Summary: The AAIS property coverages as found in the current homeowners forms are discussed in the following pages. In 1996, the AAIS forms were revised; prior to that the forms were numbered, for example, form 3, 7/88 edition. The current edition is edition 2.0. Although the form analyzed below is form 3, the special form, significant differences from the other forms, such as 8 and 5, are noted.
Topics covered:
Introduction
Definitions
Principal property coverages
Incidental property coverages
Perils insured against—coverages A and B
Perils insured against—coverage C
Exclusions that apply to property coverages
Introduction
As discussed earlier see AAIS Homeowners Program, there are seven coverage forms in the homeowners program. Forms 1 and 8 are limited as to coverage, and are used for the insured who either does not wish, or is not eligible for, the broader coverage provided by the other forms. Form 4 may be used for the tenant homeowner, or for the co-owner of a two- to four-family dwelling. Form 6 is used for a cooperative apartment or for a condominium insured. Form 5 provides “open perils” building and contents coverage.
Definitions
The following definitions pertain to the property coverages. (Those used in the liability coverage section are discussed elsewhere; see Liability Coverages—AAIS Homeowners.
1. The words “you” and “your” mean the person or persons named as the insured on the “declarations”. This includes “your” spouse if a resident of “your” household.
2. The words “we”, “us”, and “our” mean the company providing this insurance.
4. ”Business” means a trade, a profession, or an occupation including farming, all whether full or part time. This includes the rental of property to others. It does not include the occasional rental for residential purposes of the part of the “insured premises” normally occupied solely by “your” household.
”Business” includes services regularly provided by an “insured” for the care of others and for which an “insured” is compensated. A mutual exchange of like services is not considered compensation.
”Business” does not include:
a. part-time or seasonal activities that are performed by minors; or
b. activities that are related to “business”, but are usually not viewed as “business” in nature.
Analysis
A profit motive is normally the hallmark of a business. Although it has been argued that a part-time business falls outside the “trade, profession, or occupation” characterization (see, for example, North Carolina Farm Bureau Mutual Ins. Co. v. Briley, 491 S.E.2d 656, 11997), the AAIS language makes it clear that part-time activities, including rental of property to others, does, indeed, constitute a business. (Occasional rental, for residential purposes, of the part of the insured premises normally occupied by the named insured's household is not considered a “business.” Also see Liability Coverages—AAIS Homeowners.
Providing foster or day care services are among the services regularly provided to others that constitute a business. However, if the services are exchanged for like services, and no money changes hands, then the activity is not a business. Note that seasonal or part-time activities engaged in by minors are not considered a “business.” Such activities could include working as a life guard, mowing grass, or baby-sitting—in other words, activities normally associated with youngsters do not constitute “business” activities. (There is no similar exception in the ISO form.) Note, as well, that activities related to a “business,” but not usually viewed as “business” in nature, are not considered, for coverage purposes, to be a “business.” For example, if an insured took a client to dinner and negligently spilled coffee on the client's clothes, coverage would apply.
5. ”Declarations” are all pages labeled Declarations, Supplemental Declarations, or Schedules which pertain to this policy.
6. ”Domestic employee” means a person employed by an “insured” to perform duties that relate to the use and care of the “insured premises”. This includes a person who performs duties of a similar nature elsewhere for an “insured”. This does not include a person while performing duties in connection with the “business” of an “insured”.
7. ”Insured” means:
a. ”you”;
b. ”your” relatives if residents of “your” household;
c. persons under the age of 21 residing in “your” household and in “your” care or in the care of “your” resident relatives; and
d. ”your” legal representative, if “you” die while insured by this policy. This person is an “insured” only for liability arising out of the “insured premises”. An “insured” at the time of “your” death remains an “insured” while residing on the “insured premises”.
8. ”Insured premises”
a. Described Location: If “you” own and reside in the “residence” shown on the “declarations” as the described location, the “insured premises” means:
1) that “residence”; and
2) related private structures and grounds at that location.
If the “residence” is a townhouse or a row house, item 2) above includes only related private structures and grounds at that location used or occupied solely by “your” household for residential purposes.
9. ”Limit” means the amount of coverage that applies.
10. ”Motorized vehicle” means a self-propelled land or amphibious vehicle regardless of method of surface contact.
This does not include vehicles that are designed and used to assist the handicapped and are not required to be licensed for road use.
11. ”Motor vehicle” means a “motorized vehicle”, a trailer, or a semi-trailer, and all attached machinery or equipment, if:
a. it is subject to “motor vehicle” registration; or
b. it is designed for use on public roads.
13. ”Pollutant” means:
a. any solid, liquid, gaseous, thermal, or radioactive irritant or contaminant, including acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials to be recycled, reclaimed, or reconditioned, as well as disposed of; and
b. electrical or magnetic emissions, whether visible or invisible, and sound emissions.
16. ”Residence” means a one- to four-family house, a townhouse, a row house, or a one- or two-family mobile home used mainly for family residential purposes.
17. ”Terms” means all provisions, limitations, exclusions, conditions, “declarations”, and definitions used in this policy.
Analysis
Portions of the definitions of “insured” and “insured premises” are given here only insofar as they apply to the property coverages discussed. The remainder of these definitions is included in the discussion of liability coverages see Liability Coverages—AAIS Homeowners. The AAIS form distinguishes, in the definitions, those parts of any given definition that apply to the liability rather than the property coverages.
Although many of the definitions are similar to those found in the ISO homeowners forms, there are important differences. The AAIS form defines “declarations,” “limits” and “terms” so there is no misunderstanding on the part of the policyholder.
The definition of “insured” includes, in event of the named insured's death, his or her legal representative. This grant of coverage appears in the section I and II conditions of the ISO form.
