5.2 Section I Additional Coverages, Perils Insured Against, Exclusions & Conditions

Section I Additional Coverages, Perils Insured Against, Exclusions & Conditions

Quick Answer: Section I of the Homeowners policy includes 12 Additional Coverages with specific dollar and percentage sublimits that are heavily tested on the Michigan Claims Adjuster exam—especially Fallen Tree Debris Removal ($1,000 per occurrence / $500 per tree), Trees, Shrubs, and Other Plants (5% of Coverage A / $500 per item), Fire Department Service Charge ($500, no deductible), Credit Card/Forgery ($500, no deductible), and Ordinance or Law (10% of Coverage A). For building losses, you must also master the 80% Replacement Cost Rule and the $2,500 / 5% Holdback Rule.

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Section I Additional Coverages

Every ISO Homeowners form includes built-in Section I Additional Coverages. Adjusters must memorize both the dollar/percentage caps and whether the policy deductible applies:

Exam Trap — Fallen Trees on the Lawn: Suppose a severe Michigan windstorm blows down two large pine trees in the insured's backyard. Neither tree hits a building, fence, driveway, or handicap ramp. How much does the HO-3 policy pay to cut up and haul away the trees? $0! Standing trees are not covered against windstorm, and Fallen Tree Debris Removal ($1,000 / $500 per tree) applies only if a tree felled by wind/hail or ice/snow damages a covered structure, blocks a driveway, or blocks a handicap ramp.

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Perils Insured Against & Critical Exclusions (HO-3)

1. Coverage A & B (Open Perils) Exclusions

Because HO-3 insures the dwelling and other structures on an Open Perils basis, any direct physical loss is covered unless excluded. Key exclusions under Coverages A and B include:

• 60-Day Vacancy Rule: Vandalism and malicious mischief (and glass breakage under Additional Coverages) are excluded if the dwelling has been vacant for more than 60 consecutive days immediately before the loss. A dwelling being constructed is not considered vacant.
• Freezing of Plumbing, Heating, A/C, Fire Sprinklers, or Appliances: Excluded while the dwelling is vacant, unoccupied, or being constructed, unless you have used reasonable care to: (1) maintain heat in the building; or (2) shut off the water supply and drain all systems and appliances of water.
• Freezing, Thawing, Pressure or Weight of Water or Ice: Excluded for fences, pavement, patios, swimming pools, footings, foundations, bulkheads, retaining walls, piers, wharves, or docks.
• Theft in or to a Dwelling Under Construction: Excluded until the dwelling is finished and occupied.
• Sudden vs. Repeated Water Leakage: If a plumbing system or appliance accidentally discharges or overflows, the policy covers the resulting water damage and the cost of tearing out and replacing any part of a building necessary to access the pipe or system, but we do NOT cover loss to the plumbing system or appliance itself from which the water or steam escaped. Furthermore, constant or repeated seepage or leakage over a period of weeks, months, or years is excluded.
• General Maintenance Exclusions: Wear and tear, deterioration, mechanical breakdown, latent defect, rust, settling/cracking of foundations or roofs, and damage caused by birds, rodents, insects, or domestic animals owned or kept by an "insured".

2. Coverage C (Broad Form 16 Named Perils) & Theft Restrictions

Coverage C insures personal property against the 16 Broad Form Named Perils (Fire/Lightning, Windstorm/Hail, Explosion, Riot, Aircraft, Vehicles, Smoke, Vandalism, Theft, Falling Objects, Weight of Ice/Snow/Sleet, Accidental Discharge/Overflow of Water or Steam, Sudden & Accidental Tearing Apart/Cracking/Burning/Bulging, Freezing, Sudden & Accidental Damage from Artificially Generated Electrical Current, and Volcanic Eruption). Specifically under the Theft peril, no coverage applies to theft:

1. Committed by an "insured";
2. In or to a dwelling under construction until it is finished and occupied;
3. From that part of a "residence premises" rented by an "insured" to someone other than another "insured"; or
4. Occurring off the "residence premises" of: (a) trailers, semitrailers, and campers; (b) watercraft of all types and their furnishings, equipment, and outboard motors; or (c) property while at any other residence owned by, rented to, or occupied by an "insured", EXCEPT while an "insured" is temporarily living there! (For example, if an insured's northern Michigan vacation cabin is burglarized in mid-winter while the insured is living at their primary home, off-premises theft at that secondary residence is excluded! Full-time students away at school are covered for dorm theft as long as the student has been there at any time during the 90 days immediately before the loss under HO 00 03 05 11).

