5.1 Homeowners Eligibility, Forms (HO-2 through HO-8) & Section I Coverages A–D

Homeowners Eligibility, Forms (HO-2 through HO-8) & Section I Coverages A–D

Quick Answer: The ISO Homeowners program is a package policy combining Section I (First-Party Property Coverages A–D) and Section II (Third-Party Liability and Medical Payments Coverages E–F) for owner-occupants of 1- to 4-family dwellings (HO-2, HO-3, HO-5, HO-8), residential tenants (HO-4), and condominium unit-owners (HO-6). For the Michigan Claims Adjuster exam, you must master the distinction between "insured location" and "residence premises", compare the perils covered under each form, and memorize every Coverage C Special Limit of Liability.

Unlike a Dwelling Policy (DP), which can insure pure investment properties or seasonal rental houses and offers property coverage on a monoline basis, a standard Homeowners (HO) policy is a package contract designed for owner-occupied 1- to 4-family residential dwellings (plus specialized forms for tenants and condominium unit-owners). Every Homeowners policy includes both Section I (Property) and Section II (Liability) coverages in a single indivisible contract.

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Eligibility and Foundational Policy Definitions

To qualify for a standard owner-occupied Homeowners form (HO-2, HO-3, HO-5, or HO-8), the Named Insured must own and occupy a 1-, 2-, 3-, or 4-family dwelling used principally for private residential purposes. Tenants who rent an apartment or house use HO-4, and condominium or cooperative unit-owners use HO-6. Before evaluating any Section I or Section II claim, an adjuster must verify how the policy's Definitions section classifies the people and locations involved:

1. "You" and "Your"

Refers to the "named insured" shown in the Declarations and the spouse if a resident of the same household. In the base ISO form, a spouse is "you" only while a resident of the same household. Michigan's Special Provisions endorsement (HO 01 21) adds a grace rule: a spouse who moves out during the policy period remains "you" until the earlier of the end of the policy period or the effective date of another policy listing that spouse as a named insured.

2. "Insured"

Means "you" and residents of your household who are:

• Your relatives (by blood, marriage, or adoption, regardless of age); or
• Other persons under the age of 21 and in the care of any person named above (such as a foster child, legal ward, or foreign exchange student living in your home).
• Full-Time Students Away at School: A student enrolled in school full-time, as defined by the school, who was a resident of your household before moving out to attend school, provided the student is under the age of:
  • 24 and your relative; or
  • 21 and in your care or the care of a resident relative.
• Additional "Insureds" Under Section II (Liability) Only: Under Section II, "insured" also includes:
  • Any person or organization legally responsible for animals or watercraft to which the policy applies and that are owned by an "insured" (for example, a neighbor walking your dog or a friend operating your covered sailboat with your permission), except a person or organization using or having custody of them in the course of any "business" or without the owner's consent; and
  • With respect to a covered motor vehicle, persons while engaged in your employment (or that of any resident insured), or other persons using the vehicle on an "insured location" with your consent.

3. "Residence Premises" vs. "Insured Location"

Adjusters frequently see exam questions that test the difference between the narrow term "residence premises" (which governs most Section I building coverage) and the much broader term "insured location" (which governs Section II liability and medical payments coverage):

• "Residence Premises": Means the 1-family dwelling where you reside (or the 2-, 3-, or 4-family dwelling where you reside in at least one of the family units), and which is shown as the "residence premises" in the Declarations, including other structures and grounds at that location.
• "Insured Location" (8 Covered Categories): Includes:
  1. The "residence premises";
  2. The part of other premises, other structures, and grounds used by you as a residence and either shown in the Declarations or acquired by you during the policy period for your use as a residence;
  3. Any premises used by you in connection with a premises in (1) or (2) above;
  4. Any part of a premises not owned by an "insured" and where an "insured" is temporarily residing (such as a hotel room on vacation, a rented cottage, or a college dormitory room);
  5. Vacant land, other than farm land, owned by or rented to an "insured";
  6. Land owned by or rented to an "insured" on which a 1-, 2-, 3-, or 4-family dwelling is being built as a residence for an "insured";
  7. Individual or family cemetery plots or burial vaults of an "insured"; or
  8. Any part of a premises occasionally rented to an "insured" for other than "business" use (such as a reception hall rented for a wedding or graduation party).

