6.2 Homeowners Perils Insured Against, Key Exclusions & Crucial Endorsements

Core Principle: In property claims adjusting, coverage analysis requires determining whether the proximate cause of loss is an insured peril, whether an explicit exclusion applies, and how statutory endorsements modify the baseline contract. In Louisiana, understanding the Anti-Concurrent Causation doctrine and the statutory requirements of RS 22:1337 governing hurricane deductibles is essential for every practicing adjuster.

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1. The 16 Broad Form Named Perils

Under ISO Homeowners forms (such as HO-2 for Coverages A, B, and C, and HO-3, HO-4, and HO-6 for Coverage C), property is insured against 16 Broad Form Named Perils. Each peril has precise definitions and limitations that adjusters must memorize:

The Basic Perils Group

1. Fire or Lightning: Direct physical damage from combustion or natural electrical discharge. Heat, scorch marks, or blistering without actual flame are not fire.
2. Windstorm or Hail: Damage caused by atmospheric wind currents, hurricane-force winds, tornadoes, or hailstones.
   • The Exterior Opening Rule: Interior property damage caused by rain, snow, sleet, sand, or dust is excluded unless the direct force of wind or hail first damages the building, causing an opening in a roof or exterior wall through which the rain or dust enters.
3. Explosion: Sudden catastrophic release of pressure, expanding gases, or chemical combustion (excludes bursting of water pipes).
4. Riot or Civil Commotion: Damage resulting from civil unrest, unlawful assemblies, or public demonstrations.
5. Aircraft: Direct physical contact with aircraft, spacecraft, or self-propelled missiles, including falling parts or objects dropping from aircraft.
6. Vehicles: Physical impact by motor vehicles or mobile equipment.
   • Limitation: Damage caused by a vehicle owned or operated by an occupant of the residence premises to fences, driveways, or walks is excluded.
7. Smoke: Sudden and accidental smoke damage from any source.
   • Exclusions: Smoke from agricultural smudging, industrial operations, or the manufacture of controlled substances.
8. Vandalism or Malicious Mischief (V&MM): Willful, malicious physical destruction of property.
   • The 60-Day Vacancy Rule: V&MM coverage is completely suspended if the dwelling has been vacant for more than 60 consecutive days immediately preceding the loss.
9. Theft: Broad coverage for attempted theft, loss of property from a known place when stolen, or damage caused by burglary.
   • Exclusions: Theft committed by an insured; theft in or to a dwelling under construction; theft from that part of a residence premises rented by an insured to someone other than an insured; theft of watercraft off premises; and theft from a secondary residence while the insured is not temporarily living there.

The Broad Perils Group

1. Falling Objects: Direct physical damage from falling trees, limbs, meteors, or airborne debris.
   • Interior Limitation: Damage to the interior of a building or property inside is not covered unless the falling object first damages the exterior roof or walls.
2. Weight of Ice, Snow, or Sleet: Structural collapse or physical damage caused by the accumulation of ice, snow, or sleet.
   • Exclusions: Damage to awnings, fences, pavements, patios, swimming pools, foundations, retaining walls, piers, wharves, or docks.
3. Accidental Discharge or Overflow of Water or Steam: Discharge from within a plumbing, heating, air conditioning, or automatic fire sprinkler system, or from within a household appliance.
   • Critical Distinction: Covers the accidental discharge of water, but does not pay to repair or replace the plumbing fixture or appliance itself that failed. Furthermore, continuous or repeated seepage or leakage over weeks, months, or years is strictly excluded.
4. Sudden and Accidental Tearing Apart, Cracking, Burning, or Bulging: Applies to steam, hot water heating, air conditioning, or fire sprinkler systems.
5. Freezing: Freezing of a plumbing, heating, air conditioning, or fire sprinkler system, or household appliance.
   • Policy Condition: The insured must use reasonable care to maintain heat in the building or shut off the water supply and drain all systems and appliances.
6. Sudden and Accidental Damage from Artificially Generated Electrical Current: Sudden burnouts or voltage surges from power lines.
   • Exclusions: Loss to tubes, transistors, computer microchips, or similar electronic components.
7. Volcanic Eruption: Airborne shock waves, ash, dust, particulate matter, or lava flow (excludes earthquake or ground tremors).

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2. Open Perils Coverage & Shifting Burden of Proof

Under HO-3 (Coverages A and B) and HO-5 (Coverages A, B, and C), property is insured against open perils (formerly designated "all-risk"). Instead of enumerating covered causes of loss, the insuring agreement states:

"We insure against direct physical loss to property described in Coverages A and B... We do not insure, however, for loss caused by [any excluded peril]."

