Property Module I

Property Module I

Objective of this Module The objective of this module is to provide you with a good understanding of the Homeowners Property and Liability coverage's, as well as the various “Property” policy forms available in Texas. Knowledge of these products will help you, in conjunction with clients, to develop an insurance program that meets their needs and wants.

The Property Policy Contract • Any individual or family faces many exposures to risks. Three major risks are: • Their house could be destroyed or damaged (if they own a home). • Contents of their house could be destroyed or damaged. • They could be held liable (and be sued) for an accident occurring on their premises, for an accident resulting from their activities away from home.

The Property Policy Contract The Homeowners policies are designed to protect a person or family against these risks. Whether clients own or rent a home, condominium, or mobile home, Homeowners insurance is valuable protection they should not be without. Farmers writes property insurance in all states that we operate. Your personal lines manual describes the available policies as well as corresponding customer selection guidelines, coverage extensions, coverage limits, etc. This will all be discussed in more detail later in your training.

The Policy Contract Our discussion of the contract basics will begin with a review of the Homeowners Policy - Form B, which we refer to as the HOB. Not all items in the contract will be explained or expanded upon in that we are covering a lot of information in a short period of time. Because of this, we encourage you to review the contract in your own time and list any questions that you might have for further class discussion.

Construction of the Contract • Each policy contract contains the following sections (Remember: DICE): • Declarations • Insuring Agreement • Conditions • Exclusions

Construction of the Contract Let’s take a closer look at two of these sections of the contact: DECLARATIONS: Also known as the dec page or face sheet. It is attached to the policy and includes such information as insured’s name and address, description of the property and locations, coverage limits, premium, mortgage (if any), numbers for attached endorsements, etc. AGREEMENT: This explains just what the company promises to do in return for the premium paid and compliance with the policy’s provisions.

Definitions Before getting further into the policy contract it is important to become familiar with the basic definitions. “You” and “your” refer to the named insured in the Declarations and the spouse (if a resident of the same household). “We”, “us” and “our” refer to the company issuing this policy (i.e., the Fire Insurance Exchange or Farmers Insurance Exchange). Policy Contract page 3

Definitions INSURED - is/are the person or persons named on the Declarations. This can be an individual; however, it is frequently a husband and wife. Relatives and other persons under the age of 21 are only covered if they are residents of the insured’s household. OCCURRENCE - is defined as an accident, or repeated exposures to conditions, which cause bodily injury or property damage during the policy period. RESIDENT PREMISES - means the one- or two- family dwelling and separate (other) structures where the insured resides. Policy Contract page 3

Major Sections of the Policy • The Homeowners policy is divided into two large coverage sections: • SECTION I - PROPERTY COVERAGE • Coverage A - Dwelling • Coverage B - Personal Property • SECTION II - LIABILITY COVERAGE • Coverage C - Personal Liability • Coverage D - Medical Payments to Others

Section I - Property Coverage's COVERAGE A - DWELLING - What’s Covered • The dwelling, including any attached structures ( such as an attached garage). Policy Contract Page 4, Section 1 #1

Section I - Property Coverage • Pause here to take a minute to review the policy contract for the following questions: • In most states, materials and supplies used in the construction of the dwelling or other structures are specified as be covered. Is this true for Texas? • In most states, wall-to-wall carpeting attached to the dwelling is specified as being considered part of the dwelling. Is this true for Texas?

Important! Proper Insurance to value is one of the most important considerations in insuring property; the insured needs to be properly protected. It is, therefore, important to write Coverage A in an amount close to the replacement cost of the dwelling as possible. (This may bear little relation to its market value.)

Determining Replacement Cost • The Computerized Dwelling Replacement • Cost Estimation Program is designed to • properly establish and maintain adequate • insurance to value. • The program calculates the minimum estimated replacement cost, based on local labor and material cost, square footage, construction type, heating and air conditioning, etc. • Clients should be advised to keep you posted on any additions, renovations, or major purchases; it is required by the policy. These can boost the amount of coverage needed.

Determining Replacement Cost Pause here to examine the Replacement Cost Worksheet and to discuss Co-Insurance.

