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 • • • • • • • • • Nursing homes Relocations Foreclosures Rentals Child occupies parents’ home Parent occupies child’s home Divorce Illness of insured Death of insured • • • • • 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 • • • • • • • • • • • • 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) • • • • • • • • • 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 • • • • • • • • • • • • 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 Virtual Ask University IRMI an Expert