Legal Mechanics: The Shifting Burden of Proof

In Louisiana insurance litigation and claims adjustment, the legal distinction between named perils and open perils is governed by the burden of proof:

1. Named Perils Burden (HO-2, HO-4, HO-6, HO-8, and HO-3 Coverage C): The insured bears the initial and ongoing legal burden of proof. The policyholder must present factual evidence establishing that the damage was directly and proximately caused by one of the specific enumerated perils (e.g., proving that a roof leak was caused by wind-lifted shingles rather than wear and tear).
2. Open Perils Burden (HO-3 Coverages A & B; HO-5 Coverages A, B, & C):
   • Step 1: The insured only bears the minimal burden of proving that a direct physical loss occurred to covered property during the policy period.
   • Step 2: Once physical damage is established, the burden shifts entirely to the insurance company. To deny coverage, the insurer must affirmatively prove by a preponderance of the evidence that the loss was caused by an exclusion specifically enumerated in the policy.
   • Rule of Strict Construction: Louisiana courts read exclusions narrowly and, under Civil Code art. 2056, resolve genuine ambiguity against the insurer that drafted the policy. When damage to immovable property is covered in whole or in part, R.S. 22:1893(B) places the burden on the insurer to establish an exclusion, and a policy provision shifting that burden is void.

3. Universal Section I Exclusions & Anti-Concurrent Causation

Section I of the ISO Homeowners Policy contains a mandatory preamble known as the Anti-Concurrent Causation (ACC) Clause:

"We do not insure for such loss regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area."

In In re Katrina Canal Breaches Litigation (5th Cir. 2007), the federal Fifth Circuit held that homeowners flood exclusions unambiguously excluded water damage from the New Orleans levee breaches, and the Louisiana Supreme Court reached the same conclusion in Sher v. Lafayette Insurance Co. (La. 2008). When an excluded peril such as flood combines with a covered peril such as wind, adjusters segregate the damage: the part caused by the covered peril is paid, and the part caused by the excluded peril is not.

The Universal Section I Exclusions

1. Ordinance or Law: Enforcement of any building ordinance or local code regulating the construction, repair, or demolition of a building (unless covered under the 10% Additional Coverage or an endorsement).
2. Earth Movement: Earthquake, landslide, mudslide, mudflow, sinkhole, earth sinking, rising, or shifting. Exception: Direct loss by fire or explosion resulting from earth movement is covered.
3. Water Damage (The Flood Exclusion):
   • Flood, surface water, waves, tidal water, tsunami, storm surge, or overflow of any body of water;
   • Water or water-borne material which backs up through sewers or drains or overflows from a sump pump;
   • Water below the surface of the ground, including water exerting hydrostatic pressure on foundations, walls, basements, or paved surfaces.
4. Off-Premises Power Failure: Failure of electric, gas, water, or other utility service if the failure originates off the residence premises. Exception: If power failure results in a covered peril occurring on the premises (e.g., fire), the resulting damage is covered.
5. Neglect: Failure of the insured to use all reasonable means to save and preserve property at and after the time of a loss.
6. War and Military Action: Declared or undeclared war, insurrection, rebellion, or civil war.
7. Nuclear Hazard: Nuclear reaction, radiation, or radioactive contamination.
8. Intentional Loss: Any loss arising out of an intentional act committed by or at the direction of an insured with the intent to cause damage.
9. Governmental Action: Seizure, confiscation, or destruction of property by order of any governmental authority (destruction ordered to stop the spread of fire is covered).

Additional Specific Exclusions to Open Perils (Coverages A and B)

Under open perils (HO-3/HO-5), the following causes of loss are also excluded:

• Wear and tear, marring, and gradual deterioration;
• Mechanical breakdown, latent defect, rust, corrosion, wet or dry rot;
• Smog, smoke from industrial or agricultural operations;
• Settling, shrinking, bulging, or expansion of pavements, patios, foundations, walls, or floors;
• Infestation, discharge, or release of waste products by birds, vermin, rodents, or insects;
• Animals owned or kept by an insured;
• Continuous or repeated seepage or leakage of water over a period of weeks, months, or years.

Universal Exclusions and Restoration Endorsements

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4. Louisiana Property Endorsements & Statutory Provisions

Louisiana Hurricane & Named Storm Deductibles (RS 22:1337)

Louisiana homeowners policies commonly carry a separate deductible for named storm, hurricane, or wind and hail losses. R.S. 22:1337 regulates how those deductibles work.

Definitions (RS 22:1337(A))

• A hurricane or named storm is a storm system declared a hurricane or named storm by the National Hurricane Center of the National Weather Service.
• A separate deductible applies to damage during a specified weather event and may be expressed as a percentage of the insured value of the property or as a specific dollar amount. It includes hurricane, named storm, and wind and hail deductibles.
• Calculation example: a home insured under Coverage A for $400,000 with a 5% hurricane deductible has a deductible of $400,000 × 5% = $20,000. The policy's deductible endorsement defines when the separate deductible applies, such as a period tied to a hurricane watch or warning, so the adjuster reads that endorsement rather than assuming a statutory window.