3. Section I General Exclusions

Apply to all Section I coverages: Ordinance or Law (beyond the 10% Additional Coverage), Earth Movement (unless direct loss by fire, explosion, or theft ensues), Water Damage (flood, surface water, sewer/drain backup, sump pump overflow, subsurface water seepage—unless fire, explosion, or theft ensues), Power Failure occurring off the "residence premises" (unless a covered peril ensues on the residence premises), Neglect, War, Nuclear Hazard, Intentional Loss, and Governmental Action.

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Section I Conditions: Loss Settlement, 80% Rule & Holdback

1. ACV vs. Replacement Cost Categories

Under the Loss Settlement condition:

• Settled at Actual Cash Value (ACV): Personal property (Coverage C), awnings, carpeting, household appliances, outdoor antennas, and outdoor equipment (whether or not attached to buildings), and structures that are not buildings.
• Settled at Replacement Cost (Coverages A and B Buildings): Buildings under Coverage A or B are settled at Replacement Cost without deduction for depreciation, provided the insured carries insurance equal to at least 80% of the full replacement cost of the building immediately before the loss.

2. Worked Calculation: Under-80% Building Loss Settlement

If the amount of insurance on the damaged building is less than 80% of its full replacement cost, the insurer pays the greater of:

1. The Actual Cash Value (ACV) of that part of the building damaged; OR
2. The proportionate share of the replacement cost loss: Proportionate Payout = [Insurance Carried / (0.80 x Full Replacement Cost)] x Replacement Cost Loss

Worked Example:

• A homeowner's dwelling has a Full Replacement Cost of $300,000. To satisfy the 80% rule, the homeowner must carry at least 0.80 x \$300,000 = \$240,000.
• Instead, the homeowner carries only $180,000 in Coverage A, with a $1,000 deductible.
• A windstorm causes a $40,000 Replacement Cost roof loss, and the damaged roof has an Actual Cash Value (ACV) of $26,000 after depreciation.
• Step 1 (Proportionate Share): ( \$180,000 / \$240,000 ) x \$40,000 = 0.75 x \$40,000 = \$30,000.
• Step 2 (Compare to ACV Floor): Compare $30,000 (proportionate RCV) to $26,000 (ACV). The policy pays the greater of the two, which is $30,000.
• Step 3 (Apply Deductible): \$30,000 - \$1,000 deductible = \$29,000 net settlement! (Notice that if the roof had been brand-new with an ACV of $35,000, the homeowner would have received \$35,000 - \$1,000 = \$34,000 because the ACV floor guarantees the insured never receives less than ACV minus the deductible).

3. The $2,500 / 5% Replacement Cost Holdback Rule

Even when the insured carries 80% or more of replacement cost, the insurer will initially pay no more than the Actual Cash Value (ACV) of the damage until actual repair or replacement is complete—UNLESS the cost to repair or replace the damage is BOTH:

1. Less than 5% of the amount of insurance in the policy on the building; AND
2. Less than $2,500.

An insured may always choose to accept an initial ACV settlement and then notify the insurer within 180 days after the date of loss of their intent to claim the remaining recoverable depreciation once repairs are completed.

4. Pair or Set Clause & 72-Hour Volcanic Eruption Period

• Pair or Set: In case of loss to a pair or set, the insurer may elect to: (1) repair or replace any part to restore the pair or set to its value before the loss, or (2) pay the difference between the ACV of the property before and after the loss.
• Volcanic Eruption: All volcanic eruption episodes that occur within any 72-hour period constitute a single occurrence.