“Motorized vehicles” are distinguished from “motor vehicles.” A “motorized vehicle” is a self-propelled land or amphibious vehicle, regardless of how it makes contact with the surface, that is not necessarily subject to motor vehicle registration. Such a vehicle could be a riding mower or a snowmobile. A “motorized vehicle” may be included in the definition of “motor vehicle” if it is subject to registration, or designed to be used on public roads. The motor vehicle may not necessarily be registered, as, for example, an auto in dead storage; however, it is still considered a “motor vehicle” since it is designed for use on public roads.
Note that the definition for “insured premises” (the “insured location” under the ISO form) states that, if the insured's “residence” is a townhouse or rowhouse, then the related private structures and grounds at that location include only those used or occupied solely by the named insured's household for residential purposes.
The definition of “pollutant” includes electrical and magnetic emissions and sound emissions, as well as the commonly-used items such as solid, liquid, or gaseous irritants or contaminants. A claimant's ear-drum ruptured because of an insured's boom-box could therefore be a loss attributed to pollution.
The special building and contents form 5 contains two additional definitions. In that form, number 19, “specified perils,” essentially consists of the form 3 coverage C named perils. Number 21 in form 5 defines “volcanic action”—”airborne volcanic blast or airborne shock waves; ash, dust, or particulate matter; and lava flow.” Not included in this definition is the cost to remove ash, dust, or particulate matter that does not cause direct physical loss to covered property.
Principal Property Coverages
Coverage A—Residence
“We” cover the “residence” on the “insured premises”. This includes additions and built-in components and fixtures, as well as building materials and supplies located on the “insured premises” for use in the construction, alteration, or repair of the “residence”.
“We” do not cover land, including the land on which covered property is located, underground water, or surface water.
“We” do not cover trees, plants, shrubs, or lawns, except as provided under Incidental Property Coverages.
Analysis
Note that the “residence” on the insured premises is covered. Since a “residence” can be a one- to four-family dwelling or even a mobile home, coverage A applies without an endorsement being attached to the policy. The contents broad form (tenant homeowners form 4) makes no reference to coverage A, since there is no residence to be insured. Coverage A—Residence in unit-owners form 6 omits reference to the residence as well, covering instead “fixtures, alterations, decorations, additions, installations, and appliances that are part of [the named insured's] unit.” Coverage A for the unit-owner also includes “structures at the described location owned solely by the 'insured' other than the 'insured premises'; property that is 'your' insurance responsibility under an agreement with an association or corporation of property owners; and items of real property pertaining to the 'insured premises'.” So, for example, the unit-owners form covers such items within the unit as built-in cabinetry or wall-to-wall carpeting if the condominium association agreement requires the insured to provide insurance. Other items covered could include an outdoor carport or air conditioning unit.
Coverage B—Related Private Structures
“We” cover related private structures on the 'insured premises' which are not attached to “your” “residence”. Structures that are connected to “your” “residence” by only a fence, a utility line, or a similar connection are not considered attached.
“We” cover fences, driveways, sidewalks, and other permanently installed outdoor fixtures, and building materials and supplies located on the “insured premises” for use in the construction, alteration, or repair of a related private structure.
“We” do not cover land, including the land on which covered property is located, underground water, or surface water. “We” do not cover structures used for “business” purposes. However, this does not apply to structures:
1. rented to a tenant of the “residence” on the “insured premises” and not used for “business”; or
2. used solely for private garage purposes.
“We” do not cover trees, plants, shrubs, or lawns, except as provided under Incidental Property Coverages.
Analysis
Structures that are not attached to the residence, or are attached by only a fence or a utility line—wiring or plumbing running to the structure—are covered, unless they are used for business purposes. Structures rented to a tenant of the residence, unless used for business, or a structure used solely for a private garage are excepted. The wording of the coverage makes it clear that driveways, sidewalks, or other permanently installed outdoor fixtures such as a brick barbecue pit or shuffleboard court are included.
Excluded from coverage under both coverages A and B are land and underground or surface water. So, for example, if the insured discovers that a pond on the premises is polluted, there is no coverage for clean-up.
Coverage C—Personal Property
1. ”We” cover personal property owned by or in the care of an “insured”. Coverage for personal property usually on residential premises of an “insured other than the “insured premises” is limited to 10 percent of the Coverage C “limit”.
2. ”We cover personal property in a newly acquired principal place of residence. The full Coverage C “limit” applies for 30 days from the date “you” begin to move. After that, coverage for personal property in a newly acquired principal place of residence is limited to 10 percent of the Coverage C “limit”. This coverage does not extend past the date on which the policy expires or the date on which the policy is terminated.
3. At “your” option, personal property owned by a guest or “domestic employee” is covered while it is in that part of residential premises occupied by an “insured”.
4. Limitations on Certain Property—The special “limits” shown below do not increase the Coverage C “limits”. The “limit” for each class is the total “limit” per occurrence for all items in that class.
a. $250 on money, bank notes, bullion, gold other than goldware and goldplated ware, silver other than silverware and silver-plated ware, platinum, and numismatic property.
b. $1,500 [$2,500 in form 5] on securities, stamps, letters of credit, notes other than bank notes, personal records, tickets, accounts, deeds, evidence of debt, passports, and manuscripts. This special “limit” applies regardless of the medium on which these Items exist, and includes the cost of research or other expenses necessary to reproduce, replace, or restore the item.
c. $1,500 [$2,500 in form 5] on electronic devices, accessories, and antennas that can be operated from the electrical system of a “motorized vehicle” or watercraft and by other sources of power, including films, tapes, wires, discs, records, or other media for use with such devices. This limitation applies:
1) while the devices are in or on a “motorized vehicle” or watercraft; and
2) while the devices are not in or on a “motorized vehicle” or watercraft, if the devices:
a) are used in whole or in part for “business” purposes; and
b) are away from the “insured premises”.
d. $1,500 [$2,500 in form 5] on watercraft including their trailers, furnishings, equipment, and engines or motors.
e. $1,500 [$2,500 in form 5] on trailers not otherwise provided for.
f. For loss by theft [or misplacing or losing in form 5; form 8 provides no coverage for theft of these classes of property]:
1) $2,500 on jewelry, watches, precious and semiprecious stones, gems, and furs;
2) $2,500 on silverware, goldware, pewterware, and items plated with gold or silver; and
3) $2,500 on guns.
g. For loss to personal property used, in whole or in part, for “business” purposes:
1) $2,500 on property while on the “insured premises”; and
2) $250 on property while away from the “insured premises”. However, this special “limit” does not apply to electronic devices, accessories, and antennas, including films, tapes, wires, discs, records, or other media for use with such devices, that can be operated from the electrical system of a “motorized vehicle” or watercraft and by other sources of power.
