4.2 Homeowners Policy Forms & Coverage Standards

4.2 Homeowners Policy Forms & Coverage Standards

The Homeowners Policy Program provides comprehensive multiline protection by bundling property coverages (Section I) and personal liability coverages (Section II) into a single policy package. Adjusters must master the coverage triggers across all standard ISO Homeowners forms, default coverage limits, internal sublimits, and essential endorsements.

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Overview of Standard Homeowners Policy Forms

Specific Form Highlights

• HO-3 (Special Form): The standard industry benchmark for single-family residential properties. It covers the dwelling and other structures against all direct physical loss except listed exclusions (e.g., flood, earthquake, wear/tear, ordinance of law). Personal property is covered for 16 named broad perils.
• HO-4 (Tenant / Renter Form): Specifically designed for apartment or home renters. It omits Coverage A and Coverage B entirely, providing Coverage C (Personal Property) and Coverage D (Loss of Use).
• HO-6 (Condo Unit-Owner Form): Protects condominium owners. Coverage A applies to additions, alterations, built-in appliances, fixtures, and interior structural improvements owned by the unit owner inside the condo walls (baseline minimum of $1,000, customizable upward). Personal property and liability are included.
• HO-8 (Modified Form): Designed for older or historic structures where replacement cost vastly exceeds current market value. To eliminate moral hazard, losses are settled on an Actual Cash Value or Functional Replacement Cost basis using modern, common construction materials.

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Section I: Property Coverages & Standard Allocation Ratios

In standard HO-2, HO-3, and HO-5 policies, the primary policy limit selected by the insured is Coverage A (Dwelling). The remaining Section I coverages are calculated automatically as standard percentage allocations of Coverage A:

$\text{Coverage B (Other Structures)} = 10\% \times \text{Coverage A}$ $\text{Coverage C (Personal Property)} = 50\% \times \text{Coverage A}$ $\text{Coverage D (Loss of Use)} = 30\% \times \text{Coverage A} \quad (\text{for HO-3})$

Section I Coverage Breakdown

1. Coverage A (Dwelling): Covers the main dwelling structure, attached structures, and building materials on-site for construction/alteration.
2. Coverage B (Other Structures): Covers detached structures (garages, sheds, fences, in-ground pools) separated by clear space. Set at 10% of Coverage A as an additional amount of insurance.
3. Coverage C (Personal Property): Covers personal property owned or used by an insured anywhere in the world. Default limit is 50% of Coverage A. Property at a secondary residence is capped at 10% of Coverage C or $1,000, whichever is greater.
4. Coverage D (Loss of Use): Combines Additional Living Expense (ALE) and Fair Rental Value. Under HO-3, the default limit is 30% of Coverage A (50% under HO-5; 30% of Coverage C under HO-4; 50% of Coverage C under HO-6).

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Special Limits of Liability on Personal Property (Coverage C)

To keep basic premiums affordable and prevent adverse selection, standard Homeowners policies enforce internal sublimits on specific categories of personal property. These sublimits apply per occurrence regardless of total Coverage C limits:

• $200 Sublimit: Money, bank notes, bullion, gold, silver, platinum, coins, medals, and stored value cards.
• $1,500 Sublimit: Securities, accounts, deeds, evidence of debt, letters of credit, notes, passports, tickets, and stamps.
• $1,500 Sublimit: Watercraft of all types, including their trailers, furnishings, equipment, and outboard engines.
• $1,500 Sublimit: Trailers not used with watercraft.
• $1,500 Sublimit (Theft Peril Only): Jewelry, watches, furs, precious and semi-precious stones.
• $2,500 Sublimit (Theft Peril Only): Firearms and related ammunition and accessories.
• $2,500 Sublimit (Theft Peril Only): Silverware, silver-plated ware, goldware, gold-plated ware, and pewterware.
• $2,500 Sublimit: Property on the residence premises used primarily for business purposes ($1,500 for off-premises business property).

Adjuster Note: Sublimits for jewelry, firearms, and silverware apply ONLY to the peril of theft. If these items are destroyed by fire or windstorm, the full Coverage C limit applies up to the actual cash value of the items.

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Section II: Personal Liability Coverages

Section II coverages are identical across all Homeowners policy forms and apply to third-party claims arising from the insured's personal non-business activities:

Coverage E – Personal Liability

• Baseline Limit: $100,000 per occurrence (can be increased to $300,000 or $500,000).
• Scope: Pays damages for which an insured is legally liable because of third-party Bodily Injury (BI) or Property Damage (PD) caused by an occurrence.
• Defense Costs: The insurer provides a defense at its own expense using attorneys of its choice. Defense costs are paid in addition to policy limits.

Coverage F – Medical Payments to Others

• Baseline Limit: $1,000 per person (can be increased to $5,000).
• Scope: Pays necessary medical expenses (medical, surgical, x-ray, dental, ambulance, hospital, funeral) incurred within three years from the date of an accident.
• No-Fault Basis: Coverage F pays without regard to legal liability or fault. It applies to guests injured on the residence premises or off-premises injuries caused by the insured's activities, pets, or residence employees.
• Exclusion: Strictly excludes injuries sustained by the named insured or regular residents of the household.

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Key Standard Homeowners Endorsements

1. Water Backup and Sump Discharge / Overflow (HO 04 95): Provides coverage (typically $5,000 or $10,000) for direct physical loss to structure and contents caused by water backing up through sewers or drains, or overflowing from a sump pump. Standard policies exclude water backup.
2. Ordinance or Law Endorsement (HO 04 77): Increases the policy limit (by default 10% of Coverage A) to pay for increased construction costs required to satisfy local building codes or ordinances when rebuilding after a covered loss.
3. Earthquake Endorsement (HO 04 54): Adds earth movement, earthquake shock, and volcanic eruption as covered perils, subject to a percentage deductible (typically 5% to 15% of Coverage A).
4. Scheduled Personal Property Endorsement (HO 04 61): Provides open-perils, worldwide coverage for scheduled high-value items (jewelry, fine arts, camera equipment, furs, musical instruments) with zero deductible and agreed value or replacement cost valuation.