Summary: The loss settlement provisions and conditions applying to the property and liability coverages of the American Association of Insurance Services (AAIS) homeowners forms are similar in many respects to those of the Insurance Services Office (ISO). There are, however, differences. Following is a discussion of the provisions and conditions that apply to the current 2006 edition of the AAIS homeowners program.
Topics covered:
Introduction What must be done in case of loss or occurrence Loss settlement provisions—Forms 8 and 5 Conditions applicable to all coverages Conditions applicable to property coverages only Conditions applicable to liability coverages only
Introduction
Although many of the AAIS policy provisions and conditions are similar to those found in the ISO homeowners forms, there are differences. For example, the ISO form states that the insured must, in case of loss to covered property, “protect the property from further damage.” Contrast this with the AAIS wording “take all reasonable steps to protect covered property at and after an insured loss…” For defined terms used in this article, see AAIS Homeowners Program; and see Liability Coverages—AAIS Homeowners.Personal Lines, Dwellings section.
The following discussion focuses on form HO 0003 01 06 the Special Form (similar to the ISO HO 00 03 10 00; the differences in loss settlement provisions of HO 0008, the Limited Form (similar to the ISO HO 00 08 10 00) and form HO 0005, the Special Building and Contents Form are indicated.
What Must Be Done in Case of Loss or Occurrence
The following are duties the named insured, or his or her representative, must carry out in event of a loss or claim.
1.Property Coverages
The following duties apply when there is loss to covered property. These duties must be performed by “you”, “your” representative, an “insured” seeking coverage, or the representative of an “insured” seeking coverage.
“We” are not obligated to provide the coverages described in this policy if these duties are not performed.
a.Notice—Prompt notice must be given to “us” or ”our” agent. “We” may request written notice.
Notice must be given to the police when the loss involves theft.
Notice must be given to the credit card, electronic fund transfer card, or electronic access device company when the loss involves a credit card, an electronic fund transfer card, or an electronic access device.
b.Protecting Property—All reasonable measures must be taken to protect covered property at and after a covered loss to avoid further loss.
If the property must be repaired, “you” must:
1)make reasonable and necessary repairs to protect the property; and
2)keep an accurate record of the costs of such repairs.
c.Cooperation—All “insureds” seeking coverage, and the representative or representatives of all “insureds” seeking coverage, must cooperate with “us” in the investigation of a claim.
d.Inventory Of Damaged Personal Property—”We” must be given an inventory of personal property involved in a loss that shows, in detail, the:
1)quantity;
2)description;
3)”actual cash value”; and
4)amount of loss.
Copies of all bills, receipts, and related documents that confirm the figures stated in the inventory must be attached.
e.Showing Damaged Property—As often as “we” reasonably request, “we” must be:
1)shown the damaged property;
2)allowed to take samples of damaged property for inspection, testing, and analysis.
f.Records And Documents—As often as “we” reasonably request, “we” must be:
1)given requested records and documents, including but not limited to tax returns and bank records of all canceled checks that relate to the value, loss, and costs; and
2)permitted to make copies of such records and documents.
g.Examination Under Oath—As often as “we” reasonably request, all “insureds” must:
1)submit to examination under oath in matters that relate to the loss or claim; and
2)sign such statement made under oath.
If more than one person is examined, “we” have the right to examine and receive statements separately from each person and not in the presence of the other “insureds”.
h.Proof Of Loss—”We” must be given a signed, sworn proof of loss, within 60 days after “our” request, that:
1)states, to the best of “your” knowledge and belief, the:
a)time and cause of the loss; and
b)interests of all “insureds” and the interests of all others, including all mortgages and liens in the property involved in the loss;
2)identifies:
a)other policies that may cover the loss; and
b)any changes in title or use of the property during the policy period; and
3)provides:
a)available plans and specifications of damaged buildings;
b)detailed estimates for repair;
c)the inventory of damaged personal property described in d. above;
d)receipts for additional living costs incurred and records that prove the fair rental value; and
e)evidence or affidavit supporting a claim under the Incidental Property Coverage for Credit Card; Electronic Fund Transfer Card Or Access Device; Forgery; And Counterfeit Money and stating the amount and cause of loss.
i.Assistance With Enforcing Right Of Recovery—At “our” request, “we” must be given assistance with enforcing any right of recovery that an “insured” may have against a party causing the loss.
Analysis
In the current AAIS form, all loss notification terms and conditions follow the property and liability coverages, whereas, in the ISO form, the loss notification and settlement conditions follow the property coverages, and the liability loss notification conditions follow the liability coverages. However, the AAIS form breaks the conditions into two parts which apply either to property or to liability coverages.
The earlier AAIS form first described the details to be contained in the required notice; the current form has moved the information required into the proof of loss condition (1.h.). The previous form contained coverage for “reasonable repairs” in the loss conditions; this coverage has now been moved into the incidental coverages. AAIS Homeowners Program. There is an interesting difference between the AAIS and the ISO form. The AAIS form requires the insured to “take all reasonable steps to protect covered property at and after an insured loss to avoid further loss.” The insurer promises to pay reasonable costs for necessary repairs or emergency measures to protect the covered property from further damage “from a peril insured against.” The language would appear to force the insured to make a determination at the time of the loss as to whether or not the loss is covered. Since losses are not always clear-cut, this could present a problem when the insured expects to collect for the cost of repairs if a loss turns out not to be covered. Conversely, if an insured thinks a loss is not covered and fails to make emergency repairs, could the claim be denied because of failure to fulfill the conditions?