These special “limits” include the cost of research or other expenses necessary to reproduce, replace, or restore “business” data.
Analysis
In common with other homeowners forms, the AAIS form restricts coverage for certain classes of property. These classes often represent theft exposures, or classes of property not normally owned by the “average” homeowner. For these reasons, such property should be scheduled. These special limits of insurance do not increase the total limit of insurance applying to property covered under coverage C.
Property usually located in an insured's residence other than the “insured premises” is limited to 10 percent of the coverage C limit, except when the insured moves to a newly-acquired principal place of residence. Then the full coverage C limit applies for 30 days from the date the insured began to move, when the 10 percent limit again applies. If the policy expires or is terminated, the 30 days' coverage ceases at that point.
Note that, in common with the ISO homeowners forms, personal property owned by or in the care of an “insured” is covered. So, for example, if the insured borrows a neighbor's riding lawn mower, puts it in his garage and a fire destroys it, there is coverage for the mower under the insured's policy.
5. Personal Property Not Covered—”We” do not cover:
a. property covered by scheduled insurance;
b. animals, birds, fish, or insects;
c. ”motorized vehicles”. This includes:
1) their parts, equipment, and accessories. This does not include property listed in item c. above under Limitations on Certain Property; and
2) electronic devices, accessories, or antennas that can be operated only from the electrical system of a “motorized vehicle”, including films, tapes, wires, discs, records, or other media for use with such devices;
while in or on a “motorized vehicle”.
”We” do cover “motorized vehicles” that are not subject to “motor vehicle” registration if they are designed and used to assist the handicapped or used only to service the “insured premises”;
d. aircraft, including their parts and equipment. This does not include model aircraft which is not designed or used to carry people or cargo;
e. property of roomers or boarders who are not “insureds”;
f. trees, plants, shrubs, or lawns, except as provided under Incidental Property Coverages;
g. loss that results from credit or debit cards, except as provided under Incidental Property Coverages; or
h. land, including the land on which covered property is located, underground water, or surface water.
Analysis
Note that, among the items not covered, are the “parts” of motorized vehicles, except for those used to service the premises or assist the handicapped. So, for example, if an insured removes and dismantles the engine from his car to repair it, and the parts are stolen, there is no coverage.
Excluded from coverage are any losses, except as provided under the incidental coverages, arising from credit or debit cards, any property of roomers or boarders who are not insureds, or any property that is scheduled.
Coverage D—Additional Living Costs and Loss of Rent
“We” pay the necessary and reasonable increase in living costs “you” incur to maintain the normal standard of living of “your” household if a part of the “insured premises” occupied by “your” household is made unfit for use by an insured loss. “We” pay only for the period of time reasonably required to make the “insured premises” fit for use or until “your” household is permanently relocated, whichever is less. This period of time is not limited by the policy period.
“We” pay for the rent “you” lose or the fair rental value if the part of the “insured premises” rented or held for rental to others is made unfit for use by an insured loss. “We” pay only for the period of time reasonably required to make the “insured premises” fit for use or until “your” household is permanently relocated, whichever is less. Loss of rent is the amount “you” would have received less the charges and expenses that do not continue while the “insured premises” is unfit for use. This period of time is not limited by the policy period.
“We” pay “your” additional living costs and loss of rent or fair rental value as described above for up to two weeks if a premises neighboring the “insured premises” is damaged from a peril insured against by this policy and “you” may not, by order of civil authority, use the “insured premises”. This is not limited by the policy period.
“We” do not pay for loss of rent or costs due to the cancellation of a lease or an agreement.
The “limit” shown on the “declarations”, for Coverage D is the most “we” pay for all of the coverages described above.
Analysis
If the insured premises are damaged so that they are unfit for use, then the increase in living expenses is covered. If part of the insured premises are rented, or held for rental, and a covered loss renders them unfit for use, then the insurance will respond. However, from this amount any non-continuing expenses are to be deducted. For example, if the insured rents a portion of the residence for $400 a month, including $20 for electricity, and a covered loss occurs, the $20 from the discontinued electric service will be deducted. Although the period of time that payment can be made is not limited by the policy period, it is limited to the period of time “reasonably required” to make the premises fit for use, or until new permanent accommodation is found.
Although any rent lost until the premises are restored is recoverable, if a covered loss results in a tenant canceling the remainder of a lease after that time, this amount cannot be claimed.
Incidental Property Coverages
This policy provides the following Incidental Property Coverages. They are subject to all of the “terms” of the applicable Coverages A, B, or C. These coverages provide additional insurance unless otherwise stated.
1. Emergency Removal—”We” pay for direct physical loss to covered property that is moved from a premises to prevent a loss from perils insured against. The property is covered for up to 30 days, however this coverage does not extend past the date on which this policy expires.
”We” pay up to $250 towing charge to move a covered mobile home that is in danger from a peril insured against.
This coverage does not increase the “limits” shown for the property being removed. The Exclusions That Apply To Property Coverages do not apply to this coverage, however “we” do not pay any “insured” for loss which results from any act committed by or at the direction of any “insured” with the intent to cause a loss.
2. Debris Removal—”We” pay for the cost to remove the debris of covered property after a loss. The loss must be caused by a peril that applies to the damaged property. “We” also pay for the cost to remove volcanic ash, dust, or particulate matter that causes direct physical loss to property covered under Coverages A, B, or C.