Annual Application (RS 22:1337(B)–(C))

• For homeowners policies and other policies insuring a one- or two-family owner-occupied premises for fire and allied lines, issued or renewed on or after January 1, 2010, a separate named storm or hurricane deductible applies on an annual basis to all named storm or hurricane losses in the calendar year.
• For a later named storm or hurricane in the same calendar year, the insurer may apply a deductible equal to the greater of the remaining amount of the separate deductible or the policy's all other perils deductible.
• Insurers may require policyholders to keep receipts or other records of earlier losses to credit them against later storm claims.
• Commercial property and commercial multi-peril policies issued on or after January 1, 2023 follow a similar annual rule under R.S. 22:1267.1, except policies with a total insured value of $20 million or more. If a commercial insured changes insurers or renews with a different deductible amount during the year, a new deductible can apply under the new or renewed policy.

Deductible Disclosure Form (RS 22:1337(D))

• The commissioner prescribes a separate form listing each named storm, hurricane, and wind and hail deductible as a percentage, a dollar amount, or both.
• For new policies effective after January 1, 2023, the insurer must provide the form and request the named insured's signature. A new form is not required for a renewal, reinstatement, substitute or amended policy issued to the same named insured by the same insurer or an affiliate.
• The insurer must provide a new form if it changes the percentage or dollar amount of the deductible. A dollar change caused only by higher policy limits does not require a new form, but a change in the percentage does.
• The form is for the insured's information and does not change the policy's terms.

Water Back-Up and Sump Discharge or Overflow Endorsement (HO 04 95)

Because the base homeowners policy strictly excludes water that backs up through sewers or drains or overflows from a sump pump, policyholders purchase the HO 04 95 endorsement. This endorsement provides a specified limit of coverage (e.g., $5,000, $10,000, or $25,000) for direct physical loss to property caused by:

1. Water or water-borne material backing up through sewers or drains; or
2. Water or water-borne material overflowing from a sump pump, sump well, or other drainage facility. Limitation: Does not cover floodwater entering the structure through windows or doors.

Scheduled Personal Property Endorsement (HO 04 61)

The HO 04 61 endorsement (personal articles floater) provides open perils coverage worldwide for specific scheduled valuables, including:

• Jewelry, furs, cameras, musical instruments, silverware, fine arts, postage stamps, and rare coins.

Key Claims Advantages:

• No Deductible: Covered items are not subject to the policy deductible;
• Overrides Sub-Limits: Eliminates the standard policy sub-limits (such as the $1,500 theft cap on jewelry);
• Scheduled Amounts: Each item is listed with its own amount of insurance, usually supported by an appraisal or bill of sale. Fine arts are settled on an agreed value basis; other classes generally pay the least of actual cash value, the cost to repair or replace, or the scheduled amount.

Ordinance or Law Endorsement (HO 04 77)

While the base HO-3 provides an additional 10% of the Coverage A limit for ordinance or law costs, building code requirements after a major storm, including the wind and flood provisions of the Louisiana State Uniform Construction Code (LSUCC) and local floodplain elevation rules, can push code-upgrade costs well beyond that amount. The HO 04 77 endorsement increases ordinance or law coverage to a higher percentage of Coverage A to pay for required upgrades during rebuilding.

Other Homeowners Endorsements on the Series 204 Outline

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5. Practical Application & Exam Scenarios

Scenario 1: The Louisiana Two-Storm Deductible Rule

An insured in Houma owns a dwelling insured under Coverage A for $300,000 with a 3% hurricane deductible ($9,000) and a $1,000 standard all-peril deductible.

• August 15 (Hurricane Alpha): Causes $6,000 in covered roof damage. The insured pays the entire $6,000 out-of-pocket because the loss is less than the $9,000 hurricane deductible.
• October 10 (Hurricane Beta): Same calendar year. Causes $25,000 in covered structural damage.

Adjuster Deductible Calculation:

1. Under RS 22:1337(B)–(C), the $9,000 hurricane deductible applies on an annual basis, so hurricane losses in the same calendar year count toward it.
2. The insured already absorbed $6,000 toward the deductible in Hurricane Alpha.
3. The remaining hurricane deductible for Hurricane Beta is: $9,000 - $6,000 = $3,000.
4. However, the policy's standard all-peril deductible is $1,000. Because the remaining hurricane deductible ($3,000) is greater than $1,000, the insured pays $3,000, and the insurer pays: $25,000 - $3,000 = $22,000.
5. If a third hurricane hit in November of that same year, the insured would pay only the $1,000 all-peril deductible, as the $9,000 hurricane deductible was 100% satisfied.

Scenario 2: Anti-Concurrent Causation & The Exterior Opening Rule

During Hurricane Delta, 120 mph winds blow off multiple ridge caps and shingles from an insured's roof, puncturing the roof decking. Torrential rains pour through the opening, destroying ceilings, drywall, and hardwood flooring. Six hours later, storm surge floodwaters rise 3 feet into the first floor of the dwelling.

• Adjuster Scoping:
  • The roof damage and all rain damage entering through the roof opening are covered under the windstorm peril.
  • The 3-foot rising storm surge water is strictly excluded under the water damage exclusion.
  • Under the Anti-Concurrent Causation doctrine, the adjuster must inspect and segregate the physical damage: the wind-driven water damage to the roof, attic, and upper drywall is covered under the homeowners policy; all damage below the 3-foot flood line is excluded and must be submitted to the National Flood Insurance Program (NFIP).