July 19, 2011
Summary: The Insurance Services Office (ISO) homeowners forms may be used to provide coverage for owner-occupants of one to four family dwellings. Homeowners policies may also be issued to tenant homeowners, co-op owners, and condominium owners. The homeowners policy as it exists today is a “package” in that it includes coverage for home, contents, and personal liability.
This discussion looks briefly at the evolution of the homeowners program to its current format, provides eligibility guidelines for the various policy forms, and includes a brief overview of the coverages provided by each form.
Topics covered: Evolution of the homeowners form
Eligibility: forms HO 00 02, 00 03, 00 05, and 00 08
Eligibility: farm and mobile home property
Evolution of the Homeowners Form
The “simplified language” homeowners policy that was the precursor of the current edition was first introduced in 1976. Since that time, the forms have undergone modification through amendatory endorsements and revisions of the forms themselves. Policy revisions were made to the 1984 edition by attaching supplemental provisions endorsement HO-350; these provisions were then incorporated into the 1991 edition. The 1991 edition was revised by attaching the 1994 special provisions. (The 1994 date varies by state.) The form was revised in 2000 and is now revised and updated for 2011.
Eligibility: Forms HO 00 02, HO 00 03, HO 00 05, and HO 00 08
The ISO homeowners manual pages contain rules for those forms that cover dwellings and personal property—the HO 00 02 05 11, HO 00 03 05 11, HO 00 05 05 11 and HO 00 08 05 11, and those that primarily cover personal property—the HO 00 04 05 11 and HO 00 06 05 11. A mobile home supplement rounds out the manual.
Any of these policies that include coverage on the dwelling structures—Forms 2, 3, 5, and 8—may be issued to owner-occupants of one- to four-family dwellings that are used primarily for residential purposes. Some incidental occupancies are permitted (see discussion later in these pages). A one-family dwelling may contain no more than one additional family, or no more than two roomers or boarders. When a two, three, or four family dwelling is insured, each unit may contain no more than two families or one family with two roomers or boarders. “Family,” according to Webster's New Collegiate Dictionary, means “1. a group of individuals living under one roof and usually under one head: household; 2. a group of persons of common ancestry: clan.” The idea conveyed by the rules is that some common bond other than a shared roof must be in place.
A homeowners form may be used for the purchaser-occupant(s) of a dwelling who enter into a long term installment contract. In these instances, the seller maintains title to the property until the terms of the contract are completed, but does not function as a mortgagee. The seller's interest in the property, and the premises liability, may be protected by attaching additional insured endorsement HO 04 41 (see Standard Homeowners Endorsements).
When the occupant(s) of a dwelling has a life estate arrangement, a homeowners form may be used. The amount of building coverage (coverage A) must be at least 80 percent of the dwelling's replacement cost. The Additional Insured endorsement, HO 04 41 10 00, may be used to protect the owner's interest and premises liability.
The intended owner-occupants of dwellings that are under construction may be insured on a homeowners form as long as the policy is written in the name of the intended owner-occupant(s).
When two or more apartment units in a two- to four-family dwelling are occupied by co-owners, each having distinct living quarters with separate access, the rules specify that a homeowners policy providing building coverage may be issued to only one co-owner. The other co-owner's interest may be protected on additional insured endorsement HO 04 41; the co-owner's personal property insurance is then written on an HO 00 04.
In the event there is a nonoccupant co-owner, the HO 04 41 is again used to give property and premises liability protection.
Eligibility: Form HO 00 04
The eligibility requirements for the HO 00 04 05 11, Contents Broad form, contain the same stipulations as to residential use of the premises and incidental occupancies. Up to one additional family or two boarders or roomers is allowed per dwelling or unit.
Tenants of apartments, including cooperative units, single family dwellings, or mobile homes, are most commonly insured by the HO 00 04, but owner-occupants of structures who are ineligible for the other homeowners policies can make use of this form.
Eligibility: Form HO 00 06
An owner of a condominium or cooperative unit is eligible to purchase a Homeowners form, HO 00 06 05 11, provided that the unit is primarily used for a residence and does not house more than one additional family or two boarders or roomers. Incidental occupancies are permitted here as with the other homeowners forms. Form HO 00 06 is discussed elsewhere in this text. See Homeowners Form HO 00 06—Insurance for Unit Owners.
Eligibility: Farm and Mobile Home Property
No homeowners forms may be issued to insure property to which farm rates apply nor to any property on a location where farming occurs. However, it is possible to add coverage by endorsement for the personal liability exposures of an insured whose primary business is not farming but who owns, rents, or operates a farm off the residence premises (using HO 24 73 05 11, Farmers Personal Liability) or does incidental farming on the residence premises (using HO 24 72 10 00, Incidental Farming Personal Liability).
A homeowners policy can be used to insure owner-occupied mobile homes or house trailers. By attaching the MH 04 01 05 11 to the HO 00 02, HO 00 03, or HO 00 05, the definition of the residence premises is amended to mean the mobile home and other structures on land owned or leased by the insured. The mobile home must be designed for year-round living and not less than ten feet wide and forty feet long.
Many insurers do not wish to insure mobile homes. If there is a question, consult the insurer's underwriting guidelines.
Eligibility: Secondary Residences
A seasonal dwelling, also often referred to as a secondary residence, is defined as one with continuous unoccupancy of three or more consecutive months during the year. The dwelling is eligible for the homeowners program as long as it meets the other requirements set forth for the particular policy to be used.