”You” may apply up to 25 percent of the “limit” that applies to the damaged property to cover debris removal. “We” will not pay more for direct physical loss to property and debris removal combined than the “limit”, that applies to the damaged property.
However, when the covered loss plus the cost of debris removal is more than the applicable “limit”, “we” will pay up to an extra 5 percent of the applicable “limit” to cover the cost of debris removal.
This coverage does not include any cost or expense to test for, monitor, clean up, remove, contain, treat, detoxify, neutralize, or in any way respond to or assess the effects of “pollutants”.
”We” also pay the cost to remove fallen trees which:
a. cause damage to property covered under Coverages A, B, or C; or
b. obstruct access to a driveway on the 'insured premises';
if the falling of the tree is caused by any of the perils insured against described under Coverage C and coverage is not provided elsewhere by this policy.
Regardless of the number of fallen trees, the most 'we' will pay is $500 per occurrence.
3. Increased Cost—Ordinance or Law—”We” pay for the increased cost which results from the enforcement of a code, ordinance, or law which regulates the use, construction, repair, or demolition of property or the removal of its debris when loss to property covered under Coverages A or B is caused by a peril insured against.
”You” may apply up to 25 percent of the “limit”, that applies to the damaged property to cover such increased costs. “We” will not pay more for direct physical loss to property and the increased costs combined than the “limit” that applies to the damaged property. However, when the covered loss plus the increased cost is more than the applicable “limit”, 'we' will pay up to an extra 10 percent of the applicable “limit”, to cover the increased cost which results from the enforcement of a code, ordinance, or law which regulates the use, construction, repair, or demolition of the property or the removal of its debris.
However, “we” do not pay for:
a. any loss in value of property which results from the enforcement of a code, ordinance, or law; or
b. any loss, cost, or expense which results from the enforcement of a code, ordinance, or law requiring that any “insured”, or others test for, monitor, clean up, remove, contain, treat, detoxify, neutralize, or in any way respond to or assess the effects of “pollutants”.
4. Fire Department Service Charge—”We” pay for charges assumed by “you” under a contract or agreement when a fire department is called to save or protect covered property from a peril insured against.
The most “we” pay is $500 per occurrence unless a higher “limit” is shown on the “declarations”.
5. Credit Card, Forgery, and Counterfeit Money—”We” pay for loss if an “insured”:
a. by law must pay for the unauthorized use of credit or debit cards issued or registered in the name of an “insured”;
b. has a loss when checks, drafts, notes, or negotiable instruments are forged or altered; or
c. accepts in good faith counterfeit United States or Canadian paper money.
The most “we” pay is $1,500 per occurrence unless a higher “limit” is shown on the “declarations”.
”We” do not pay for a loss if:
a. an “insured” has not complied with the rules under which the credit or debit card was issued;
b. the loss is caused by the dishonesty of an “insured”;
c. the loss results from the “business” of an “insured”; or
d. the loss occurs while a person who is not an “insured”, has the credit or debit card with the consent of an “insured”.
6. Trees, Plants, Shrubs, or Lawns—”We” pay for direct physical loss to trees, plants, shrubs, or lawns on the “insured premises” caused by:
a. fire or lightning, explosion, riot or civil commotion, aircraft;
b. vehicles if not owned or operated by an occupant of the “insured premises”; or
c. vandalism or theft.
”You” may apply up to 10 percent of the Coverage C “limit” to cover trees, plants, shrubs, or lawns. “We” do not pay more than $500 for each tree, plant, or shrub. This includes the cost to remove the debris of the covered item.
”We” do not cover trees, plants, shrubs, or lawns grown for “business”.
7. Grave Markers—”We” pay up to $1,500 for direct physical loss to grave markers and mausoleums caused by a peril insured against described under Coverage C.
8. Collapse—”We” pay for direct physical loss to covered property involving the collapse of a building or a part of a building caused by the following:
a. any of the perils insured against described under Coverage C. Under this coverage, these perils apply to covered buildings and personal property;
b. hidden insect or vermin damage or hidden decay;
c. weight of contents or people;
d. weight of rain which collects on a roof; or
e. the use of defective materials or methods in construction or repair if the collapse occurs during the course of construction or repair.
Under b. through e. above, unless the loss is the direct result of the collapse of a building, “we” do not pay for loss to awnings; swimming pools; fences; patios; paved areas; retaining walls; bulkheads; foundations; wharves; docks; piers; underground pipes, flues, and drains; cesspools; or septic tanks.
Collapse does not mean settling, cracking, shrinking, bulging, or expanding. This coverage does not increase the “limits” shown for the property covered.
Under Exclusions That Apply To Property Coverages, the exclusion for Errors, Omissions, and Defects does not apply to this coverage.
9. Glass Breakage—”We” pay for breakage of glass that is part of a structure. “We” pay to replace the damaged glass with safety glazing materials if required by code, ordinance, or law. “We” also pay for direct physical loss to covered property which is damaged by the breakage of glass that is part of a structure. However, “we” do not pay for loss on the “Insured premises” if the “residence” is vacant for more than 30 days in a row just before the loss. A “residence” being built is not vacant.
This coverage does not increase the “limits” shown for the property covered.
10. Refrigerated Food Spoilage—”We” pay for spoilage of food in a freezer or refrigerated unit on the “insured premises”. The spoilage must be caused by change in temperature resulting from:
a. interruption of electrical service to refrigeration equipment caused by damage to the generating or transmission equipment; or
b. mechanical or electrical breakdown of the refrigeration equipment.
”You” must maintain the refrigeration equipment in proper working order.
The most “we” pay is $500 per occurrence unless a higher “limit” is shown on the “declarations”.
Under Exclusions That Apply To Property Coverages, Power Disruption and the reference to mechanical breakdown under Wear and Tear do not apply to this coverage.
