2.2 Homeowners Policy Forms

The ISO Homeowners (HO) Forms

The Insurance Services Office (ISO) standardizes residential coverage into a family of homeowners (HO) forms. Each is a package combining Section I (property) and Section II (liability). The exam expects you to match each form to its occupant and its peril basis:

HO-3 is the workhorse policy most homeowners buy. HO-5 is the broadest — open-peril on contents too. HO-8 exists for older or historic homes whose replacement cost far exceeds market value; it modifies losses to functional/ACV terms to keep them insurable.

Section I — Property Coverages A through D

Section I insures the insured's property under four coverages:

• Coverage A — Dwelling: the house itself and structures attached to it (an attached garage). This is the primary limit; most other limits derive from it.
• Coverage B — Other Structures: detached structures — a separate garage, fence, or shed. The default limit is typically 10% of Coverage A, additional insurance.
• Coverage C — Personal Property (Contents): the insured's belongings, worldwide. The default limit is usually 50% of Coverage A (often adjustable). Contents are normally settled at ACV unless replacement cost on contents is endorsed.
• Coverage D — Loss of Use: additional living expenses (ALE) and fair rental value when the residence is uninhabitable after a covered loss. The default limit is commonly 30% of Coverage A (20% in some editions).

These percentage relationships are heavily tested. For renters (HO-4) and condo owners (HO-6), there is no Coverage A dwelling limit (the landlord or association owns the building), so the policy is built around Coverage C. The HO-6 does carry a small Coverage A limit (a default of $5,000, increasable) to insure improvements, alterations, and betterments the unit-owner installs and the interior fixtures the master condo policy leaves to the owner.

Understanding what the condo association's master policy covers versus what the unit-owner's HO-6 covers is a frequent exam scenario: the master policy insures the building shell and common areas, while the HO-6 picks up interior improvements, contents, loss of use, and the owner's personal liability.

Section II — Liability Coverages E and F

Section II protects the insured against claims by others:

• Coverage E — Personal Liability: defense and damages when the insured is legally liable for bodily injury or property damage to a third party (a guest slips on the steps; the insured's child breaks a neighbor's window). It pays on a per-occurrence basis, includes defense costs, and applies worldwide.
• Coverage F — Medical Payments to Others: small medical bills for an injured guest regardless of fault — a goodwill, no-liability-needed coverage that helps avoid larger suits. It does not cover the insured's own household members.

The key distinction: Coverage E requires legal liability, while Coverage F pays without regard to fault up to a modest per-person limit. Section II also bundles additional coverages such as claim expenses (defense costs, which are paid in addition to the liability limit), first aid expenses, damage to property of others (a small no-fault limit, commonly $1,000, for property the insured damages but is not legally liable for), and loss assessment for charges levied by a homeowners or condo association.

A standard minimum default limit for Coverage E is $100,000 per occurrence, and Coverage F is commonly $1,000 per person; both are routinely increased. Liability coverage applies to the insured and resident family members, and even to the acts of household pets, but it excludes business pursuits, intentional acts, and auto/aircraft/large-watercraft liability, which belong to other policies.

Perils, Exclusions, and Special Limits

The perils insured against track the form: HO-2 and HO-4/HO-6 are named-peril (the broad list — fire, lightning, windstorm, hail, explosion, riot, vehicles, smoke, vandalism, theft, falling objects, weight of ice/snow, accidental water discharge, freezing, electrical surge, volcanic eruption). HO-3 applies open-peril to the structure but the named list to contents; HO-5 is open-peril throughout.

All standard forms share major exclusions the exam loves:

• Flood (water from outside — must be bought separately, generally through the National Flood Insurance Program)
• Earthquake / earth movement (separate policy or endorsement; in California a separate earthquake policy)
• War, nuclear hazard, government action/seizure
• Ordinance or law (cost to rebuild to current codes)
• Wear and tear, deterioration, neglect, intentional loss, and insect/vermin damage (maintenance items)

Finally, special limits of liability cap recovery on theft-prone or high-value items even on an open-peril form:

Insureds who need more buy scheduled personal property (a personal articles floater) to insure valuables at agreed values without these caps.