The ISO language simply states that “in case of a loss to covered property…you must …make reasonable and necessary repairs to protect the property…” Here the insured need not make a pre-determination as to whether or not the loss is covered; however, a similar problem could arise if the insured assumes coverage for a loss for which no coverage actually exists, and expects reimbursement for repair costs.
Condition 1.c. requires all insureds seeking coverage, and their representative or representatives, to cooperate with the insurer in the investigation of a claim. The previous form referred only to “the insured”; now, all insureds must cooperate.
Note that the insured must produce records, including tax and bank records relating to the “value, loss, and costs” and permit the insurer to make copies of such records. This could impose an unfair and unrealistic burden on an insured both before and at the time of a loss. How many records, and kept for how long? The U.S government allows tax records to be destroyed after three years; is the insurer more restrictive? An insured might argue that tax records are a matter between him and the Internal Revenue Service; however, if an insurer's denial or payment of a claim hinges upon whether or not, say, an other structure is being used for business purposes it would appear the insurer is entitled to ask for these records.
As noted earlier, condition 2.h. proof of loss describes the information the insured is to provide the insurer. In the previous form, some of the information was to be included in the notice; now, details such as time and cause of the loss are given in the proof of loss.
2.Liability Coverages
The following duties apply when there has been an “occurrence”. These duties must be performed by “you” or another “insured”. “You” must assist “us” by seeing that they are performed.
“We” are not obligated to provide the coverages described in this policy if these duties are not performed.
a.Notice—Written notice must be given to “us” or “our” agent as soon as is practical. The notice must state:
1)”your” name and the policy number;
2)reasonably available information regarding the time, location, and other details of the “occurrence”; and
3)the names and addresses of all known potential witnesses.
b.Volunteer Payments—Any:
1)payments made;
2)rewards paid or offered; or
3)obligations or other costs assumed;
by an “insured” will be at the “insured's” own cost.
However, this does not apply to costs that are covered under the Incidental Liability Coverage for First Aid Expense.
c.Cooperation—The “insured” must cooperate with “us” in the investigation, defense, or settlement of a claim or suit.
d.Notices, Demands, And Legal Papers—The “insured” must promptly give “us” copies of all notices, demands, and legal papers that relate to the “occurrence”.
e.Assistance With Claims And Suits—At “our” request, the “insured” must help “us”:
1)to settle a claim;
2)to enforce the right of recovery or indemnification against all parties who may be liable to an “insured”;
3)to conduct suits. This includes being at trials and hearings;
4)in the securing of and giving of evidence; and
5)in obtaining the attendance of all witnesses.
f.Other Duties—Damage To Property Of Others—”We” must be given a sworn statement of loss within 60 days after the loss. The damaged property must be shown to “us” if it is within an “insured's” control.
Analysis
In event of an occurrence, there are duties that must be performed by either the named insured or another insured. If the duties are not carried out, the insurer is under no obligation to provide coverage. The current form states that notice must be given as soon as practical; the earlier form required “prompt” notice.
The insured is cautioned not to make any payments, offer or pay any rewards, or assume any obligations. And, of course, the insured is under an obligation to cooperate with the insurer in event of a claim or “occurrence.”
In event a loss involves damage to property of others as set forth in the incidental liability coverages see Liability Coverages—AAIS Homeowners, the insured must forward a signed, sworn statement of loss to the insurer within sixty days. If possible, the damaged property must be shown to the insurer.
The earlier form contained duties applicable to medical payments to others coverage; these terms have been relocated to Conditions Applicable to Liability Coverages Only, found at the end of the policy.
The following provisions detail how a covered loss is settled under form HO 0003 09 08, the Special Form. The first group of provisions under How Much We Pay For Loss Or Occurrence deals with property coverages; the second group, with liability coverages, the third group, with medical payments coverage, and the remaining group addresses the possibility of coverage under another policy, warrant, or service agreement.
1.Property Coverages
a.Our Limit—”We” pay the lesser of:
1)the “limit” that applies; or
2)the amount determined under the applicable Loss Settlement Terms;
regardless of the number of “insureds” with an interest in the property.
However, no “insured” will be paid an amount that exceeds his or her interest in the property at the time of loss.
b.Deductible
1)This applies to all Principal Property Coverages and all Incidental Property Coverages except:
a)Credit Card; Electronic Fund Transfer Card Or Access Device; Forgery; And Counterfeit Money
b)Fire Department Service Charge; and
c)Refrigerated Property.
It applies to all Perils Insured Against unless otherwise stated.
2)Subject to the “limits” that apply, “we” pay that part of the loss over the deductible. The deductible applies:
a)per occurrence and, with respect to the Incidental Property Coverages for Association Deductible and Loss Assessment, regardless of the number of deductibles charged or assessments levied; and
b)separately at each covered location. Only one deductible applies at each location.
c.Loss To A Pair Or Set—If there is a loss to an item that is part of a pair or set, “we” pay only to replace or repair the item, or “we” pay the difference in the “actual cash value” of the pair or set just before the loss and the “actual cash value” just after the loss.
d.Loss to Parts—If there is a loss to a part of an item that consists of several parts when it is complete, “we” pay only for the value of the lost or damaged part or the cost to repair or replace it.
Analysis
The provisions clearly set out how the deductible is to be applied to a loss. In the ISO form, reference to the deductible is found in both the additional coverages and in the loss settlement provisions. In the earlier AAIS form, the deductible did not apply to the incidental coverages for emergency removal, grave markers, and loss assessment; the current form applies the deductible to these coverages.
