2011 Changes in the ISO Homeowners Program

Ted A. Kinney, CIC CPCU ARM AU AAM AAI CPIA CRIS

Introduction:

The last major revision of the ISO Homeowners program was made in October of 2000. ISO is making a new filing that will take effect in 2011. The suggested effective date in most states is May 1, 2011. The new filing includes changes which both broaden and reduce coverage. Some of the revisions are major and some are just minor editorial changes.

This article will deal with 27 major changes in the ISO program. Particular attention should be paid to reductions in coverage as this creates an E&O exposure for agents.

Definition of Insured

The definition of “insured” uses the term “any person named above” in item 5. a. (2) referring to other persons under the age of 21. The item currently reads “(2) other persons under the age of 21 and in the care of any person named above.”

One court determined that the phrase “any person named above” could be interpreted in two different ways and did not reference unnamed relatives and only referenced the named insureds because they are the only persons named in the policy.

To clarify the intent of the definition, item (2) will now read “other persons under 21 and in your care or the care of a resident of your household who is your relative.”

Impact: There is no change in coverage.

Deductible Provision

In the 2000 edition, a deductible provision was introduced in the policy and the sample declaration page removed the words concerning the application of the deductible.

Several carriers reported it is common, when multiple deductibles apply to a loss, for only the higher deductible to apply.

The deductible provision is being revised to more explicitly express that the deductible applies on a per loss basis and to introduce a sentence to state that when multiple deductibles apply to a loss, only the higher deductible will apply.

Impact: The statement regarding multiple deductibles is a broadening of coverage. There may be a reduction in coverage for certain endorsements:

May be a reduction in coverage due to an increase in the deductible from $250 to $500 in the following forms:

HO 04 36 Loss Assessment Coverage for Earthquake

HO 04 54 Earthquake

HO 04 55 Identity Fraud Expense Coverage

HO 04 59 Assisted Living Care Coverage – will be a broadening of coverage as the result of the removal of the deductible

HO 04 95 Limited Water Back-Up and Sump Pump Discharge or Overflow Coverage – may result in a broadening or reduction of coverage due to the policy deductible applying to the coverage

HO 05 28 Owned Motorized Golf Cart Physical Damage Loss Coverage – may be a reduction of coverage due to the elimination of the deductible applying separately to each golf cart

Personal Property Located In Self-Storage Facilities

The current homeowners program provides worldwide coverage for personal property. There is a 10% limit of liability for Coverage C personal property (or $1,000 whichever is higher) for personal property “usually located” at an insured’s residence other than the “residence premises”. The policy does not address personal property in a self-storage facility.

Section I is being revised to limit personal property located in self-storage facilities to 10% of the Coverage C limit (or $1,000 whichever is higher).

In the HO 00 08, the heading in paragragh C.2. underSection I is being revised to read “Limit For Property At Other Locations” instead of “Other Residences”.

In the HO 00 08 and HO 04 30, Theft Coverage Increase is being revised to specify that personal property in a self-storage facility will be considered on the “residence premises” for purposes of theft coverage under Section I – Perils Insured Against in Paragraph 9.c. in HO 00 08 (9.a. in HO 00 04)

An optional buy-back endorsement, HO 06 14 Increased Amount of Insurance For Personal Property Located at Self-Storage Facilities, is being introduced to provide for an increase in coverage.

HO 04 50 Personal Property At Other Residences – Increased Limits is being revised for consistency with the new HO 06 14 endorsement

Impact: This is a reduction in coverage.

Electronic Equipment Limits

The homeowners policy provides coverage for electronic apparatus and accessories located anywhere in the world subject to certain conditions and exceptions. Electronic apparatus and accessories designed to be operated solely by power from the electrical system of a motor vehicle while the property is in or on the vehicle is listed as “property not covered.” Accessories include antennas, tapes, wires, records, discs or other media that can be used with electronic apparatus.

Concerns have been expressed that there may be a gap in coverage between the homeowners policy and the Personal Auto Policy for tapes, CD’s, records, etc. that are in or up a motor vehicle at the time of loss.

To address the concerns, the following changes are being made:

Under Section I, Coverage C, 3. Special Limits of Liability, a $250 sublimit is being introduced for antennas, tapes, wires, records, discs or other media that are in or on a motor vehicle and are used with electronic equipment that reproduces, receives or transmits audio, visual or data signals. (In the current edition, provision j. provides a sublimit for antennas, tapes, etc. in or upon a motor vehicle but only if those items are used with electronic apparatus “equipped to be operated by the power from the motor vehicle’s electrical system while still being capable of being operated by other power sources.”)
Provision j. is being revised to reference “portable electronic equipment” rather than “electronic apparatus and accessories” with the respect to the $1,500 sublimit.
Provision i. is being removed. The provision applied a $1,500 sublimit to electronic apparatus and accessories used primarily for business while away from the residence premises and not in or upon a motor vehicle.

The $500 sublimit for business personal property away from the residence premises is being increased to $1,500.

Under Section I, Coverage C.4. Property Not Covered, the motor vehicle preclusion is being revised to specify that portable electronic equipment that reproduces, receives or transmits audio, visual or data signals and is designed so that it may be operated from a power source other than the motor vehicle’s electrical system is covered.