4. "Residence Employee"

Means an employee of an "insured" whose duties are related to the maintenance or use of the "residence premises", including household or domestic services (such as a nanny, housekeeper, private cook, or groundskeeper), or who performs similar duties elsewhere not related to the "business" of an "insured".

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The Six Standard ISO Homeowners Forms (HO-2 through HO-8)

While Section II (Liability) is virtually identical across all six forms, Section I (Property) differs significantly based on occupancy, perils insured against, and loss settlement valuation:

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Section I Property Coverages A, B, C, and D

Coverage A — Dwelling

Covers the dwelling on the "residence premises" shown in the Declarations, including structures attached to the dwelling (such as an attached garage, breezeway, or deck), plus materials and supplies located on or next to the "residence premises" used to construct, alter, or repair the dwelling or other structures on the residence premises. Coverage A never covers land, including the land on which the dwelling is located.

Coverage B — Other Structures

Covers other structures on the "residence premises" set apart from the dwelling by clear space (or connected only by a fence, utility line, or similar connection), such as a detached garage, tool shed, swimming pool, or fence. The standard limit is 10% of the Coverage A limit (paid as additional insurance). Coverage B Exclusions: Coverage B does not cover:

1. Structures used in whole or in part for commercial, manufacturing, or farming purposes;
2. Structures from which any "business" is conducted;
3. Structures used to store "business" property (however, it does cover a structure that contains business property solely owned by an "insured" or a tenant of the dwelling, provided that business property does not include gaseous or liquid fuel other than fuel in a permanently installed fuel tank of a vehicle or craft parked or stored in the structure); or
4. Structures rented or held for rental to any person not a tenant of the dwelling, unless used solely as a private garage.

Coverage C — Personal Property & Special Limits of Liability

The standard Coverage C limit on HO-2, HO-3, and HO-5 is 50% of Coverage A, and it covers personal property owned or used by an "insured" while it is anywhere in the world. At the insured's request, Coverage C also covers personal property owned by:

• Others while the property is on the part of the "residence premises" occupied by an "insured" (such as dinner guests' coats); and
• A guest or a "residence employee", while the property is in any residence occupied by an "insured".

Secondary Residence Limitation (10% or $1,000 Rule): Our limit of liability for personal property usually located at an "insured's" residence, other than the "residence premises" (such as furniture kept year-round at a northern Michigan lake cabin or a full-time student's college dorm room), is 10% of the limit of liability for Coverage C, or $1,000, whichever is greater. Exception: This limitation does not apply to personal property in a newly acquired principal residence for the first 30 days from the time you begin to move the property there.

Coverage C Special Limits of Liability (Must Memorize!): These sublimits do not increase the Coverage C limit; they represent the maximum the insurer will pay per occurrence for all property in each category:

Coverage D — Loss of Use

Standard limit is 30% of Coverage A on HO-2, HO-3, and HO-5 (30% of Coverage C on HO-4; 50% of Coverage C on HO-6; 10% of Coverage A on HO-8). It includes three coverages:

1. Additional Living Expense (ALE): If a loss covered under Section I makes that part of the "residence premises" where you reside not fit to live in, pays any necessary increase in living expenses incurred by you so that your household can maintain its normal standard of living (for the shortest time required to repair or replace the damage or, if you permanently relocate, the shortest time required for your household to settle elsewhere).
2. Fair Rental Value: If a covered loss makes that part of the "residence premises" rented to others or held for rental by you not fit to live in, pays its fair rental value minus any expenses that do not continue while it is uninhabitable.
3. Civil Authority Prohibits Use: If a civil authority prohibits you from use of the "residence premises" as a result of direct damage to neighboring premises by a Peril Insured Against, pays Additional Living Expense and Fair Rental Value for no more than 2 weeks.