Both ISO and AAIS forms describe loss settlement if there is loss or damage to a pair or set; however, the AAIS form describes how a loss will be settled if there is loss to a part of an item. Although it might appear that this provision may be applied to partial losses, as when, for example, part of a roof is destroyed, this is not the intent. The provision may be applied, for example, if fire destroyed three ivory knights in an expensive ivory chess set. The insurer would then pay for only the value of the three knights, not the entire set.
e.Loss Settlement Terms—Subject to the “terms” shown above, “we” settle losses according to the Replacement Cost Terms. If the Replacement Cost Terms do not apply, “we” settle losses according to the Actual Cash Value Terms.
In the Replacement Cost Terms and the Actual Cash Value Terms, replacement cost and cost to repair or replace do not include any increased cost that results from the enforcement of a code, ordinance, or law, except to the extent that coverage for such increased cost is provided under the Incidental Property Coverage for Increased Cost—Ordinance or Law.
1)Replacement Cost Terms
a)The Replacement Cost Terms apply only to buildings covered under Coverage A or Coverage B that have a permanent foundation and roof.
However, Replacement Cost Terms do not apply to:
(1)window air-conditioners;
(2)awnings and canopies;
(3)appliances;
(4)carpets; and
(5)antennas;
whether or not attached to a building.
b)If the “limit” that applies to the damaged building at the time of loss is less than 80% of its full replacement cost just before the loss, the larger of the following amounts is used in applying the “terms” under Our Limit:
(1)the “actual cash value” of the damaged part of the building just before the loss; or
(2)that part of the cost to repair or replace the damaged part, after application of any deductible, which the “limit” on the damaged building bears to 80% of its full replacement cost just before the loss.
c)If the “limit” that applies to the damaged building at the time of loss is at least 80% of its full replacement cost just before the loss, the smaller of the following amounts is used in applying the “terms” under Our Limit:
(1)the amount actually and necessarily spent to repair or replace the damaged building; or
(2)the cost to repair or replace the damage:
(a)using materials of like kind and quality; and
(b)for like use.
However, when a damaged building is rebuilt at another location, such cost is limited to the cost that would have been incurred if the building had been repaired or replaced at the location where the damage occurred.
d)In determining the replacement cost, do not include the cost of:
(1)excavations; brick, stone, or concrete foundations; piers; footings; or other structures or features that support all or part of the building that are:
(a)below the undersurface of the lowest basement floor; or
(b)below the surface of the ground inside the foundation walls, if there is no basement; or
(2)underground flues, pipes, wiring, or drains.
e)When the cost to repair or replace exceeds the lesser of $2,500 or 5% of the “limit” that applies to the damaged building, “we” will pay no more than the “actual cash value” of the loss until repair or replacement is completed. Once repair or replacement is completed, “we” will settle the loss as described in b) and c) above.
f)At “your” option, “you” may make a claim under the Actual Cash Value Terms instead of these Replacement Cost Terms. “You” may later make a claim for any additional amount payable under these Replacement Cost Terms, but only if “you” have informed “us”, within 180 days after the date of loss, that “you” plan to do so.
Analysis
Replacement cost applies only to buildings, under coverages A and B that have a permanent foundation and roof. Losses to carpeting, appliances, window air-conditioners, awnings and canopies, and antennas are settled on an actual cash value basis. These are items that, although they might be attached to and considered part of the dwelling, have a life expectancy much less that the dwelling itself. The earlier form included “window coverings” here; the current form does not.
A change in the HO 0003 01 06 is that the loss settlement condition refers to the building being insured for less than 80% or at least 80% of full replacement value just before the loss. The earlier edition referred to having less than or at least 80% of full replacement at the time of the loss. A subtle distinction; however, following a disaster (Katrina, for example), it was possible to argue that the increased costs of building supplies meant that replacement was considerably more than it would have been under normal circumstances. The intent of the policy has thus been clarified. A further change states that the actual cash value in part 1)b)(1) referred to is the actual cash value of the damaged part of the building.
The earlier form stated that, under the replacement provision, the cost to repair or replace the damage could be using “materials of like kind and quality, to the extent practical…” This wording has been changed to “material of like kind and quality; and for like use.” Under the previous form, if hand carved molding was no longer available the insurer could elect to pay for something similar, since it was practically no longer feasible to replace the molding. But under the new form, “like kind and quality” could well imply hand carved molding with no “wiggle room” for the insurer. The phrase “to the extent practical” now appears in the actual cash value terms; see later in this discussion.
Similarly to the ISO form, an insured can elect to replace the damaged dwelling at another location, but the amount the insured can receive is limited to what it would have cost to replace the dwelling at the insured location.
Excavations, foundations, supports below the undersurface of the lowest basement floor or below the surface of the ground if there is no basement are not taken into account when determining replacement cost. Underground pipes, wiring, and drains should not be included in the replacement cost calculations. (Whether or not this is prudent is another issue. Earthquakes or even an extremely intense fire can damage a foundation.)
The AAIS provision for replacement settlement only when repair or replacement is complete differs from the similar provision in the ISO form. The AAIS form refers to cost to repair or replacement exceeding the lesser of $2,500 or 5% of the limit applying to the damaged building, in which event no more than actual cash value will be paid until repair is complete. The ISO form states that the cost to repair or replace must be both less than 5% of the amount of insurance on the damaged building, and less than $2,500; losses under this amount are adjusted on an actual cash value or a replacement cost settlement regardless of whether or not repair or replacement is complete. The ISO form makes it clear that a payment will be made for a small loss; the AAIS form does not specifically state this.
