2.2 Homeowners Policy Forms (HO-2, HO-3, HO-4, HO-5, HO-6, HO-8)

Homeowners Policy Forms (HO-2, HO-3, HO-4, HO-5, HO-6, HO-8)

Quick Summary: The ISO Homeowners program is a comprehensive multi-line package policy designed for private residential living. It combines Section I (Property Coverages) and Section II (Liability Coverages) into a single contract. While Section II liability coverages are identical across all forms, Section I varies significantly in peril design and structural valuation across forms HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8.

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Architecture of the Homeowners Multi-Line Package Policy

Introduced to eliminate the need for homeowners to purchase separate fire, casualty, theft, and liability policies, the Homeowners Policy is structured around two distinct operational divisions:

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|                    HOMEOWNERS POLICY STRUCTURE                          |
+-------------------------------------------------------------------------+
| SECTION I: PROPERTY                                                     |
|   - Coverage A: Dwelling (Primary structure)                            |
|   - Coverage B: Other Structures (10% of Coverage A)                    |
|   - Coverage C: Personal Property (50% of Coverage A)                   |
|   - Coverage D: Loss of Use (30% of Coverage A on HO-2/HO-3/HO-5)       |
|                                                                         |
| SECTION II: LIABILITY (Identical across all HO forms)                   |
|   - Coverage E: Personal Liability (Standard \$100,000 per occurrence)  |
|   - Coverage F: Medical Payments to Others (Standard \$1,000 per person)|
+-------------------------------------------------------------------------+

Underwriting Eligibility

To obtain a homeowners policy, the risk must meet specific underwriting standards:

• Owner-Occupants: The named insured must be the owner-occupant of the dwelling (for forms HO-2, HO-3, HO-5, and HO-8). The building must be used exclusively as a private residence, housing no more than four families and no more than two roomers or boarders per family.
• Renters and Tenants: Non-owners who lease an apartment, single-family home, or condominium unit qualify for the HO-4 Contents Broad policy.
• Condominium Unit Owners: Individuals who own a residential condominium unit qualify for the HO-6 Unit-Owners policy.
• Life Estates & Co-Owners: Joint owners or individuals holding a legal life estate who occupy the residence are also eligible.

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Section I: Property Coverages and Standard Limits

Section I establishes the property coverage framework. For owner-occupied forms (HO-2, HO-3, HO-5, and HO-8), Coverage A is the primary baseline limit, with Coverages B, C, and D calculated as automatic percentages of Coverage A.

Coverage A – Dwelling

Covers the residential building, structures attached to the dwelling (such as an attached garage, sunroom, or deck), and construction materials and supplies located on or next to the residence premises used to construct, alter, or repair the dwelling.

• Exclusion: Land, including land on which the dwelling is located, is never covered.

Coverage B – Other Structures

Covers detached structures separated from the dwelling by clear space or connected only by an exterior fence or utility line. Examples include detached garages, storage sheds, gazebos, fences, and in-ground swimming pools.

• Standard Limit: 10% of Coverage A (provided as an additional amount of insurance).
• Restrictions: Coverage B excludes structures rented to anyone other than a tenant of the dwelling (unless rented exclusively as a private garage) or structures used in whole or in part for business purposes.

Coverage C – Personal Property

Protects personal property owned or used by an insured anywhere in the world.

• Standard Limit: 50% of Coverage A for owner forms (can be increased for an additional premium). In HO-4 and HO-6 forms, the insured selects the Coverage C limit directly based on inventory value.
• Property at Other Residences: Personal property usually situated at an insured's secondary residence (such as a vacation home) is limited to 10% of Coverage C or $1,000, whichever is greater.
• Property of Others: At the named insured's request, Coverage C extends to personal property owned by guests or residence employees while located on the residence premises.

Coverage D – Loss of Use

Coverage D protects the insured household against indirect financial losses when a covered direct property loss renders the residence premises uninhabitable. It encompasses three distinct coverages:

1. Additional Living Expense (ALE): Reimburses the necessary increase in living expenses incurred by the household to maintain their normal standard of living (hotel rooms, restaurant meals, boarding pets, storage).
2. Fair Rental Value: Reimburses the owner for lost rental income if a tenant-occupied portion of the premises is damaged, minus non-continuing operating expenses.
3. Civil Authority: Pays ALE and Fair Rental Value for up to two weeks if civil authorities (e.g., police or fire departments) prohibit access to the residence premises as a direct result of damage to neighboring premises caused by a covered peril.

