Principles of risk management and insuarance 12th by rejde mcnamara chapter 21

 

Chapter 21
Homeowners
Insurance,
Section II


Agenda
• Personal liability insurance
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–
–
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Section
Section
Section
Section

II
II
II
II

Coverages
Exclusions
Additional Coverages
Conditions

• Endorsements to a Homeowners Policy

• Cost of Homeowners Insurance

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Personal liability insurance
• Personal liability insurance protects the
named insured and family members against
legal liability arising out of their personal
acts
– The insurer pays amount for which the insured is
found legally liable, up to the policy limits
– The insurer also pays defense costs
– The coverage is found in Section II of the
Homeowners policy

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Section II Coverages
• Coverage E protects the insured when a
claim or suit for damages is brought
because of bodily injury or property damage
allegedly caused by an insured’s negligence
– The coverage is broad and based on legal
liability

– The policy contains a per-occurrence limit
– An occurrence is defined as an accident which
results in bodily injury or property damage
during the policy period
– The insurer provides a legal defense, even if the
suit is frivolous or fraudulent
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Section II Coverages
• Coverage F is a mini-accident policy
– Medical payments to others pays the reasonable
medical expenses of another person who is
accidentally injured while on an insured location,
or by the activities of an insured, resident
employee, or animal owned by or in the care of
an insured
– The insured is not required to be legally liable
– Coverage does not apply to the insured or regular
residents of the household, other than a
residence employee
– Coverage applies even if the injury occurs away
from an insured location
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Section II Exclusions
• Some exclusions apply to both Coverage E
and Coverage F, including:
– Liability arising out of the use of a motor vehicle,
with some exceptions
– Liability arising out of the use of an aircraft,
hovercraft, or certain watercraft
– Expected or intentional injury
– Business activities, with some exceptions
– Professional services

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Section II Exclusions
– Liability arising out of the use of an uninsured
location
– War or other hostile military acts
– Liability arising out of the transmission of a
communicable disease
– Bodily injury or property damage arising out of
sexual molestation, corporal punishment, or
physical or mental abuse
– Liability arising out of the use, sale, manufacture,
delivery, transfer, or possession of controlled
substances

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Section II Exclusions
• Several exclusions apply only to Coverage
E:
– Contractual liability
– Property owned by the insured
– Property in the care of the insured, with some
exceptions
– Workers compensation
– Liability for a nuclear incident
– Bodily injury to an insured

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Section II Exclusions
• Other exclusions apply only to Coverage F:
– Injury to a resident employee off an insured
location
– Workers compensation
– Injuries that result from nuclear energy
– Persons regularly residing on the insured location

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Section II Additional Coverages
• The homeowners policy automatically
includes several additional coverages:
– Claims expenses (e.g., court costs, attorney
fees) are covered in addition to the policy limits
for liability damages
– The insurer pays any first-aid expenses incurred
for bodily injury covered under the policy
– Damage to property of others pays up to $1000
per occurrence for property damage caused by
an insured
– Certain loss assessments are covered up to
$1000
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Section II Conditions
• Limit of Liability:
– The insurer’s total liability under Coverage E for
all damages arising from one occurrence will not
be more than the limit shown in the declarations.
– The insurer’s total liability for medical expenses
for bodily injury to one person resulting from an
accident will not exceed the Coverage F limit
shown in the declarations

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Section II Conditions
• Duties after a loss include:
– Written notice of the event must be provided to
the insurer, including the time, place,
circumstances, and names of any claimants and
witnesses
– The injured person (or his/her representative)
must provide written proof of claim and authorize
the insurer to obtain copies of medical records

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Section II Conditions
• An insured may not sue the insurer unless
the insured has complied with the conditions
required in Section II
• The insurance is excess over other valid and
collectible insurance, with some exceptions
• No coverage is provided to an insured who
concealed or misrepresented any
circumstance or material fact or engaged in

fraudulent conduct

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Endorsements to the Homeowners
Policy
• Property owners with special needs can
purchase a variety of endorsements:

– An inflation-guard endorsement provides for an
annual pro rata increase in the limits of
insurance in the Section I coverages
– An earthquake coverage endorsement covers
earthquakes, landslides, volcanic eruption, and
earth movement
– When a personal property replacement cost loss
settlement endorsement is added to the policy,
claims are paid on the basis of replacement cost
with no deduction for depreciation

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Endorsements to the Homeowners
Policy

– The scheduled personal property endorsement
(with agreed value loss settlement) provides
additional coverage for nine classes of property
(jewelry, furs, cameras, musical instruments,
silverware, golfer’s equipment, fine arts, postage
stamps, and rare and current coins) and the
insurer agrees to pay the stated amount for a
scheduled item if a total loss occurs
– A personal injury endorsement is used to extend
liability coverage to legal liability arising out of
personal injury, e.g., false arrest, slander

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Endorsements to the Homeowners
Policy
– A watercraft endorsement provides liability and
medical payments coverage on any inboard or
inboard-outdrive powered watercraft; sailing
vessels 26 feet or more in length; and watercraft
powered by one or more outboard motors
exceeding 25 total horsepower
– A home business insurance coverage endorsement
covers both business property and legal liability
arising out of a home-based business
– An identity theft endorsement reimburses crime
victims for the cost of restoring their identity and

cleaning up their credit report

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Cost of Homeowners Insurance
• Major rating and underwriting factors include:
– Type of construction
– Location of home
– Fire-protection class, which depends on the quality of the
public fire department, accessibility to the fire department,
water supply, and fire hydrants
– Construction costs
– Type of policy
– Deductible amount
– Insurance score: a credit-based score that is highly
predictive of future claim costs

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Cost of Homeowners Insurance
• Insurers also use reports that reveal the
prior claim history of a home
– A Comprehensive Loss Underwriting Exchange
(CLUE) report shows up to five years of

information on property claims, including the
date of loss, type of loss, and amounts paid
– The use of CLUE reports is controversial

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Exhibit 21.1 Tips for Buying a Homeowners
Policy

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Exhibit 21.2 Examples of Wide Variation in
Annual Homeowners Premiums

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Exhibit 21.2 Examples of Wide Variation in
Annual Homeowners Premiums (continued)

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Exhibit 21.2 Examples of Wide Variation in
Annual Homeowners Premiums (continued)

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