2)Actual Cash Value Terms
a)The Actual Cash Value Terms apply to all property not subject to the Replacement Cost Terms.
b)The smaller of the following amounts is used in applying the “terms” under Our Limit:
(1)the cost to repair or replace the lost or damaged part of the property with materials of like kind and quality, to the extent practical; or
(2)the “actual cash value” of the lost or damaged part of the property just before the loss.
Analysis
Remember that “actual cash value” is now a defined term in the policy. All property not subject to replacement cost terms is subject instead to an actual cash value settlement in event of a loss. The smaller of two amounts applies—the cost to repair or replace with materials of like kind and quality, to the extent practical (this latter phrase has been removed from the replacement cost terms), or the “actual cash value” of the lost or damaged property just before the loss. (“Actual cash value” means “the cost to repair or replace property using materials of like kind and quality, to the extent practical, less a deduction for depreciation, however caused.) In the prior edition there was a third possibility applying to mobile homes. Because the form is no longer used for mobile homes, the settlement provision has been removed.
2.Coverage L—Personal Liability—The “limit” shown on the “declarations” for Coverage L is the most “we” pay for loss for each “occurrence”. This applies regardless of the number of:
a.persons insured under this policy;
b.parties who sustain injury or damage; or
c.claims made or suits brought; or
d.policy periods involved.
All “bodily injury” and “property damage” arising out of any one accident or out of repeated exposures to similar conditions will be considered one “occurrence”.
3.Coverage M—Medical Payments To Others—The “limit” shown on the “declarations” per person for Coverage M is the most “we” pay for all medical expenses payable for “bodily injury” to one person as the result of one accident.
When a “limit” is shown on the “declarations” per accident for Coverage M, that “limit” is the most “we” pay for any one accident.
The payment of a claim under Coverage M does not mean an admission of liability on “our” part or on the part of any “insured”.
4.Severability—The Liability Coverages provided by this policy apply separately to each “insured”, but this does not increase the “limit” that applies for any one “occurrence”.
5.Insurance Under More Than One Coverage—If more than one coverage of this policy applies to a loss, “we” pay no more than the actual loss.
Analysis
Liability coverage is on a “per occurrence” basis. No matter how many claimants injured in one loss, or how many “insureds” are covered by the policy, the limit of liability shown on the declarations is the most that will be paid for any one loss. The HO 0003 adds a new term that clarifies that an “occurrence” refers to bodily injury or property damage that occurs during one policy period. Although it would be possible for the trigger to occur in one policy period, and the resulting bodily injury or property damage occurs in the next period, the liability limit indicated on the declarations is still the most that can be paid for any loss. The limits from the earlier policy period cannot be combined with the current limit.
Similarly, if a per-person limit is shown on the declarations for medical payments coverage, that is the most that will be paid for medical expenses for any one person. Any medical payments amount paid by the insurer should not be construed as an admission of liability.
Although the liability coverages apply separately to each insured, the limit that applies for any one occurrence is not increased. For example, if husband and wife were sued individually because of negligently driving their golf cart over a groundskeeper, the policy limit would not be increased.
Note that in no case will the form respond with duplicate payments for a loss if there is duplicate coverage. Say, for example, a guest is injured on the insured premises, and receives payment for medical expenses. If the guest then sues for damages, alleging negligence on the part of the insured, in no event will the medical expenses be paid twice. Or, if an insured borrowed property belonging to a neighbor, and it was accidentally damaged in a fire, any amount paid under coverage C would not be paid under the liability section of the policy.
6.Insurance Under More Than One Policy
a.Property Coverages
1)If there is other insurance that applies to a loss, cost, or expense, other than insurance in the name of an association or corporation of property owners, “we” pay “our” share of the loss, cost, or expense. “Our” share is that part of the loss, cost, or expense that the “limit” of this policy bears to the total amount of insurance that applies to the loss, cost, or expense.
However, this does not apply to loss, cost, or expense that is also covered by:
a)a home warranty, a service or maintenance plan or agreement, or any other warranty, plan or agreement that provides for the repair or replacement of property, even if such warranty, plan or agreement has the characteristics or qualities of insurance; or
b)a government fund.
2)When a loss, cost or expense is also covered by insurance in the name of an association of a corporation or property owners, this insurance is excess over the “limit” that applies under such other insurance.
However, this excess provision does not apply with respect to the coverage provided under the Incidental Property Coverage for Association Deductible.
b.Coverage L—Personal Liability—
This insurance is excess over other valid and collectible insurance that applies to the loss or claim, other than insurance written specifically to provide coverage in excess of the “limits” that apply in this policy.
If the other insurance is also excess, “we” pay only “our” share of the loss. “We” pay only that part of the loss that the applicable “limit” under this policy bears to the total amount of insurance covering the loss.
7.Warranties And Service Or Maintenance Plans Or Agreements—If loss, cost, or expense covered by this policy is also covered by a home warranty, a service or maintenance plan or agreement, or any other warranty, plan, or agreement that provides for the repair or replacement of property, this insurance is excess over any amount payable by such warranty, plan, or agreement. This applies even if such warranty, plan, or agreement has the characteristics or qualities of insurance.
8.Government Funds—If the loss, cost, or expense covered by this policy is also covered by a government fund, “we” pay “our” share of the loss, cost, or expense. “Our” share is that part of the loss, cost, or expense that the “limit” of this policy bears to the total amount payable for the loss, cost, or expense to the extent permitted by law.
