And you thought selling
Homeowners Insurance
was simple!
OCTOBER 2015
PRESENTED BY: SHARON A. KOCHES, CPCU, RPLU, AAI, AU, ITP
Acknowledgements and permissions:
Used with permission of:
Bill Wilson, CPCU, ARM, AIM, AAM
Director of Virtual University, IIABA
ISO Files Most Important
Homeowners Change in 40 Years
“Unclear and Inconspicuous…The Potentially
Catastrophic ‘Where’s Waldo’® Homeowners
‘Exclusion’ You Didn’t Know Existed But Could Cause
You To Lose Your Home!”
Insureds unexpectedly confined to nursing homes. Forced relocations.
Foreclosures. Temporary rentals. Home purchases for children or
parents. Allowing a homebuyer to move in before the closing.
Renovations and remodeling. These are all situations where adjusters
have denied claims and some courts have upheld these denials.
What’s the problem and solution?
Background
• March 2001
"Rent Your Home, Void Your Insurance Policy?“
• June 2005
Big “I” Technical Affairs Committee
• October – December 2009
“Where You Reside” white paper and webinar
• November 2014
ISO/IIABA resolution
• October 2015
New mandatory and optional HO endorsements effective in most states
ISO HO-3 Coverage A
• 1976 Insuring Agreement
“This policy covers the described dwelling building,
including additions in contact therewith, occupied
primarily as a private residence.”
• 1984, 1991, 2000, 2011 Insuring Agreement
“We cover…The dwelling on the ‘residence premises’
shown in the Declarations….”
Definitions…
“‘Residence premises’ means…The one family
dwelling where ‘you’ reside….”
Exposure Scenarios
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Nursing homes
Relocations
Foreclosures
Rentals
Child occupies parents’
home
Parent occupies child’s
home
Divorce
Illness of insured
Death of insured
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Trusts
Unoccupancy
Vacancy
Military deployment
Seller moves out before
closing, and/or…
• Buyer moves in before
closing
• Homes owned by LLCs
• Renovations and homes
under construction
Case Law
NO COVERAGE
COVERAGE
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Bryan v. United States Fire Ins. Co. (Texas,
1970)
Fisher v. Indiana Lumbermens Mutual Ins.
Co. (Texas, 1972)
Doyle v. Members Mutual Ins. Co. (Texas,
1984)
Epps v. Nicholson (Georgia, 1988)
Shepard v. Keystone (Maryland 1990)
Nancarrow v. Aetna Casualty & Surety Co.
(Arkansas, 1991)
Georgia Farm Bureau Mutual Ins. co. v.
Kephart (Georgia, 1993)
Heniser v. Frankenmuth Mutual Ins. Co.
(Michigan, 1995)
Ivanov v. Phenix Mutual Ins. Co. (Maine,
2007, remanded 2008)
Schuchman v. State Auto Prop. & Cas. Ins.
Co. (Illinois, 2012)
Null v. Auto-Owners ins. Co. (Michigan,
2013)
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O'Neil v. Buffalo Fire Ins. Co. (New York,
1849)
Joyce v. Maine Ins. Co. (Maine, 1858)
German Ins. Co. v. Russell (Kansas, 1902)
Reid v. Hardware Mutual Ins. Co. (South
Carolina, 1969)
Insurance Co. of North America v. Howard
(Oregon, 1982)
Farmers Ins. Co. v. Trutanick (Oregon,
1993)
FBS Mortgage Corporation v. State Farm
(Illinois, 1993)
Hill v. Nationwide Mutual Fire Ins. Co.
(Georgia, 1994)
Lunquist v. Allstate Ins. Co. (Illinois, 2000)
Dean v. Tower (New York, 2014)
Claims Experience
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Total loss while insured was in a nursing home (KY)
$100,000+ condo rental claim (FL)
5-figure loss while home was being remodeled (AZ)
$186,000 renovation claim (GA)
$150,000 ten-month house rental (FL)
$135,000 four-year house rental (FL)
$123,000 two-year house rental (FL)
$300,000 “nonclaim” with daughter occupancy (NY)
$229,000 total loss with niece occupancy (MN)
Small fire loss (NC)
Fire loss with daughter’s temporary occupancy (PA)
Fire loss while house was undergoing renovation (RI)
Reasons FOR Coverage
• “Where you reside” are words of description, not a
warranty of occupancy or a condition of coverage
• Hidden “exclusion” (unlike HO Section II)
• Reasonable expectation principle
• Eligibility vs. coverage
• Precedents
• PLRB
• Tornados and meth labs
• “Onerousness”
Proposed Solutions
• Remove “where you reside” language and rely on
underwriting
• Nonresidency penalties
• Grace period
• Nonresidency endorsement
• Education
• Regulatory or legislative directive
ISO Solution
• Forms Filing HO-2015-ORPFR
– HO 06 48 10 15 – Residence Premises Definition Endorsement
– HO 06 49 10 15 – Broadened Residence Premises Definition Endorsement
– HO 17 48 10 15 – Residence Premises Definition Endorsement – Unit Owners
– HO 17 47 10 15 – Broadened Premises Definition Endorsement – Unit Owners
– MH 04 26 10 15 – Residence Premises Definition Endorsement – Mobilehome
– MH 04 27 10 15 – Broadened Residence Premises Definition Endorsement –
Mobilehome
• Rules Filing HO-2015-RRPRU
– Primarily address use of “Broadened” endorsements
during “temporary” nonresidency periods
– Endorsements are premium bearing
HO 06 48 Mandatory Endorsement
HO 06 49 Optional Endorsement
Caveats
• Notice and education
– Insurer and agency communications to insureds
– HO N 009 10 15 – Residence Premises Questionnaire
– ACORD forms
• Delays between closing and residency
– Underwriting discretion
– HO 06 49 “broadening” endorsement
• Renewal processing gap
• Homes under construction
Next Steps…
• Continued education
• Adoption of the “broadening” endorsement
eliminating the “where you reside” language
For more information…
Original White Paper and Webinar:
http://tinyurl.com/WhereYouResideOriginal
2015 Article:
http://tinyurl.com/WhereYouReside2015
Questions?
Email bill.wilson@iiaba.net
Subscribe to the VU newsletter:
http://tinyurl.com/VUnewsletter
Ownership Considerations
Trusts
Condominiums
Homeowner Associations
Trusts
Insurable Interest where the residence is owned by a Trust:
 One or more grantors who conveyed the property into
the trust
 Beneficiaries who receive benefits from the trust, such as
occupying the entrusted property
 Trustee, who has fiduciary responsibility
* IMPORTANT: Understand all the parties to a trust
arrangement, and whether they fit into the definitions of
the Homeowners Policy
HO 05 43 - Residence Held in Trust
Condominiums