11. Loss Assessment—”We” pay for “your” share of an assessment made by “your” homeowners, condominium, mobilehomeowners, or similar residential association. Coverage applies only when the assessment:
a. is made during the policy period;
b. results from direct loss to the property owned collectively by all association members and is caused by a peril insured against described under Coverage A other than:
1) earthquake; or
2) land shock waves or tremors before, during, or after a volcanic eruption, explosion, or effusion; and
c. is charged against “you” as owner or tenant of the premises shown on the “declarations” as the described location.
However, “we” do not pay for assessments charged against “you” or “your” association by any governmental body or authority.
The most “we” pay is $1,500 per occurrence. This “limit” is the most “we” pay for any one loss, regardless of the number of assessments.
Under Policy Conditions, Policy Period does not apply to this coverage.
Analysis
The incidental coverages vary by form. Form 8, the limited form, does not contain collapse coverage, and limits coverage for glass to $100. Form 5, the special building and contents form, differs in that the full limit of liability can apply to debris removal (as is the case in the ISO form 3) and to ordinance and law coverage. In form 5, the fire department service charge is $1,000 per occurrence; credit card coverage is $5,000, and grave markers, $2,500. Form 5 also contains up to $500 to replace locks on exterior doors of the insured residence or portable garage door transmitters if they are lost or stolen.
The ISO form 3 additional coverages contain coverage for landlord's furnishings, but not for refrigerated food products or for grave markers. (Ordinance or law is now additional coverage 11; the insured may use up to 10 percent of the limit of liability that applies to coverage A.)
The coverage for emergency removal allows the mobile home insured to be reimbursed for up to $250 if the home is in danger from a covered peril and must be moved. It is important to remember that the mobile home must be endangered from a covered peril, so that, for example, towing because of flood danger is not covered. If property must be moved to protect it from a covered peril, e.g., a fire, then no further exclusions apply except that any loss caused by an insured with the intent to cause a loss is not covered. For example, if property is moved to neighboring premises to protect it from fire damage, but it is then damaged by sump pump overflow, this resulting damage is covered.
Debris removal is limited to 25 percent of the coverage limit applying to the damaged property, but if the covered loss plus the cost of debris removal exceeds the applicable limit, an additional 5 percent of the limit is available. This limit could be important in event of a total loss. The 25 percent limitation can be deleted through endorsement, in which case the entire limit applying to the covered property is available for debris removal. (The 25 percent limitation is absent from form 5.) No expense or cost to test for, clean up, or remove pollutants is included, which could be a factor for an older home containing asbestos or lead paint. A useful extension of this coverage is the $500 provision for removal of fallen trees which obstruct access to a driveway on the insured premises.
The insured may apply 25 percent of the limit of coverage applying to damaged property for increased costs resulting from enforcement of ordinance or law. (Form 5 does not have this limitation.) The inclusion of “code” in the wording makes it clear that, for example, a city building code carries the same weight as a law in triggering the coverage. If the 25 percent limit, which is included in the limit of insurance, is exhausted, the policy will pay an additional 10 percent of the applicable limit. As is the case with debris removal, any cost to test for, clean up, or remove pollutants is not covered.
There is up to $500 coverage for spoilage of food in a refrigerator or freezer caused by a change in temperature that results from power interruption caused by damage to the power generating or transmission equipment, or by mechanical or electrical breakdown of the refrigeration equipment itself. If food spoiled because of a power “brown-out” there would be no coverage, since there is no damage to the power generating equipment.
Perils Insured Against—Coverages A and B
Coverage A—Residence and Coverage B Related Private Structures—”We” insure property covered under Coverages A and B for risks of direct physical loss, unless the loss is excluded under the Exclusions Applying to Coverages A and B or under the Exclusions That Apply To Property Coverages.
Exclusions Applying to Coverages A and B:
1. Freezing, Discharge, Leakage, or Overflow—Unoccupied Residence—”We” do not pay for loss caused by freezing or the resulting discharge, leakage, or overflow from any plumbing, heating, airconditioning, or automatic fire protective sprinkling system; water heater; or domestic appliance if the “residence” is vacant, unoccupied, or under construction and unoccupied. This exclusion does not apply if “you” take reasonable care to:
a. maintain heat in the building or mobile home; or
b. shut off the water supply and completely empty liquids from such system, heater, or appliance.
2. Freezing, Thawing, Pressure, or Weight of Ice or Water—”We” do not pay for damage caused by freezing, thawing, pressure, or weight of ice or water, whether driven by wind or not, to structures (other than structures that are buildings, carports, or mobile homes) such as:
a. swimming pools, fences, patios, paved areas;
b. retaining walls, bulkheads, foundations; or
c. wharves, docks, or piers.
3. Theft—”We” do not cover theft or attempted theft in or to a dwelling being built, or theft of materials or supplies for use in construction of the dwelling, until the dwelling is occupied for its intended use.
4. Vandalism—”We” do not pay for loss caused by vandals if the “residence” is vacant for more than 30 days in a row just before the loss. A “residence” being built is not vacant.
5. Seepage or Leakage—”We” do not pay for loss caused by repeated or continuous seepage or leakage of liquids or steam from within a plumbing, heating, air-conditioning, or automatic fire protective sprinkling system; water heater; or domestic appliance.
However, “we” do pay for loss caused by the accidental leakage, overflow, or discharge of liquids or steam from a plumbing, heating, air-conditioning, or automatic fire protective sprinkling system; water heater; or domestic appliance. In this exception, plumbing systems and domestic appliances do not include a sump, sump pump, or related equipment.
When loss is caused by the accidental leakage, overflow, or discharge of liquids or steam from a plumbing, heating, airconditioning, or automatic fire protective sprinkling system; water heater; or domestic appliance, “we” also pay the reasonable cost of removing and replacing those parts of the building or mobile home needed to repair the system, heater, or appliance. “We” do not pay for loss to the system, heater, or appliance from which the liquid or steam escapes.
6. Settling, Cracking, Shrinking, Bulging, or Expanding—”We” do not pay for loss caused by the settling, cracking, shrinking, bulging, or expanding of a building, mobile home, pavements, patios, or other outdoor structures.