Analysis
If a property loss is covered by more than one policy, the form responds to loss on a proportional basis, unless the other insurance is in the name of an association or corporation of property owners. If this is the case, then the association form is the primary form; this policy then responds on an excess basis. This excess provision does not apply, however, to the coverage under the incidental coverage for association deductible.
The “sharing in a loss” provision does not apply to a home warranty, service or maintenance plan, or other repair or replacement agreement, even if such plan or service has the “characteristics or qualities” of insurance. Like the ISO form, the AAIS form states that the homeowners insurance will be excess to any service plan or warranty. Say, for example, a homeowner purchases a refrigerator service agreement, which also covers food spoilage. Should the refrigerator need repair, and the food spoil before the repair person can service the refrigerator, the homeowner cannot claim coverage under both the homeowners incidental coverage for food spoilage and the service agreement for the same loss. The service agreement would be primary; the homeowners coverage would be excess.
The liability coverage is excess over any other valid and collectible insurance applying to the loss or claim, other than an excess or umbrella policy written specifically to provide limits in excess of the homeowners policy. But if the other policy is not an umbrella, but is also excess, then the loss is shared in by both insurers.
The earlier form contained a provision that the limits of liability were not aggregate, but were restored following a loss. This provision has been removed in this edition.
The following provisions describe the insurer's obligations and options in settlement of property and liability claims.
1.Property Coverages
a.Except as provided in 3. below, “we” adjust each loss with “you”. “We” pay a covered loss within 60 days after an acceptable proof of loss is received and:
1)”we” reach an agreement with “you”;
2)there is an entry of a final judgment; or
3)there is a filing of an appraisal award with “us”.
Payment is made to “you” unless a loss payee or some other person or entity is named in the policy or is legally entitled to receive payment.
b.”We” may:
1)pay the loss in money; or
2)rebuild, repair, or replace the property. “We” must give “you” notice of “our” intent to do so within 30 days after “we” receive an acceptable proof of loss.
If “we” pay the loss in money, “we” may take all or part of the damaged property at the agreed or appraised value. Property paid for or replaced by “us” becomes “ours”.
c.If the “described location” is made unfit for use for more than one month, loss, cost, or expense covered under Coverage D is paid on a monthly basis. “You” must give “us” proof of such loss, cost, or expense.
2.Liability Coverages—A person who has secured a judgment against an “insured” for a covered loss or has liability established by a written agreement between the claimant, an “insured”, and “us” is entitled to recover under this policy to the extent of coverage provided.
3.Damage To Personal Property Of Others—At “our” option, a covered loss may be adjusted with and paid:
a.to “you” on behalf of the owner; or
b.to the owner. If “we” pay the owner, “we” do not have to pay an “insured”.
Analysis
The provisions in this section of the policy explain who will receive payment in event of a covered loss.
The insurer has the option to rebuild, replace, or repair damaged property, and to take all or part of the damaged property. If the insurer pays for or replaces damaged property, then that property becomes the property of the insurer.
If there is a loss of more than a month's duration involving additional living expense, reimbursement is on a monthly basis. In other words, the insured cannot request, for example, a five month's advance. The insured must be able to document the additional expense.
If a covered liability loss is settled, or liability for a loss is established by a written agreement between the claimant, insured, and insurer, then the claimant is entitled to receive payment (up to the amount of loss or the policy limits).
If personal property of others is damaged, then payment may be made either to the insured on behalf of the claimant, or directly to the claimant.
Loss Settlement Provisions—Forms 8 and 5
Since Form HO 0008 01 06, the Limited Form, may be used for dwellings that do not qualify for the Special Form coverage, perhaps because of value or unique construction, there is no replacement cost provision. Loss settlement is on an actual cash value basis for real and personal property. Following are the HO 0008 loss settlement terms.
e.Loss Settlement Terms—Subject to the “terms” shown above, “we” settle losses according to the Actual Cash Value Terms.
In the Actual Cash Value Terms, cost to repair or replace does not include any increased cost that results from the enforcement of a code, ordinance, or law.
Actual Cash Value Terms
The smaller of the following amounts is used in applying the “terms” under Our Limit:
1)the cost to repair or replace the lost or damaged part of the property with materials of like kind and quality, to the extent practical; or
2)the “actual cash value” of the lost or damaged part of the property just before the loss.
Analysis
Actual cash value is a defined term in HO 0008, as it is in the other forms. The form makes it clear that there will be a deduction for depreciation. Depreciation may occur because of “wear and tear,” or decline in market value because of a deteriorating neighborhood—for whatever reason, a deduction for depreciation will still be made.
Form HO 0005, the Special Building and Contents Form, includes within the form coverage for contents on a replacement cost basis (this coverage is available in the ISO program only by endorsement). The terms for replacement of buildings covered under coverage A and B are identical to those of form HO 0003, so only the terms for replacement of personal property are given below.
2) Replacement Cost Terms That Apply to Personal Property Only
a)These “terms” apply to:
(1)property covered under Coverage C; and
(2)the following scheduled classes of personal property if covered under this policy by scheduled insurance and such coverage is not subject to Agreed Value Loss Settlement Terms:
(a)jewelry;
(b)furs and garments trimmed with fur or consisting principally of fur;
(c)cameras, projection machines, films, and related articles of equipment;
(d)musical instruments and related articles of equipment;
(e)silverware, goldware, platinumware, pewterware, and items plated with silver, gold, or platinum;
(f)golf clubs, golf clothing, and golf equipment; and
(g)bicycles.
b)However, these “terms” do not apply to:
(1)items of antiquity, art, or rarity that cannot be duplicated;
(2)memorabilia, souvenirs, collector's items, and similar items whose age or history contribute to their value;
(3)items not maintained in good or workable condition; or
(4)items that are outdated or obsolete and are stored or not being used.