Coverage A - Separate Structure This provides coverage for structures that are detached from the dwelling, such as detached garages, swimming pools, fences, tool sheds, guest houses and other outbuildings on the premises. The Separate (Other) Structures limits is typically 10% of the Dwelling Coverage (Coverage A). This is an additional amount of insurance; it does not reduce the Coverage A limit of coverage. Pause here to review this section in the policy contract located on pages 4, #Coverage A #2

Coverage B - Personal Property • Personal property owned or used by the insured is covered anywhere in the world. Required coverage is limited to: • 50% of Coverage A for Actual Cash Value • 60% of Coverage A for Replacement Cost • Coverage is limited to 10% of Coverage B or $1000, whichever is greater for: • Personal property owned or used by the insured is anywhere else in the world, other than the residence premises. • As specified , for personal property of a residence employee. • The contract states that this is additional insurance; it does not reduce the Coverage B limit of coverage. Policy Contract page 4 Coverage B

Coverage B - Personal Property Special Limits for Certain Types of Property • $100 on money or numismatic (coins or currency) property or loss by theft or unauthorized use of bank funds transfer cards registered to the insured. • $500 on gold or silver bullion, manuscripts, notes, securities, stamps, evidences o debt, etc. • $500 for loss by theft of gems, watches, jewelry or furs. • Remember, some of these may be amended by an endorsement to raise these limits. Policy Contract page 4 Coverage B

Coverage B - Personal Property Property Not Covered • Animals or birds. Pets are excluded because they are difficult to value. • Motor Vehicles. Generally, motor vehicles are excluded. • What does and does not constitute a motor vehicle is explained in the “Definitions” section. • Aircraft and their parts. • Property usually rented to others off the residence premises. • Consult the property contract for any other categories of property not covered. Policy Contract page 4-5 Coverage B

Important Points to Remember • When coverage is either limited or excluded under the Homeowners policy, this does not necessarily mean that the coverage is not available. Coverage may be provided via endorsements or separate policies. These can help you structure on insurance program to meet the needs and wants of clients. • Written documentation and photographs or videotapes of these possessions are excellent ways to help determine appropriate coverage. They are also important should there be a loss. • You can order Farmers’ “Household Contents Inventory Record” booklet to provide to clients.

Coverage D - Loss of Use • Payment option is 20% of Coverage A • In addition to covering the dwelling, other structures and personal property, the policy also provides “Loss of Use” coverage. When needed, this coverage is very valuable. • **NOTE -An HOA only provides 10% of Coverage A • Additional Living Expense. If a covered loss forces the insured to leave the insured premises, the necessary (additional) expenses needed to maintain a normal standard of living are paid. The insured must actually incur the expense. • Loss of Rents (Fair Rental Value in some states). If a covered loss makes part of the insured premises rented to others unsuitable to live in, the loss of rents is reimbursed to the insured. Policy Contract page 5

Coverage D - Loss of Use Use your policy contract to answer the following: • 1. If a loss caused by a Peril insured Against under Section I makes the residence premises wholly or partially untenantable, do we cover: • additional living expenses so that your household may maintain its normal standard of living? • Fair rental value for loss of rent monies which were paid for the part of the residence premises that do not continue? Yes, it is covered. Yes, it is covered. Policy contract page 5

Extensions of Coverage These are supplemental benefits that expand insurance protection. Many may seem incidental; however, if not covered, they could add up to a substantial amount. Policy Contract page5-6

Extension of Coverage Debris Removal If damage to the covered property plus the expense for removing debris exceeds the Dwelling coverage amount on the property, the policy provides an additional 5% of the Coverage A limits toward the cost of debris removal. Is this stipulated in your state’s policy?Review page 5-6, Extension of Coverage 1-A for the answer.

Extension of Coverage Emergency Repairs This pays for reasonable (necessary) repairs made solely to protect the insured property from further damage. This would include repairs such as boarding up broken windows or covering a hole in the roof. The damage must be caused by an insured peril. Review page 5-6, #3 of the policy contract.

Extension of Coverage Trees, Shrubs, Plants and Lawns They are covered against named perils. Note that windstorm and hail are not specified as covered perils. This coverage provides up to 5% of the Dwelling coverage; the limit of payment for any one tree, plant or shrub is $250.00. Is this coverage considered additional insurance ( in addition to the policy limit)? See page 5-6, #4 of the policy contract.

Extension of Coverage Fire Department Service Charges Up to a specific amount will be paid as an additional amount of insurance for service charges made by a Fire Department in answer to a call. No deductible applies. This coverage is not provided in Texas.

Extension of Coverage Emergency Removal of Property • This provides that covered property is insured for direct loss from any cause: • While being removed from the premises when endangered by loss from a covered peril; and • While removed for a specified amount of time. • What is the amount of time specified in your policy? See page 5, #5 Extensions of Coverage.