• Standard Percentage Limits: 30% of Coverage A under HO-2, HO-3, and HO-5; 30% of Coverage C under HO-4; 50% of Coverage C under HO-6; and 10% of Coverage A under HO-8.

Additional Property Coverages in Section I

Standard ISO homeowners forms incorporate several mandatory additional coverages within Section I:

• Debris Removal: Pays the reasonable cost to remove debris of covered property. The expense is included in the limit for the damaged property, but if the loss plus debris removal exceeds that limit, an additional 5% of that limit is available. Removal of fallen trees is limited to $1,000 per loss, with no more than $500 for any one tree.
• Reasonable Repairs: Reimburses costs incurred for necessary emergency measures taken to protect covered property against further damage following a covered loss (e.g., tarping a blown-off roof).
• Trees, Shrubs, and Other Plants: Up to 5% of Coverage A, with a maximum limit of $500 for any one tree, shrub, or plant. Coverage applies only to specific perils: fire, lightning, explosion, riot, civil commotion, aircraft, vehicles not owned by a resident, vandalism, and theft. Windstorm and hail damage to outdoor plants are strictly excluded!
• Fire Department Service Charge: Up to $500 for service charges incurred when the fire department is called to save or protect covered property (no deductible applies).
• Property Removed: Open perils coverage for up to 30 days while property is removed from an endangered premises.
• Credit Card, Fund Transfer Card, Forgery, and Counterfeit Money: Up to $500 for unauthorized legal use or forgery (no deductible applies).
• Loss Assessment: Up to $1,000 for assessments charged against the insured by a property owners association resulting from direct damage to common property by a covered peril.
• Ordinance or Law: Up to 10% of Coverage A as additional insurance for increased construction costs required to comply with local building ordinances or codes.

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Section I Coverage C Special Sub-limits of Liability

To control moral hazard and limit exposure on easily portable high-value items, Section I of all Homeowners forms imposes Special Dollar Sub-limits on specific categories of personal property. These are the ISO form's special limits (not statutes); individual insurers may amend them by endorsement:

Critical Adjuster Distinction: Notice that the restrictions on jewelry ($1,500), firearms ($2,500), and silverware ($2,500) apply solely to the peril of theft. If a fire destroys $15,000 worth of jewelry, the $1,500 sub-limit does not apply; the loss is covered up to the full Coverage C policy limit!

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Section II: Liability Coverages (Uniform Across All Forms)

Section II provides personal liability protection and is identical across all Homeowners policy forms (HO-2 through HO-8). It protects the insured and resident household against financial ruin arising from legal liability for non-automobile accidents.

Coverage E – Personal Liability

Coverage E protects the insured against legal liability when a claim is made or a lawsuit is brought against them for damages because of Bodily Injury (BI) or Property Damage (PD) caused by an occurrence to which coverage applies.

• Standard Baseline Limit: $100,000 per occurrence (frequently increased by endorsement to $300,000 or $500,000).
• Duty to Defend: The insurer provides a legal defense by counsel of its choice at the insurer's expense, even if the lawsuit is groundless, false, or fraudulent.
• Defense Outside the Limits: Legal defense costs, attorney fees, expert witness costs, and court costs are paid in addition to (outside) the policy limit. A $100,000 judgment accompanied by $60,000 in defense litigation costs will be paid in full ($160,000 total outlay).
• Occurrence Definition: An accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results during the policy period in bodily injury or property damage.

Coverage F – Medical Payments to Others

Coverage F is a goodwill, "no-fault" medical coverage that pays necessary medical, surgical, dental, hospital, ambulance, registered nursing, and funeral expenses incurred within three years from the date of an accident causing bodily injury.

• Standard Baseline Limit: $1,000 per person.
• No-Fault Operation: The claimant does not need to prove that the insured was legally negligent or liable. Payment is made simply because the accident occurred.
• Applicability: Coverage F applies to persons on the insured location with permission, or off the insured location if the injury arises from a condition on the insured premises, is caused by the activities of an insured (e.g., an insured accidentally hits another golfer with a golf ball), or is caused by an animal owned by or in the care of an insured (e.g., family dog bites a guest).
• Crucial Exclusion: Coverage F never pays medical expenses for the named insured or regular household residents. It is strictly third-party coverage.