Property described in (1) through (4) above is subject to Actual Cash Value Terms.
c)The smaller of the following amounts is used in applying the “terms” under Our Limit:
(1)the cost, at the time of loss, to replace the lost or damaged part of the property without deduction for depreciation; or
(2)the full cost, at the time of loss, to repair the damaged part of the property.
d)When the total cost to repair or replace all property involved in any one occurrence is more than $500, “we” do not pay for more than the “actual cash value” of the loss until actual repair or replacement is completed.
e)At “your” option, “you” may make a claim under the Actual Cash Value Terms instead of these Replacement Cost Terms. “You” may later make a claim for any additional amount payable under these Replacement Cost Terms, but only if “you” have informed “us”, within 180 days after the date of loss that “you” plan to do so.
3)Actual Cash Value Terms
a)The Actual Cash Value Terms apply to all property not subject to the Replacement Cost Terms.
b)The smaller of the following amounts is used in applying the “terms” under Our Limit:
(1)the cost to repair or replace the lost or damaged part of the property with materials of like kind and quality, to the extent practical; or
(2)the “actual cash value” of the lost or damaged part of the property just before the loss.
Analysis
Replacement cost for personal property extends to certain classes of scheduled property, such as jewelry, musical instruments, furs, bicycles, and silverware. Fine arts or antiques, obsolete, or poorly maintained items are not subject to the replacement cost terms. There are limitations to the amount that will be paid in event of a loss: the coverage C limit; the scheduled limit; the cost to repair or replace; or any special limits in the policy (guns, for example).
Replacement cost is only paid after actual repair or replacement is complete if a loss exceeds $500. The insured may claim actual cash value and notify the insurer within 180 days after the loss he or she will submit a claim for any additional amount.
Conditions Applicable to All Coverages
There are some twenty-one policy conditions in all. The following eight apply to all coverages.
1.Assignment—This policy may not be assigned without “our” written consent.
2.Cancellation And Nonrenewal—”You” may cancel this policy by returning the policy to “us” or by giving “us” written notice and stating at what future date coverage is to stop.
“We” may cancel or not renew this policy by written notice to “you” at the address shown on the “declarations”. Proof of delivery or mailing is sufficient proof of notice.
During the first 59 days this policy is in effect, “we” may cancel for any reason. “We” will give “you” notice at least ten days before cancellation is effective.
When this policy has been in effect 60 days or more, or if it is a renewal of a policy issued by “us”, “we” may cancel or not renew only at the anniversary date unless:
a.the premium has not been paid when due;
b.the policy was obtained through fraud, material misrepresentation, or omission of fact, which, if known by “us”, would have caused “us” not to issue the policy; or
c.there has been a material change or increase in hazard of the risk.
If “we” cancel this policy for nonpayment of premium, “we” will give “you” notice at least ten days before cancellation is effective. If “we” cancel this policy for any other reason when it has been in effect for 60 days or more, “we” will give “you” notice at least 30 days before cancellation is effective.
If “we” do not renew this policy, “we” will give “you” notice at least 30 days before nonrenewal is effective.
“Your” return premium, if any, will be calculated on a pro rata basis and will be refunded at the time of cancellation or as soon as practical. Payment or tender of the unearned premium is not a condition of cancellation.
Analysis
In the earlier edition, condition 2. referred to the insured's bankruptcy. This condition has been moved to the conditions applicable only to the liability coverages.
The cancellation provisions are similar to those found in the ISO form; however, the differences are noteworthy. The ISO form states what the insurer may do when the policy has been in effect for less than sixty days, as did the earlier AAIS form. But in the current edition, the time frame has been changed to the first 59 days the policy is in effect—a subtle distinction—but one that clarifies that action can be taken for 59 days; after that, cancellation or nonrenewal can be undertaken only for the permissible reasons.
Whereas in the ISO form “proof of mailing” is sufficient proof of notice, the AAIS form states that proof of delivery or mailing is sufficient proof of notice. When the policy has been in force at least sixty days, the ISO form allows cancellation at any time for material misrepresentation, nonpayment of premium, or substantial change in risk. Similarly, the AAIS form allows cancellation at any time for nonpayment of premium, but adds that, in addition to material misrepresentation, fraud may be a condition for cancellation. Rather than “substantial change in risk,” which can encompass anything from new ownership to vacancy, the AAIS form states that “material change or increase in hazard” of the risk may constitute grounds for cancellation. Since a “hazard” is usually defined as something that increases the possibility of loss, this wording allows for slightly more leeway in cancellation. Remember that state amendatory endorsements might well modify cancellation provisions in the policy; be sure to check the particular state's form if there is any question.
Both forms provide for the insured to cancel the policy by written notice to the insurer; however, the AAIS form specifies that the cancellation date must be in the future.
A change from the prior form is that the current form states that any return premium will be calculated on a pro rata basis.
3.Change, Modification, Or Waiver Of Policy Terms
a.A waiver or change of the “terms” of this policy must be issued by “us” in writing to be valid.
b.If “we” adopt a revision that broadens coverage under this edition of “our” policy without an additional premium, the broadened coverage will apply to “your” policy as of the date “we” adopt the revision in the state in which the premises shown on the “declarations” as the “described location” is located. This applies only to revisions adopted within 60 days prior to or during the policy period shown on the “declarations”.