HO 04 12 Increased Limits on Business Property is being revised to reflect the change in the “off premises” business property sublimit. Since the sublimit is being tripled (from $500 to $1,500), the percentage shown in the endorsement is being changed from 20% to 60%.

Impact:

The introduction of the sublimit for antennas, tapes, wires, discs and other media that are in or on a motor vehicle and are used with electronic equipment that reproduces, receives or transmits audio, visual or data signals is a reduction of coverage.

The increase of the limit for business property away from the premises is a broadening of coverage.

Collapse Coverage

In the current policy, Section I – Perils Insured Against excludes loss involving collapse under Coverages A and B.

The Additional Coverage of Collapse provides that coverage applies only with respect to the “abrupt falling down or caving in of a building or any part of a building.” Coverage does not apply to “a building or any part of a building in danger of falling down or caving in.”

In the case of 401 Fourth Street, Inc. v. Investors Insurance Group, the Pennsylvania Supreme Court stated:

“We conclude that the policy language (risk of direct physical loss involving a collapse of a buildingor part of a building) provides coverage that extends beyond the situation in which an insured’s building falls to the ground, even in light of the traditional interpretation of the term “collapse.” It covers not only loss for a collapse, but also the risk of loss involving a collapse. To interpret this broad policy language to be limited to only the falling down of the building, even under existing case law, would be to give too narrow an interpretation to the broad language drafted by the insurer.”

In response to issues raised in this and other recent court decisions which have found coverage where none was intended , Section I – Perils Insured Against and Section I – Additional Coverages – Collapse are being revised.

In the current program, the policy covers risk of direct physical loss, but states, “We do not insure, however, for loss involving collapse.”

The collapse exclusion now reads, “We do not insure, however, for loss: “involving collapse, including any of the following conditions of property or any part of the property: (1) an abrupt falling down or caving in; (2) loss of structural integrity, including separation of parts of the property or property in danger of falling down or caving in; or (3) any cracking, bulging, sagging,

bending, leaning, settling, shrinkage or expansion as such condition relates to (1) or (2) above.” There is an exception for coverage provided in section E.8. Additional Coverage - Collapse.

In section E. Additional Coverages, the collapse coverage has been reworded. It specifically states that “The coverage provided under this Additional Coverage – Collapse applies only to an abrupt collapse.” It further clarifies that, “For the purpose of this Additional Coverage – Collapse, abrupt collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.”

It also clarifies that, “This Additional Coverage – Collapse does not apply to (1) a building or any part of a building that is in danger of falling down or caving in; (2) a part of a building that is standing, even if it has separated from another part of the building; or (3) a building or any part of a building that is standing, even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion.”

Additional words are being added to the hidden decay and insect or vermin damage perils to reinforce that coverage applies to decay or insect or vermin damage to the covered property itself. The decay peril reads, “Decay, of a building or any part of a building.” The insect peril reads, “Insect or vermin damage, to a building or any part of a building.”

Impact: There is no change in coverage.

Section I – Perils Insured Against

Prior to the 1984 edition of form HO 00 03, the perils insured against section included the term “all risks.” (We insure for all risks of physical loss…”). The word “all” was deleted in the 1984 revision to correct the misconception that the term “all risks” meant that the coverage applied with out regard to the policy exclusions. At that time, the wording was changed to, “We insure against risk of direct loss to property described in Coverages A and B only if that loss is a physical loss to property.” In the 2000 edition, the wording was changed to read, “We insure against risk of direct physical loss to property described in Coverages A and B.”

As was previously mentioned, the Pennsylvania Supreme Court in the 401 Fourth Street, Inc. v. Investors Insurance Group case felt that the term “risks of direct physical loss” should be interpreted broadly. In the case to determine the meaning of collapse as used in the policy, the court stated, “It covers not only loss for a collapse, but also the risk of loss involving a collapse. To interpret this broad policy language to be limited to only the falling down of the building, even under existing case law, would be to give too narrow an interpretation to the broad language drafted by the insurer.”

While the exact policy language reviewed in this case does not appear in the ISO homeowners policy language, it is analogous to the homeowners language and ISO felt a revision was necessary to reinforce the policy language. Therefore, the term “risk” is being deleted from the provisions related to Perils Insured Against in various forms and endorsements.

Impact: There is no change in coverage.

Vermin Preclusion

In the current policy, loss caused by birds, vermin, rodents, insects and animals owned or kept by the insured is excluded. Several insurers and agents suggested the term “vermin” be removed and carriers suggested the section be revised to include reference to nesting, infestation and discharge or release of waste products or secretions by any animal similar to the wording in the ISO Commercial Property forms.

In Section I, Perils Insured Against exclusions, the word “vermin” is being deleted and wording addressing nesting, infestation and discharge or release of waste products by any animals is being added.

Impact:

The deletion of the word “vermin” is a broadening of coverage.

The addition of the provision related to “nesting, infestation, or discharge or release of waste products or secretions” which applies to “any animals” (not just animals owned or kept by the insured) is a reduction of coverage.