7. Animals, Birds, Vermin, Rodents, or Insects—”We” do not pay for loss caused by animals owned or kept by an “insured”, birds, vermin, rodents, or insects, except as provided under Incidental Property Coverages.
8. Smoke—”We” do not pay for damage caused by smoke from agricultural smudging or industrial operations.
9. Collapse—”We” do not pay for loss caused by collapse, except as provided under Incidental Property Coverages.
10. Pollution—”We” do not pay for loss caused by the release, discharge, dispersal, seepage, migration, or escape of “pollutants”, unless the release, discharge, dispersal, seepage, migration, or escape is caused by a peril insured against described under Coverage C.
“We” pay for an ensuing loss that results from any of the above, unless the ensuing loss itself is excluded.
11. ”We” do not pay for loss excluded under the Exclusions That Apply To Property Coverages.
Analysis
As is common with “open perils” forms, coverage is provided and then restricted or eliminated through use of exclusions. Although the above exclusions are similar to those in the ISO form 3, there are differences. Since the ISO exclusions are extensively discussed elsewhere see Homeowners Exclusions, the differences in the exclusions are discussed here. Of the above exclusions, those for vandalism, seepage or leakage, or collapse apply only to property covered under coverages A and B in form 5; exclusions 1, 2, 3, 6, 7, and 10 apply to coverages A, B, and C. The first exclusion limits coverage for loss caused by freezing, with any resulting discharge, leakage, or overflow from any plumbing, heating, air-conditioning or sprinkler system, water heater, or domestic appliance, if the residence is vacant, unoccupied, or under construction and unoccupied. The exclusion does not apply if the insured has taken “reasonable” care to maintain heat or shut off and drain the system. Note the inclusion of “mobile home” in the exclusion, since the form can be used for the mobile homeowner. The ISO form limits coverage while the dwelling is being constructed, so that, presumably even if an insured were “camping out” in the dwelling under construction, there would be no coverage for a freezing loss. Theft, including attempted theft, is excluded in or to a dwelling being built. The structure of the exclusion, wherein a comma is inserted between “dwelling” and “until” means that the phrase “until the dwelling is occupied for its intended use” precludes coverage for theft in or to the dwelling or theft of building materials or supplies unless the dwelling is occupied, presumably as a residence. There is no comma in this place in the ISO form, so the exclusion of theft coverage in or to a dwelling after it is built but before it is occupied does not apply. The AAIS form contains an exclusion of coverage for repeated seepage or leakage; however, accidental leakage, overflow, or discharge is covered (except from a sump, sump pump, or related equipment). The form is silent as to the length of time that constitutes a “repeated or continuous” event (for example, the ISO commercial broad causes of loss form CP 10 20.pdf contains a 14 day or more time frame). A potential problem could arise in determining at what point in time the leakage or seepage becomes “repeated or continuous,” as opposed to “accidental leakage.” Since there is no definition of “accidental,” the insured is entitled to a broad interpretation.
The exclusion of coverage for loss caused by pollution, unless caused by a peril insured against under the coverage C named perils, is found in form 5 also; however, there the exclusion applies unless caused by “specified perils,” which are essentially the coverage C named perils.
Any ensuing loss resulting from one of the excluded perils not excluded is covered.
Perils Insured Against—Coverage C
Coverage C—Personal Property—”We” insure against direct physical loss to property covered under Coverage C caused by the following perils, unless the loss is excluded under the Exclusions That Apply To Property Coverages:
1. Fire or Lightning
2. Windstorm or Hall—However, “we” do not pay for loss:
a. to property inside a structure caused by dust, rain, sand, sleet, snow, or water, all whether driven by wind or not, which enter through an opening in the structure not made by the direct force of wind or hail; or
b. to watercraft or their trailers, furnishings, equipment, or engines or motors unless inside a fully enclosed building. “We” do cover canoes and rowboats while on the “insured premises”.
3. Explosion
4. Riot or Civil Commotion
5. Aircraft
6. Vehicles
7. Sudden and Accidental Damage from Smoke—However, “we” do not pay for loss caused by smoke from agricultural smudging or industrial operations.
8. Sinkhole Collapse—This means direct physical loss caused by sudden settlement or collapse of earth supporting covered property. The earth settlement or collapse must result from subterranean voids created by the action of water on a limestone or similar rock formation.
However, “we” do not cover the value of land or the cost of filling sinkholes.
9. Volcanic Action—This means:
a. airborne volcanic blast or airborne shock waves;
b. ash, dust, or particulate matter; and
c. lava flow.
However, “we” do not cover removal of ash, dust, or particulate matter that does not cause direct physical loss to covered property.
Analysis
The above exclusion for damage caused by agricultural smudging or industrial operations applies to property covered under coverages A, B, and C in form 5.
Note that loss to personal property caused by sinkhole collapse is a named peril on the AAIS form. Therefore, if an insured dwelling were to collapse into a sinkhole, with the resulting loss or damage to personal property, the loss would be covered. Any costs associated with the land's value or restoration are excluded.
Loss to personal property caused by volcanic action is covered. In the ISO form, the coverage is for “volcanic eruption other than loss caused by earthquake, land shock waves or tremors.” The AAIS form states exactly what is meant by “volcanic action,” so that while airborne shock waves causing, say, a tall piece of furniture to fall over and break, the same piece of furniture falling because of land shock waves is not covered.
The “named perils” coverage applicable to coverage C, personal property, apply to dwelling, related structures, and personal property on form 2. In form 8, coverage is limited to the above perils, except that vandalism may be added as an optional coverage.