However, this does not apply to revisions adopted as part of an overall program revision that both broadens and restricts coverage, whether “we” bring about the program revision by introducing:
1)a subsequent edition of “our” policy; or
2)an endorsement that amends “our” policy.
c.”Our” request for an appraisal or examination under oath does not waive policy “terms”.
4.Conformity With Statute—”Terms” in conflict with the laws of the state in which the “described location” is located are changed to conform to such laws.
5.Death—The “terms” in a. and b. below apply if any person named as the insured on the “declarations” or that person's spouse, if a resident of the same household, dies.
a.”We” provide coverage for the legal representative of the deceased person:
1)but only with respect to the deceased person's premises and property covered by this policy at the time of death; and
2)only to the extent that coverage is provided by this policy.
b.”Insured” includes:
1)an “insured” who is a member of the deceased person's household at the time of the deceased person's death, but only while a resident of the “described location”' and
2)persons having proper, temporary custody of the deceased person's covered property, but only with respect to such property and only until such time as a legal representative is appointed and qualified.
6.Inspections—”We” have the right, but are not obligated, to inspect “your” property and operations. This inspection may be made by “us” or may be made on “our” behalf. An inspection or its resulting advice or report does not warrant that “your” property or operations are safe, healthful, or in compliance with laws, rules, or regulations. Inspections or reports are for “our” benefit only.
7.Misrepresentation, Concealment, Or Fraud—”We” do not provide coverage for any “insured” if, before or after a loss:
a.an “insured” has willfully concealed or misrepresented a material fact or circumstance that relates to this insurance or the subject thereof; or
b.there has been fraudulent conduct or false swearing by an “insured” with regard to a matter that relates to this insurance or the subject thereof.
This applies even with respect to an “insured” who was not involved in the concealment, misrepresentation, fraudulent conduct, or false swearing.
8.Subrogation—If “we” pay for a loss, “we” may require that the “insured” assign to us the right of recovery up to the amount “we” pay. “We” are not liable for a loss if, after the loss, an “insured” impairs “our” right to recover against others. An “insured” may waive his or her right to recover, in writing and before a loss occurs, without affecting coverage.
In the event that “we” require such an assignment, the “insured” must:
a.sign and give to “us” all related documents; and
b.cooperate with “us”.
Subrogation does not apply to Coverage M—Medical Payments To Others or to the Incidental Liability Coverage for Damage To Property Of Others.
Analysis
Note that the liberalization clause refers to the state in which the premises indicated on the declarations are located. This differs from the similar ISO wording in that ISO refers to “your state,” leaving open the possibility that the insured might assume the change applies to what he considers to be his state, which may not be the one indicated on the policy declarations.
The policy condition for the named insured's (or spouse's) death has been combined from both the definitions and the policy conditions applicable to property coverages only, and located here to apply to all coverages. Insured status is given to those having proper, temporary custody of the deceased's property until a legal representative can be appointed. An insured who was a member of the deceased's household continues to have insured status, but only as long as the person continues to be a resident of the described location.
An interesting provision is the one permitting the insurer to inspect the premises. There is no similar provision in the ISO form. Customarily, the application for insurance contains a statement to the effect that the insurer may inspect the premises. The form makes clear, however, that such an inspection is not tantamount to providing a warranty that the dwelling or any operations meet any standards or is in compliance with any laws or regulations. The insured could not therefore argue, in event of a loss involving, say, ordinance and law, that the insurer knew of the condition and did not advise the insured to correct the condition.
The previous AAIS form stated that the entire policy was void in event of concealment or fraud whether before or after a loss. The current form now states that coverage will not be provided to any insured—not just the insured who perpetrated the fraud.
The earlier form 3 contained a provision for recoveries within the subrogation condition; this has been removed. If the insurer requires the insured to assign his or her rights of recovery the insured is expected to cooperate. The condition does not apply to coverage for medical payments to others, or to the incidental liability coverage for damage to property of others.
Conditions Applicable to Property Coverages Only
The following nine policy conditions apply only to property coverages.
1.Abandonment of Property—An “insured” may not abandon the property to “us” unless “we” agree.
2.Appraisal—If “you” and “we” do not agree as to the value or amount of the loss, either may demand an appraisal of such loss. In this event, “you” and “we” will each select a competent and impartial appraiser within 20 days after receiving a written request from the other. The two appraisers will select a competent and impartial umpire. If they do not agree on an umpire within 15 days, “you” or “we” may ask a judge of a court of record of the state where the “described location” is located to make the selection.
A written agreement of the two appraisers will and set the amount of loss. If the appraisers fail to agree, they will submit their differences to the umpire. The written agreement of any two of these three will set the amount of the loss.
“You” will pay the expense of “your” appraiser and “we” will pay the expense of “our” appraiser. “You” and “we” will share equally the expense of the umpire and the other expenses of the appraisal.
3.Loss Payable Clause—With respect to those items of personal property for which a loss payee is shown on the “declarations”, the definition of “insured” is extended to include that loss payee, but only with respect to those items of personal property.
If “we” cancel or do not renew this policy, “we” will so notify, in writing, any loss
payees shown on the “declarations”.