Theft Peril

In the current policy, the peril of theft provides coverage for personal property of a student while at a residence the student occupies as long as the student has been at the residence during the 60 days immediately prior to the loss. Since the typical summer break lasts closer to 90 days than 60 days, the current 60 day requirement does not meet the need of most students.

The number of days in the preclusion of coverage in the theft peril is being increased from 60 to 90 days.

Impact: This is a broadening of coverage.

Earth Movement Exclusion

In 2008, considering the issues raised after Hurricane Katrina related litigation, ISO introduced endorsements to replace the Water Damage Exclusion in the homeowners forms. Change number 10 of the new policy revisions incorporates the endorsement wording into the policy forms.

The Earth Movement exclusion is being revised for consistency with the Water Damage Exclusion. The new language reinforces the scope of the Earth Movement Exclusion by stating that the exclusion applies regardless of the cause (whether caused by nature or otherwise caused).

The new wording states, “This exclusion A.2. applies regardless of whether any of the above, in A.2.a. through A.2.d. (earthquake, including land shock waves or tremors before, during or after a volcanic eruption; landslide, mudslide or mudflow; subsidence or sinkhole; or any other earth movement including earth sinking, rising or shifting) is caused by an act of nature or otherwise caused. However, direct loss by fire, explosion or theft resulting from any of the above in A.2.a through A.2.d. is covered.”

Impact: There is no change in coverage.

Water Exclusion

In 2008, endorsements HO 16 09 and HO 16 10 Water Damage Exclusions replaced the basic water damage exclusion in the homeowners forms in response to litigation related to Hurricane Katrina. It was stated at that time that the endorsement language would be incorporated into the next program revision.

To refresh our memories regarding the wording added by the Water Damage Exclusion endorsement:

The flood exclusion wording includes tidal wave and tsunami, tides and tidal water

Waterborne material carried or otherwise moved by any water referred to is excluded

The exclusion applies regardless of whether the water damage is caused by an act of nature or is otherwise caused

The exclusion applies to but is not limited to escape, overflow or discharge, for any reason, of water or waterborne material from a dam, levee, seawall or any other boundary or containment system

The HO 16 10 Water Damage Exclusion inadvertently omitted the revised language as it applied to the HO 00 05 form. This is being corrected.

The Water Damage Exclusions (HO 16 09 and HO 16 10) are being withdrawn

In addition to the policy forms, several endorsements are being revised to reflect the revisions to the exclusion:

HO 04 14 Special Computer Coverage

HO 04 36 Loss Assessment Coverage for Earthquake

HO 04 54 Earthquake

HO 04 95 Limited Water Back-Up and Sump Discharge or Overflow Coverage

HO 05 24 Special Personal Property Coverage

HO 07 55 Special Coverage – Spoilage of Perishable Stock

HO 17 31 Unit-Owners Coverage C Special Coverage

HO 17 32 Unit-Owners Coverage A Special Coverage

Impact: There is no change in coverage relative to the intended design of the water damage exclusion endorsements.

Motor Vehicle Exclusion

The 2000 program introduced the word “solely” to the policy language in Section I Property Coverage and Section II Liability Coverage. Section I excludes property loss to “motor vehicles” except those used solely to service an insured’s residence. Section II excludes “motor vehicle liability” unless the motor vehicle is used solely to service an insured’s residence.

Many agents expressed concern that the phrase “used solely” may prevent recovery of an otherwise covered claim for a vehicle used to service an insured’s residence because the vehicle was used at one time in the past to service a neighbor’s residence. Similar concerns were raised regarding an insured renting or borrowing a riding mower from a neighbor to cut his or her own grass.

The policy language in both Section I Property Coverage and Section II Liability Coverage is being revised to delete the reference to “an insured’s” residence. The new wording says, “used solely to service a residence.”

Impact: This is a broadening of coverage.

Toy Vehicles Provision

The current exceptions to the motor vehicle liability exclusion do not address toy vehicles, including those designed for use by small children. Agents have expressed concern that small vehicles of this type have no coverage off the “insured location” unless the HO 24 13 Incidental Low Power Recreational Motor Vehicle Liability Coverage endorsement is attached to the policy.

The motor vehicle liability exclusion is being revised to address this concern. An exception is being introduced with respect to owned battery-operated, low-speed toy vehicles used off the “insured location”. The vehicle must be designed as a toy for use by children under age seven, powered by one or more batteries and not built or modified to exceed a speed of five miles per hour on level ground.

The HO 24 73 Farm Personal Liability endorsement is also being revised to include the exception with respect to owned battery-operated, low-speed toy vehicles used off the “insured location”.

Impact: This is a broadening of coverage.

Expected or Intended Injury Exclusion

In the current program, bodily injury or property damage expected or intended by an insured is excluded. There is an exception for bodily injury resulting from the use of reasonable force to protect persons or property.

Some insurance regulators have suggested the exception be extended to include property damage.

They felt that some insureds would expect property damage to be covered along with bodily injury.

The exception to the Section II – Liability Expected or Intended Injury exclusion is being revised to include property damage resulting from the use of reasonable force to protect persons or property.