10. Vandalism
11. Theft—This includes attempted theft and loss of property from a known place when it is likely that theft occurred. However, “we” do not cover:
a. theft by an “insured”;
b. theft in or to a dwelling being built, or theft of materials or supplies for use in construction of the dwelling, until the dwelling is occupied for its intended use;
c. loss of a precious or semiprecious stone from its setting;
d. loss that results from the theft of a credit or debit card, except as provided under Incidental Property Coverages;
e. theft from a part of the “insured premises”, usually occupied solely by an “insured” while it is rented to others; or
f. theft that occurs away from the “insured premises” of:
1) property while on the part of residential premises which an “insured” owns, rents, or occupies, except for the time while an “insured” temporarily resides there. “We” do cover the property of an “insured” who is a full-time student while it is in the living quarters occupied by the student at school;
2) trailers or their equipment;
3) campers or camper bodies; or
4) watercraft or their furnishings, equipment, or engines or motors.
Analysis
The peril of “vandalism” is not followed by the ISO addition of “malicious mischief.” Malicious mischief, when applied to property, often has the same result as vandalism, .
The coverage for “theft” contains the usual exclusions of coverage for theft caused by an insured, theft of watercraft, trailers, and campers while away from the “insured premises,” and theft from an insured's other residence, unless the insured is temporarily residing there. Theft coverage for personal property of an insured who is a full time student is exempt from the exclusion of theft from an insured's other residence, so long as the property is in the student's living quarters. There is no provision that the student must have been there at some time in the 45 days preceding the loss, as there is in the ISO form.
There is no coverage for loss of a precious or semi-precious stone from its setting, even though it is loss of property from a known place and, in all probability, a lost stone will eventually be stolen. There is no coverage for theft in or to a dwelling being built, or for any materials or supplies for use in the construction, until it is occupied (again, note the difference from the ISO wording.) Theft from a part of an “insured premises” usually solely occupied by an insured is not covered while it is rented to others. So, for example, if an insured has a vacation condo insured on a form 6, and rents the unit, there is no coverage for stolen personal property. (The limit on property used in whole or in part for business also applies. Coverage may be provided through endorsement for this exposures. See Common Endorsements—AAIS Program.
12. Failing Objects—However, “we” do not pay for loss to:
a. property inside a structure, unless the failing object has first damaged an outside wall or the roof of the structure by impact; or
b. the object which falls.
13. Weight of Ice, Snow, or Sleet which causes damage to property inside a structure.
14. Sudden and Accidental Tearing Apart, Cracking, Burning, or Bulging of a heating, air-conditioning, or automatic fire protective sprinkling system or water heater. However, “we” do not pay for loss caused by freezing, except as provided under the peril of Freezing.
15. Accidental Discharge or Overflow of Liquids or Steam from a plumbing, heating, air-conditioning, or automatic fire protective sprinkling system; water heater; or domestic appliance. However, “we” do not pay for loss:
a. caused by continuous or repeated seepage or leakage;
b. if the “residence” has been vacant for more than 30 days in a row just before the loss. A “residence” being built is not vacant;
c. caused by freezing, except as provided under the peril of Freezing;
d. on the “insured premises”, caused by accidental discharge or overflow which comes from off the “insured premises”; or
e. to the system, heater, or appliance from which the liquid or steam escapes. (“We” do pay the reasonable cost of removing and replacing only those parts of the building or mobile home needed to repair the system, heater, or appliance.)
In this peril, plumbing systems and domestic appliances do not include a sump, sump pump, or related equipment.
16. Freezing of a plumbing, heating, airconditioning, or automatic fire protective sprinkling system; water heater; or domestic appliance. However, “we” do not pay for loss on the “insured premises” while the “residence” is vacant or unoccupied or under construction and unoccupied, unless “you” have taken reasonable care to:
a. maintain heat in the building or mobile home; or
b. shut off the liquid supply and drain the system, heater, or domestic appliance.
17. Sudden and Accidental Damage from Artificially Generated Electrical Currents—However, “we” do not pay for loss to tubes, transistors, and similar electronic components.
Analysis
Note, again, the exclusion of coverage for loss caused by continuous or repeated seepage or leakage. There is no clarification as to at what point in time the accidental discharge becomes continuous leakage. A pipe broken while the insured is on a two weeks' vacation might be said to be discharging “continuously,” and the insured, being unaware of the loss, would be unable to take the necessary steps to mitigate the damage.
The provision of coverage for replacing those parts of a building necessary to repair the system, found in perils insured against—coverages A, B, C, and D (number 5), and in coverage C—personal property (15.e) is found only in the exclusions applying to coverages A and B in the ISO form. The AAIS form makes it clear that, whether real or personal property is damaged, there is coverage to make the necessary repairs (except to the system).
Exclusions that Apply to Property Coverages
1. ”We” do not pay for loss if one or more of the following exclusions apply to the loss, regardless of other causes or events that contribute to or aggravate the loss, whether such causes or events act to produce the loss before, at the same time as, or after the excluded causes or events.
a. Ordinance or Law—”We” do not pay for:
1) any loss or increased cost which results from the enforcement of a code, ordinance, or law which regulates the use, construction, repair, or demolition of property or the removal of its debris, except as provided under Incidental Property Coverages;
2) any loss in value of property which results from the enforcement of a code, ordinance, or law; or
3) any loss, cost, or expense which results from the enforcement of a code, ordinance, or law requiring that any 'insured' or others test for, monitor, clean up, remove, contain, treat, detoxify, neutralize, or in any way respond to or assess the effects of “pollutants”.
This applies whether or not there has been physical damage to covered property.
b. Civil Authority—”We” do not pay for a loss which results from order of civil authority, except as provided under Coverage D. “We” do pay for loss which results from acts of a civil authority to prevent the spread of fire. “We” do not pay if the fire was caused by an excluded peril.
c. Nuclear Hazard—”We” do not pay for loss which results from nuclear reaction, nuclear radiation, or radioactive contamination (whether controlled or uncontrolled; whether caused by, contributed to, or aggravated by a peril insured against; and whether caused by natural, accidental, or artificial means). Loss caused by nuclear hazard is not considered loss caused by fire, explosion, or smoke. Direct loss by fire resulting from the nuclear hazard is covered.
d. War—”We” do not pay for loss which results from declared or undeclared war, civil war, insurrection, rebellion, revolution, warlike act by a military force or military personnel, or destruction, seizure, or use of property for a military purpose. It includes the consequences of these. Discharge of a nuclear weapon is deemed an act of war even if it is accidental.
e. Neglect—”We” do not pay for loss which results from the neglect of the “insured” to use all reasonable means to save and preserve covered property at and after the time of a loss.
f. Earth Movement—”We” do not pay for loss which results from earth movement whether the earth movement results from natural or artificial causes.