4.Mortgage Clause
a.If a mortgagee if named on the “declarations”, a loss payable under Coverage A or Coverage B will be paid to the mortgagee and “you”, as interests appear. If more than one mortgagee is named, the order of payment will be the same as the order of precedence of the mortgagees. The word mortgagee includes trustee.
b.If “we” deny “your” claim, that denial does not apply to a valid claim of the mortgagee if the mortgagee has:
1)notified “us” of change in ownership, occupancy, or substantial change in risk of which the mortgagee became aware;
2)paid the premium due under this policy on demand if “you” neglected to pay the premium; and
3)submitted a signed, sworn statement of loss within 60 days after receiving notice from “us” if “you” failed to do so.
All “terms” of this policy apply to the mortgagee unless changed by this clause.
c.If “we” cancel or do not renew this policy, “we” will notify the mortgagees named on the “declarations” at least ten days before the date cancellation or nonrenewal takes effect.
d.If “we” pay the mortgagee for a loss and deny payment to “you”, “we” are subrogated, up to the amount “we” paid for the loss, to all the rights of the mortgagee granted under the mortgage on the property. Subrogation will not impair the right of the mortgagee to recover the full amount of the mortgagee's claim.
At “our” option, “we” may pay to the mortgagee the whole principal on the mortgage plus the accrued interest. In this event, “we” shall receive a full assignment and transfer of the mortgage and all securities held as collateral to the mortgage debt.
5.No Benefit to Bailee—Coverage under this policy will not directly or indirectly benefit those who are paid to assume custody of the covered property.
6.Policy Period—This policy only covers losses that occur during the policy period.
7.Recoveries—This applies if “we” pay for a loss and lost or damaged property is recovered or payment is made by those responsible for the loss.
“You” must inform “us” or “we” must inform “you” if either recovers property or receives payment. Proper costs incurred by either party are paid first.
At “your” option, “you” may keep the recovered property. If “you” keep the recovered property, the amount of the claim paid, or a lesser amount to which “we” agree, must be returned to “us”.
If the claim paid is less than the agreed loss due to a deductible or other limiting “terms”, the recovery is prorated between “you” and “us” based on the interest of each in the loss
8.Suit Against Us—No suit may be brought against “us” unless all the “terms” that apply to the Property Coverages have been complied with and the suit is brought within two years after the loss.
If a law of the state where the “described location” makes this time period invalid, the suit must be brought within the time period allowed by the law.
9.Volcanic Eruption—All volcanic eruption that occurs within a 72-hour period constitutes a single occurrence.
Analysis
The appraisal condition has been reworded in the current HO 0003. Now, the form specifies that the appraisers selected must be impartial, as well as competent. A welcome addition to the form is the statement that the appraisal process is not to be used to interpret policy terms or determine whether a loss is covered by the policy. Too often insureds look to the appraisal process to enforce coverage, only to be disappointed upon learning that it is only the amount of the loss that is the subject.
The mortgage clause has been reworded since the form no longer is used to cover mobile homes. Therefore, reference to secured parties has been deleted. The loss payee clause has been given its own number (3). In event of payment to a mortgagee, the insurer has the option of paying the balance due plus accrued interest, thus receiving full assignment and transfer of the mortgage.
The provisions make it clear that only losses occurring during the policy period are covered. If a claim for covered property has been paid, and the property is recovered by either party, that party must notify the other. If the insured elects to keep the property, the claim settlement is adjusted accordingly. However, if the amount of loss is greater than the amount paid, either because of a deductible or other limit, then the amount of the recovery may be prorated between the insurer and the insured.
All terms and conditions of the policy must be complied with before a suit can be brought against the insurer. A suit claiming damages because of property coverages may only be brought within two years after the loss, although this time frame is subject to state law.
Finally, the form states that any volcanic eruption within a seventy-two-hour period—changed from a 168-hour period—constitutes one occurrence. The condition in form 3 Edition 2.0 referred to “volcanic action” but because the peril is now entitled volcanic eruption, this condition has been changed to match.
Conditions Applicable to Liability Coverages Only
The following four conditions apply only to the liability coverages.
1.Bankruptcy Of An Insured—Bankruptcy or insolvency of an “insured” does not relieve “us” of “our” obligations under this policy.
2.Duties Of An Injured Person—Medical Payments To Others Coverage—In case of a loss, the injured person or someone acting on behalf of that person must:
a.give “us” written proof of claim (under oath if “we” request) as soon as practical; and
b.authorize “us” to get copies of medical records.
The injured person must submit to medical exams by doctors chosen by “us” as often as “we” may reasonably require.
3.Policy Period—This policy covers only “bodily injury” and “property damage” that occur during the policy period.
4.Suit Against Us—No suit may be brought against “us” unless all of the “terms” that apply to the Liability Coverages have been complied with and the amount of the “insured's” liability has been fixed by:
a.a final judgment against the “insured” as a result of a trial; or
b.a written agreement of the “insured”, the claimant, and “us”.
No person has a right under this policy to join “us” or implead “us” in actions that are brought to fix the liability of an “insured”.
Analysis
A change in the current form is that the bankruptcy condition refers now only to the liability coverages. This is likewise the case with the ISO form. In the case of a loss under medical payments coverage, written proof of the claim and authorization to obtain medical records must be sent to the insurer by either the injured person, or someone acting on that person's behalf.
And, finally, the policy declares that no suit can be brought against the insurer unless all policy terms have been complied with, and the amount of the insured's liability fixed. No one can join or sue the insurer in any action brought to fix an insured's liability.
The ISO form contains an “other insurance” condition here; however, the AAIS form has located this condition, and the similar condition applicable to property coverages, in the conditions applicable to both property and liability coverages.