Extension of Coverage Credit Card, Fund Transfer (Debit Card), Forgery and Counterfeit Money • The insured is covered up to $100 for loss caused by the following. (This does not increase the coverage B limit of insurance.) • Theft or unauthorized use of credit cards or debit cards. • Forgery or alteration of a check or other negotiable instrument. • Acceptance in good faith of counterfeit U.S. or Canadian paper money. Policy Contract page4

Extension of Coverage Credit Card, Fund Transfer (Debit Card), Forgery and Counterfeit Money • The defense coverage is also valuable. It typically specifies that we: • Will defend the insured in any claim or suit brought against the insured concerning the Credit or Debit card coverage's. • Have the option to defend the insured or the insured's bank against a suit for the enforcement of payment under the Forgery Coverage. Policy Contract page 10

Extension of Coverage Credit Card, Fund Transfer (Debit Card), Forgery and Counterfeit Money • There are exclusions under certain situations, including loss arising from the following: • Business Pursuits • Dishonesty of the insured Policy Contract page 4

Extension of Coverage Collapse of Buildings • Collapse is typically not the proximate cause of a loss, rather it is the result of some other cause. This could include: • Weight rain that collects on a flat roof. • Weight of contents, people or equipment while on a roof. • Collapse of Building applies to Coverage B in Texas. • Does Texas contain this coverage? Under which section is it addressed? See Page 6 & 7

Extension of Coverage Loss Assessment • Many homeowners belong to an association of property owners. This coverage provides up to $50,000 in $1,000 increments when: • The assessment results from direct loss to collectively owned property covered by a peril insured against under Coverage A (Dwelling). • The insured, as owner or tenant of the residence premises, is charged an assessment by a corporation or association of property owners; and • The assessment is not charged against the insured or the association by a governmental body. • Is this coverage provided in the Texas policy contract? Coverage can be added by endorsement

Extension of Coverage Consequential Loss This coverage, which is provided in the Texas Homeowners Policy - Form B, deals with the loss of personal of property from sudden temperature change. The loss must result from physical damage to the home caused by a covered peril.

Extension of Coverage Building Ordinance or Law Coverage We do not cover loss caused by or resulting from the enforcement of any ordinance or law regulating the construction, repair or demolition of a building or structure

Extension of Coverage Important! Take time to review all of the “Extensions of Coverage” in the policy contract. If you have any questions, please bring them to the next class.

Section I - Perils Insured Against The Texas Homeowners Policy - Form B (HOB) covers the dwelling and separate (other) structures on an “accidental direct physical loss” basis; personal property is covered on a “named peril” basis. Let’s review these terms.

Section I - Perils Insured Against • Named-peril basis - If a loss is caused by a peril that is named, the loss is covered. If it’s not named in the policy, it’s not covered. • Accidental direct physical loss (ADPL) - Covers losses by all perils except those that are excluded. ADPL is said to be “defined by exclusions.”

Applying to Coverage A The perils that the policy insures against are not listed in the policy itself. The policy states that we insure against “all risks of physical loss” to the property described in Coverage A unless the loss is specifically excluded.

Applying to Coverage B The policy states that we insure for accidental direct physical loss to property described in the Personal Property section, subject to Section I exclusions and limitations, caused by one (or more) of the named perils.

Applying to Coverage B • The partial list includes: • Fire and Lightning • Windstorm, Hurricane and Hail • Riot and Civil Commotion • Sudden and Accidental Damage from Smoke. • Aircraft • Vehicles • Vandalism • Theft • Freezing of a household appliance. • Accidental discharge, leakage, or overflow of water or steam. • Falling objects

Section I - Exclusions Since coverage for the dwelling and separate structures is basically defined by the exclusions, it’s important to review them. You and the insured need to know exactly what they are purchasing.

Section I - Exclusions Water Damage Including damage from flooding, surface water, tidal waves, and water backing up through sewers and drains. The policy provides examples to clarify this particular exclusion. They are located on page 7, #1 I of the policy contract. Please take time to review this and prepare to discuss any questions in next weeks class. IMPORTANT: Flood insurance is available through the federally sponsored Flood Program. This will be discussed in detail later in your training.

Section I - Exclusions Nuclear hazard This includes any nuclear reaction, radiation, or radioactive contamination. If however, nuclear hazard causes direct loss by fire, the loss will be covered.

Section I - Exclusions Enforcement of any ordinance or law Any enforcement of any ordinance or law regulating the construction, repair or demolition of a building or other structure, unless specifically provided (endorsed) by the policy.

Section I - Exclusions Power failure Power failure off the insured premises, except when a peril insured against ensues on the premises. In such a case, coverage applies only for the ensuing loss.

Section I - Exclusions Neglect If the insured does not use reasonable means to protect the property at and after the time of loss, the loss is not covered.

Section I - Exclusions War No additional explanation needed!

Section I - Exclusions Theft Theft from a home under construction, including any building material and supplies for use in the construction not on the residence premises. Policy Contract page 4 d (2)

Section I - Exclusions Vandalism Vandalism or glass breakage if the house has been vacant for more than 60 days.

Property Module I