Major Section II Exclusions

Section II explicitly excludes liability arising from:

• Expected or intentional injury inflicted by or at the direction of an insured.
• Business pursuits or professional services rendered by an insured.
• Rental or holding for rental of any part of any premises by an insured (with narrow exceptions for rental of a private residence on an occasional basis or rental of an unshared room to a boarder).
• Ownership, maintenance, use, loading, or unloading of motor vehicles, aircraft, hovercraft, or watercraft (watercraft exclusions have specific exceptions for small sailboats under 26 feet and low-horsepower outboard/inboard motors).
• Transmission of a communicable disease by an insured.
• Sexual molestation, corporal punishment, or physical/mental abuse.
• Use, sale, manufacture, delivery, or possession of controlled substances.

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Analysis of Individual Homeowners Policy Forms (HO-2 through HO-8)

Adjusters must understand the distinct coverage profiles of each ISO homeowners policy form:

+-------------------------------------------------------------------------+
|                    ISO HOMEOWNERS FORMS AT A GLANCE                     |
+-------------------------------------------------------------------------+
| HO-2 Broad:         Named Perils on Structures + Contents (Broad)       |
| HO-3 Special:       Open Perils on Structures / Broad Named on Contents |
| HO-4 Contents:      No Building Coverage / Broad Named on Contents      |
| HO-5 Comprehensive: Open Perils on Structures AND Contents              |
| HO-6 Unit-Owners:   Limited Building (Condo interior) / Named Contents  |
| HO-8 Modified:      Basic Named Perils on Structures + Contents (ACV/FR)|
+-------------------------------------------------------------------------+

HO-2 (Broad Form)

A named-peril package policy for owner-occupants. It covers both real property structures (Coverages A and B) and personal property (Coverage C) against the 16 broad named perils (DP-1 perils + EC + VMM + broad perils like falling objects, water discharge, weight of ice/snow/sleet, collapse). Settle building losses at Replacement Cost if the 80% coinsurance rule is met.

HO-3 (Special Form)

The most widely issued homeowners policy form in the United States. It provides Open Perils ("all-risk") coverage on the dwelling and other structures (Coverages A and B), protecting against all direct physical loss except those expressly excluded. Personal property (Coverage C) is insured on a Named Peril basis for the 16 broad perils identical to HO-2. Structural losses settle at Replacement Cost (80% coinsurance).

HO-4 (Contents Broad / Renters Form)

Designed specifically for residential tenants renting an apartment, dwelling, or house. Because the tenant does not own the physical building, the HO-4 provides zero Coverage A (Dwelling) and zero Coverage B (Other Structures). It provides robust Coverage C (Personal Property) on a named-perils broad form basis and Coverage D (Loss of Use) set at 30% of Coverage C. Includes full Section II liability protection.

HO-5 (Comprehensive Form)

The "cadillac" of personal residential insurance. The HO-5 provides Open Perils coverage on BOTH real property structures (Coverages A and B) AND personal property (Coverage C). Because Coverage C is open perils, it covers accidental losses such as losing a ring down a drain or mysterious disappearance, subject to general exclusions and personal property sub-limits. Settle structures at Replacement Cost.

HO-6 (Unit-Owners Form / Condominium Form)

Designed for owners of residential condominium units or cooperative apartments. Under condominium property law, the association master policy covers the building exterior, roof, and common elements, while the individual unit owner is responsible for the interior space.

• Coverage A (Dwelling): Standard baseline limit is $5,000 (frequently endorsed upward). Covers the interior alterations, appliances, fixtures, built-in cabinetry, interior partitions, and improvements owned by the unit owner.
• Coverage B: Zero (detached structures are covered under the condo association master policy).
• Coverage C: Named broad perils for personal property.
• Coverage D: Loss of Use set at 50% of Coverage C.

HO-8 (Modified Coverage Form)

Designed for older, historic, or architecturally elaborate homes where the replacement cost substantially exceeds the current market value (e.g., a Victorian home with a replacement cost of $800,000 but a market value of $250,000). Standard replacement cost insurance would create severe moral hazard.

• Valuation: Settles losses on a Functional Replacement Cost basis (using modern, functional materials like drywall instead of ornate plaster) or Actual Cash Value.
• Perils: Covers only Basic Named Perils (fire, lightning, EC, VMM).
• Theft Restrictions: Theft is restricted to on-premises only, subject to a strict $1,000 maximum limit per occurrence with zero off-premises theft coverage.

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Master Comparison Table of Homeowners Forms

Note: Subject to 80% coinsurance compliance. Unless endorsed with Personal Property Replacement Cost.