Homeowner Query Gets Squirrely

Welcome to the merry month of May! Gardens are in full bloom, mothers anticipate their annual day and kids dream of the magical possibilities of summer vacation.

It would seem children aren't the only wild animals dreaming of new frontiers and exploring new worlds. As evidence, I submit the following e-mail from alert reader Mary:

We have been having quite a discussion about HO-3 homeowner insurance versus HO-5 homeowner insurance. We were of the impression that an HO-5 would cover if a squirrel entered into your home via a chimney and did some damage to the woodwork, etc. Some say no coverage no matter what and some say there are companies that would cover it if you submit it as vandalism. Understandable that animals, fish and birds are not covered if they are owned by an insured.

Can you help us decide if we should be selling an HO-5 if it doesn't cover much more than an HO-3 and if vandalism by an "unwanted" animal is covered?

I have taught and written about the possible advantages of the HO-5 for years, but never considered damage arising from "squirrel vandalism"--a key issue that proves again that no matter how imaginative you try to make seminar examples, the real world will be far stranger. As I often tell my students, when you receive that first client phone call that begins "You're not going to believe this...", no assertion will ever prove more accurate. And after all those hours in licensing class discussing the difference between "friendly" (not covered) and "hostile" (covered, assuming it wasn't arson) fires, it was amazing how seldom that knowledge proved useful in the agency. Many was the day when, confronted by the weirdness that constitutes agency claims reports, I found myself praying for a good, clean, hostile fire.

But alas, Mary's squirrel failed to ignite a blaze, settling instead for merely attacking the woodwork with, I assume, its claws and teeth. (A quick joke for your 6-year-olds: What's brown and dangerous and lives in a tree? A squirrel with a bazooka.)

First, we must disabuse ourselves of the tendency to think what "some say" has any bearing on the actual answer. Such "knowledge by folklore," as my old teaching compatriot Preston Mathews aptly called it, is the insurance equivalent of trusting gossip Web sites for actual news.

To separate the fact from the fallacy, perhaps we should instead turn to the insurance equivalent of Snopes.com--the actual forms.

Overall, the HO-5 is superior to the HO-3 for one simple reason: it duplicates the HO-3 coverage on Coverages A and B, while greatly broadening the coverage for Coverage C by changing name peril to special causes of loss ("all risk"). So in answer to Mary's last question, the HO-5 does indeed cover much more than an HO-3.

My favorite examples for choosing the HO-5 arise in the area of electronics/computers. The whole world has gone digital these days. Since digital items (computers, smart phones, e-readers, home theater systems, gaming devices, most appliances and soon seemingly everything we touch) are almost always considered Coverage C, it is critical to get the following HO-3 limitation out of peril No. 15:

15. Sudden And Accidental Damage From Artificially Generated Electrical Current

This peril does not include loss to tubes, transistors, electronic components or circuitry that are a part of appliances, fixtures, computers, home entertainment units or other types of electronic apparatus.

Since the HO-5 has no such limitation, this one provision may be well worth the additional cost of an HO-5 compared with the HO-3.

There are other examples as well, and since new items and risks are coming along every day, it is logical to offer the broadest potential for coverage--special causes of loss instead of named peril--and that means the HO-5.

But even "special causes of loss" has its limits. "Broader" doesn't mean "everything is covered." For example, in Mary's specific question about squirrels, the HO-5 makes no difference. Whether the damaged woodwork is considered building or personal property, neither the HO 5 nor HO 3 will provide coverage. For Coverages A and B, the HO-3 and HO-5 have the same exclusion for damage caused by "(7) Birds, vermin, rodents or insects." Since a squirrel is classified by the appropriate scientific authorities as a "rodent," there is no coverage. Under the HO-5, this exclusion also extends to Coverage C. Under the HO-3, you arrive at the same result for a different reason--there is no named peril covering this squirrel damage, so no luck there, either.

If Mary's question dealt exclusively with squirrels, our task is done. And she accurately points out another special causes-of-loss exclusion that eliminates all coverage for damages caused by "animals owned or kept by an insured."

But what of her further query as to damage caused by other types of "unwanted" animals?

Note the exclusion in the HO-5 and for Coverages A and B in the HO-3 is specific to birds, vermin, rodents or insects. If the damage were done by some other kind of animal--a deer, wolf or skunk, for example--the exclusion would not apply. Thus there would be coverage, and this would be another great argument for using the HO-5 and extending the special causes of loss coverage to Coverage C items as well. Using the HO-3, no Coverage C exists for damage due to any of those animals, since again there is no specific peril applicable.

That brings us to the "vandalism" argument. If it is true, as "some say," that there are carriers out there who will pay these types of claims under that peril, I give those carriers major points for creativity. They are still wrong. Vandalism is not just any random act of damage. As defined in the Merriam-Webster dictionary, the term means "willful or malicious destruction or defacement of public or private property." Clearly some form of intent to cause damage is required, and the courts have consistently upheld this concept. Since "willful" implies a knowing act, how can an animal have such intent? Carriers assuming that type of knowing intelligence on the part of wild animals have no doubt been watching too many Disney movies.

May's anticipation of summer's magical possibilities for our world is a wondrous thing. But in that part of the world we call insurance, be careful to separate wishes and folklore from realities, particularly when it comes to advice and counsel with clients on coverage options and recommendations. The best, most magical way to do that is to read and know your forms.

In fact, I'm such a fan of the forms, I'm considering giving my wife an HO-5 for Mother's Day. Does anyone know where I can get a chocolate one with almonds? Magical possibilities, indeed!