What is the responsibility of the Unit Owner?

Coverage A – Structural Coverage – Legal
Responsibility

Loss Assessment Coverage
Condominiums
HO 00 06
Coverage A – Dwelling
a.
The alterations, appliances, fixtures and
improvements which are part of the building
contained within the “residence premises”;
b.
Items of real property which pertain exclusively to
the “residence premises”;
c.
Property which is your insurance responsibility
under a corporation or association of property
owners agreement; or
d.
Structures owned solely by you, other than the
“residence premises” , at the location of the
“residence premises”.
Condominiums
HO 00 06 Loss Assessment
Section I Property Coverages
Section II Liability Coverages

Up to $1,000. for your share of loss assessment
$1,000. most we will pay with respect to any one loss
regardless of the number of assessments

As owner or tenant of “residence premises”

By corporation or association of property owners

“Does not cover assessments by any governmental body
Condominiums
HO 00 06 Section I – Property Coverages
Coverage A – Dwelling – Loss Assessment
 “as
a result of a direct loss to property, owned by
all members collectively, of the type that would
be covered”
… other than Earthquake; or Land shock waves
or tremors before during or after a volcanic
eruption
Condominiums
HO 00 06 Section II – Liability Additional Coverages
As a result of:
a. BI or PD not excluded
b. Liability for an act of a director, officer or trustee in the
capacity as a director, officer or trustee, provided such
person:
(1) is elected by the members of a corporation or
association of property owners; and
(2) Serves without deriving any income from the exercise of
duties which are solely on behalf of…..
Homeowners Associations
HO 00 03 Loss Assessment - Liability
$1,000. for your share of loss assessment charged against you
, as owner or tenant of “residence premises” during policy
period by a corporation or association of property owners,
when the assessment is made as a result of:
a.
BI or PD not excluded from coverage
b.
Liability for an act of a director, officer or trustee in the
capacity as a director, officer or trustee, provided such
person …
Elected and Serves without deriving income
Loss Assessment
HO 04 35 Supplemental Loss Assessment
 Can
increase coverage up to $50,000
 Property
and Liability
Miscellaneous Coverage Issues
Home Business
Foster Care
Host Liquor
Accidental Overflow
Other
Home Business
“Business” Activities
Section I – Property Coverages
Coverage B – Other Structures
Coverage C – Personal Property
Section II – Liability
Home Business
Definitions
B. 3. “Business” means:
a. A trade, profession or occupation
engaged in on a full time, part-time or
occasional basis; or
Home Business
b. Any other activity engaged in for money or other
compensation, EXCEPT the following:
(1) One or more activities, not described in (2)
through (4) below, for which no “insured”
receives more that $2,000. in total
compensation for the 12 months before the
beginning of the policy period;
(2) Volunteer activities for which no money is
received other than payment for expenses
incurred to perform the activity;
Home Business
(3) Providing home day care services for which
NO compensation is received , other than the
mutual exchange of such services; or
(4) The rendering of home day care services
to a relative of an “insured”.
Home Business
Section I - Coverage B – Other Structures
2. We do not cover:
c. Other structures from which any “business” is
conducted; or
d. Other structures used to store “business”
property. However we do 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.
Home Business
Section I - Coverage C – Personal Property
3. Special Limits of Liability:
h. $2,500. on property on the “residence premises”,
used primarily for “business” purposes.
g. $1,500. on property away from “residence
premises”, used primarily for “business” purposes.
However, this limit does not apply to antennas, tapes,
wires, records, disks or other media that are:
(1) used with electronic equipment that
reproduces, receives or transmits audio, visual or data
signals;
Home Business
Coverage C – Personal Property
4.
Property not covered:
f. Property of roomers, boarders and other
tenants, except property of roomers and
boarders related to the “insured”;
g. Property in an apartment regularly rented or
held for rental to others by an “insured”
except as provided in E.10. Landlord’s
furnishings under Section I – Property Coverage;
Home Business
Property not covered: (continued)
i. “Business” data, including such data stored in:
(1) Books of account, drawings or other paper
records; or
(2) Computers and related equipment.
We do cover the cost of blank recording or
storage media and of prerecorded computer
programs available on the retail market;
j. Credit cards, electronic fund transfer cards or
access devices used solely for deposit,
withdrawal or transfer of funds except as
provided in E.6.
Home Business
Property not covered: (continued)
j.
Credit cards, electronic fund transfer cards or
access devices used solely for deposit,
withdrawal or transfer of funds except as
provided in E.6. Credit Card, Electronic Fund
Transfer Card Or Access Device, Forgery And
Counterfeit Money under Section I – Property
Coverages; or
Home Business
HO 04 40 – Structures Rented to Others –
Residence Premise
HO 04 42 - Permitted Incidental Occupancies –
Residence Premise
HO 04 97
- Home Day Care Coverage Endorsement
HO 04 12 – Increased Limits on Business Property
HO 05 46 – Increased Limits on Landlord Furnishing
(Theft Excluded)
HO 07 01 Home Business Insurance Coverage
Home Business
Section II – Liability
Coverage E – Personal Liability
Coverage F – Medical Payments to Others
Section II - Exclusions –
2. “Business”
a. “Bodily Injury” or “property damage” arising
out of or in connection with a “business”
conducted from an “insured location” or
engaged in by “insured”, whether or not the
“business” is owned or operated by an
“insured” or employs an “insured”.
Home Business
2. “Business”
(Exclusions – continued)
This Exclusion E.2. applies but is not limited to an
act or omission, regardless of its nature or
circumstance , involving a service or duty
rendered, promised, owed or implied to be
provided because of the nature of the
“business”.
Home Business
b. This Exclusion E.2. does not apply to:
(1) The rental or holding for rental of an “insured
location”,
(a) On an occasional basis if used only as a
residence;
(b) In part for use only as a residence, unless a
single-family unit is intended for use by the
occupying family to lodge more than two
roomers or boarders; or
(c) In part, as an office, school or studio or
private garage; and
Home Business
b. (2) An “insured” under the age of 21
years involved in a part-time or occasional,
self- employed “business” with no
employees.
Home Business
Endorsements ALSO Afford Liability:
HO 04 40 – Structures Rented to Others –
Residence Premise
HO 04 42 - Permitted Incidental Occupancies –
Residence Premise
Liability only:
HO 24 71 – Business Pursuits
Foster Care
Homeowners Policy defines an “insured” to be anyone
under the age of 21 and in the care of the named insured
or resident relative.
Property – any property of any “insured” is covered on the
same terms as the property of “you” or any other resident
relative.
Liability – several exclusions could eliminate liability for a
foster parent –
“insured vs. insured” exclusion. Assuming the validity of the
exclusion, a suit brought by a foster child against the foster
parent or other member of the foster parent’s household
would be excluded
Host Liquor
HO 2000 and 2011 editions of HO 00 03 form
Expanded the Auto Liability Exclusion
Accidental Overflow

Backup of a sanitary sewer system maintained by a
municipality off the residence premises because the
system is clogged, broken or at capacity.

Endorsement HO 04 95 Water Back-Up and Sump
Discharge or Overflow Coverage
 Originates
 Clarifies
from within the dwelling
Power Failure Exclusion with regard to Sump Pump
does not apply
Other
HO 05 27 Additional Insured Student Living Away from the Residence Premise
HO 04 50 Personal Property at Other Residence
Students away at school increased coverage
HO 04 59 Assisted Living Care Coverage
Property and Liability with special limits of liability
HO 04 58 Other members of your Household
Resources
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