An insured with a second residence, whether in or out of state, must insure it separately. As an exception to the requirement that homeowners policies must be issued with all the available Section I and II coverages, it is acceptable to write a policy for a second residence containing only Section I coverages if the same insurer provides coverage on both the primary and secondary residences. Liability coverage for a secondary residence is extended from section II of the primary homeowners policy, and a charge is made.
Residences Held in Trust
Not a recent development, but one that has certainly become more common, is the arrangement whereby a residence is put into a trust. The grantor (or the grantor and spouse) retain the right to live in the residence during the trust's lifetime. At the end of the trust term, the residence passes to the beneficiaries. Transfer taxes are minimized through this arrangement.
Property held by a trust was previously subject to insurer discretion—a trust as named insured cannot have a spouse. Therefore, coverage for owner-occupants, their personal property, and loss of use could be questionable.
Now, however, ISO has developed endorsements and rules for insuring a residence (a one- to four-family or a condo) held in trust. A homeowners policy may be written in the name of both the trust and the trustee when legal title is held solely by the trust, and at least one of the residents is the trustee, the grantor of the trust, or the beneficiary of the trust. The trust and trustee must be shown as named insureds, regardless of who resides in the dwelling.
Endorsement HO 05 43 10 00, Residence Held in Trust, is attached to the policy. This endorsement amends the definition of “insured” to include whomever resides in the household if it is not the trustee. For example, if the grantor resides in the dwelling, but not the trustee, then the grantor's personal property and loss of use coverage must be addressed. The grantor's name is scheduled on the endorsement, thereby providing the coverages. An additional charge applies; consult the insurer's manual.
For further information, see Standard Homeowners Endorsements.
Incidental Occupancy
Dwellings with incidental business occupancy are eligible for homeowners coverage if two conditions are met. First, the premises must be occupied principally as a dwelling (reiterating a primary requirement for homeowners eligibility). Second, except for the incidental occupancy, no other business may be conducted on the premises. Permitted incidental occupancies include, but are not limited to, business or professional offices and private schools or studios that provide instruction in music, dance, or photography.
Unless the policy is endorsed, an incidental business occupancy limits personal property coverage. Coverage B (other structures) does not apply to other structures in which a business is conducted unless coverage is added back by endorsement. Furthermore, unless endorsed, premises liability coverage for losses arising out of or connected to the business is eliminated. One of two endorsements may be added: endorsement HO 04 42 10 00, Permitted Incidental Occupancies (Residence Premises), also used if the business is conducted in another structure on the premises; or HO 24 43 10 00, Permitted Incidental Occupancies (Other Residence). As discussed elsewhere in this section, (see Standard Homeowners Endorsements) adding the HO 04 42 removes the $2,500 limit that applies to business property on the residence premises and allows the full coverage C personal property limit to apply to the described business. There are no requirements in the homeowners rules about increasing the personal property limit when an incidental occupancy exists, but insureds are well advised to examine the coverage C amount closely to be sure it is sufficient to absorb the additional values of the business furnishings and equipment.
Forms Overview
The ISO homeowners program offers a choice of three progressively broader levels of coverage with respect to the perils insured. At the base are the perils common to all forms: fire, lightning, windstorm, hail, explosion, riot, civil commotion, vehicles, aircraft, smoke, vandalism and malicious mischief, theft, and volcanic eruption. Homeowners form HO 00 08 includes these named perils, although the theft peril in this form is subject to restrictions not found in other homeowners forms (see Homeowners Form HO 00 08).
The second level of coverage is included in Broad form HO 00 02 05 11, Contents Broad form HO 00 04 05 11, Condominium Unit Owners form HO 00 06 05 11, and the Personal Property Coverage of Special form HO 00 03 05 11. This level of coverage incorporates the broad form perils, including both additional perils not covered in the basic form and expanded definitions of some of the basic perils. The added perils are falling objects; weight of ice, snow, or sleet; plumbing discharge; rupture of steam or hot water heating systems, air conditioning systems, or water heaters; freezing of plumbing or similar devices; and damage from artificially generated electricity. There is broader coverage than is provided in the basic form under the perils of vehicles and smoke.
The third level of coverage is represented by coverages A (dwelling) and B (other structures) of special form HO 00 03, and by form HO 00 05 05 11. The same level of coverage is available for Unit Owners Coverage A (Dwelling and Other Structures) when form HO 00 06 is endorsed by HO 17 32 05 11 (Unit-owners Coverage A), or for coverage C when endorsement HO 17 31 05 11 (Unit-owners Coverage C) is attached. The homeowners 2011 rules allow for special perils coverage for HO 00 04 policyholders when endorsement HO 05 24 05 11, Special Personal Property Coverage, is attached.
Perils at this level of coverage are not named; only restrictions on coverage are specified by means of exclusions, limitations, and exceptions applying to certain categories of property and certain causes of loss. Any loss to insured property not reached by one of these restrictions is covered. This level of coverage, whether homeowners or other property insurance, has traditionally been referred to as all risks, because coverage agreements formerly insured against “all risks of physical loss” (other than those subject to an exclusion). Current editions of homeowners forms delete the word all from this coverage agreement as a way of avoiding the implication that coverage is more sweeping than the policy as a whole actually provides.