Earth movement includes but is not limited to:
1) earthquake;
2) landslide, subsidence, erosion;
3) mudflow;
4) earth sinking, rising, shifting, expanding, or contracting. This does not include Sinkhole Collapse as described under the Perils Insured Against for Coverage C; and
5) volcanic eruption, explosion, or effusion. Volcanic eruption, explosion, or effusion does not include Volcanic Action as described under the Perils Insured Against for Coverage C.
”We” do pay for direct loss caused by fire; explosion (other than a volcanic explosion); and theft resulting from earth movement.
”We” do pay for the breakage of glass that is part of a covered structure resulting from earth movement.
g. Water Damage—”We” do not pay for loss which results from the following:
1) flood, surface water, waves, tidal water, overflow of a body of water, or spray, all whether driven by wind or not;
2) water or sewage which backs up through sewers or drains or water which overflows from within a sump pump, sump pump well, or other type of system designed to remove subsurface water which is drained from the foundation area; or
3) water below the surface of the ground. This includes water which exerts pressure on, or seeps or leaks through or into a building, sidewalk, driveway, foundation, swimming pool, or other structure.
“We” do pay for direct loss caused by fire; explosion (other than a volcanic explosion); and theft resulting from water damage.
h. Power Disruption—”We” do not pay for loss which results from the disruption of power or other utility service, whether or not it is caused by a peril insured against, if the cause of the disruption is not on the “insured premises”.
“We” do pay for direct loss that is otherwise covered by this policy which occurs on the “insured premises”, as a result of the disruption of power.
i. Intentional Acts—”We” do not pay any “insured” for loss which results from any act committed by or at the direction of any “insured”, with the intent to cause a loss.
2. ”We” do not pay for loss if one or more of the following exclusions apply to the loss. However, “we” do pay for an ensuing loss that is otherwise covered by this policy.
a. Weather Conditions—”We” do not pay for loss which results from weather conditions that initiate, set in motion, or in any way contribute to losses excluded under the preceding Exclusions That Apply To Property Coverages (Numbers 1. a. through 1. i.).
b. Errors, Omissions, and Defects—”We” do not pay for loss which results from one or more of the following:
1) an act, error, or omission (negligent or not) relating to:
a) land use;
b) the design, specification, construction, workmanship, or installation of property;
c) planning, zoning, development, surveying, siting, grading, compaction; or
d) maintenance of property (including land, structures, or improvements);
whether on or off the “insured premises”; or
2) a defect, a weakness, the inadequacy, a fault, or unsoundness in materials used in construction or repair whether on or off the “insured premises”;
except as provided under the Incidental Property Coverage for Collapse.
c. Wear and Tear—”We” do not pay for loss which results from wear and tear, marring, deterioration, inherent vice, latent defect, mechanical breakdown, rust, wet or dry rot, corrosion, mold, contamination, or smog.
Analysis
Exclusions 1.a. through 1.i. are subject to concurrent causation language. Loss resulting from any of these causes is not covered, whether or not another peril (covered or not) contributes in any way to the loss. Note, however, that there is coverage for loss arising from enforcement of any ordinance or law governing demolition, debris removal, repair, or construction (except for testing or clean-up of pollutants) under incidental coverages.
Excluded from coverage is any loss resulting from an action by civil authority, except action taken to prevent the spread of fire. This leaves open the possibility that the local government, mistakenly believing the insured is a drug dealer, could order the residence leveled and there would be no coverage. The ISO form excludes coverage for “acts or decisions…of any governmental body;” however, this exclusion excepts any ensuing loss not excluded.
Two exclusions—1.f. and 1.g.—are different in form 5. In form 5, the exclusion of loss resulting from earth movement applies only to property insured under coverages A and B, so that any personal property damaged in an earthquake is covered. Loss caused by water damage as described in exclusion 1.g. does not apply to personal property while away from the “insured premises” or a location owned by, rented to, occupied by, used by, or in the care of an “insured.”
Exclusions 2.a. through 2.c. are preceded by ensuing loss language. Although loss arising from any of these perils is excluded, an ensuing unexcluded loss is covered. For example, if the insured negligently cleans his chimney and a fire results, the cost to re-clean the chimney is not covered, but any fire damage is.
The above exclusions apply to all property coverages—A, B, and C—of form 5, the special building and contents form. Additionally, form 5 contains exclusions of coverage for breakage of fragile articles such as eyeglasses, glassware, porcelains, and similar fragile articles. Exempted from this exclusion is jewelry, watches, bronzes, cameras and photographic lenses. Breakage caused by such perils as fire, windstorm, vandalism, collapse of a building, volcanic eruption, earthquake, and other perils is covered.
Watercraft, including their trailers, furnishings, equipment, and outboard engines or motors, is not covered for loss caused by collision, sinking, swamping, or stranding. Collision of the watercraft with a “motorized vehicle” is covered, however.
Loss caused by dampness or extremes of temperature is not covered. Loss caused directly by rain, snow, sleet or hail is covered.
Finally, form 5 excludes coverage for loss to property, other than jewelry, watches, and furs, resulting from or occasioned by a refinishing, renovating, or repairing process. The use of the gerund tense makes it clear that loss while the process is occurring is excluded. For example, if an insured decides to refinish a piece of furniture, and botches the job, the insurance will not respond. If the insured takes the furniture to a cabinet maker, and the cabinet maker botches the job, then the responsibility for the loss lies with the cabinet maker.