then check working versus calendar days. That two-step is the most common Arkansas property trap.