Topics covered:

Insurable interest and limit of liability

Deductible

Insured's duties after a loss

Loss settlement

Pair or set

Appraisal

Other insurance and service agreement

Suit against insurer—insurer options—loss payment—abandonment

Mortgage clause

No benefit to bailee

Nuclear hazard clause

Recovered property

Volcanic eruption period

Policy period

Concealment or fraud

Loss payable clause

Insurable Interest and Limit of Liability

 A. Insurable Interest and Limit of Liability

 Even if more than one person has an insurable interest in the property covered, we will not be liable in any one loss:

1.To an "insured" for more than the amount of such "insured's" interest at the time of loss; or

2.For more than the applicable limit of liability.

Analysis

The first condition limits the insurer's liability for any section I loss in two ways. First, the insurer is not liable for more than the amount of an insured's interest in the property (see Interest Feature of Property Policies for a discussion of insurable interest) or, second, for more than the applicable limit of liability.

The 1991 form referred to "the" insured, which potentially led to confusion if the insured—that is, the named insured, had no interest in the subject property. The 2000 form referred to "an" insured.

 Deductible

 B.Deductible

Unless otherwise noted in this policy, the following deductible provision applies:

With respect to any one loss:

1. Subject to the applicable limit of liability, we will pay only that part of the total of all loss payable that exceeds the deductible amount shown in the Declarations.

2. If two or more deductibles under this policy apply to the loss, only the highest deductible amount will apply.

Insured's Duties after a Loss

 C.Duties After Loss

     In case of a loss to covered property, we have no duty to provide coverage under this policy if the failure to comply with the following duties is prejudicial to us. These duties must be performed either by you, or an "insured" seeking coverage, or a representative of either:

1. Give prompt notice to us or our agent;

2. Notify the police in case of loss by theft;

3. Notify the credit card or e-fund transfer card or access device company in case of loss as provided for in E.6. Credit Card, Electronic Fund Transfer Card or Access Device, Forgery and Counterfeit Money under Section I—Property Coverages;

4. Protect the property from further damage. If repairs to the property are required, you must:

a. Make reasonable and necessary repairs to protect the property; and

b. Keep an accurate record of repair expenses;

5. Cooperate with us in the investigation of a claim;

6. Prepare an inventory of damaged personal property showing the quantity, description, actual cash value and amount of loss. Attach all bills, receipts and related documents that justify the figures in the inventory;

7. As often as we reasonably require:

a. Show the damaged property;

b. Provide us with records and documents we request and permit us to make copies; and

c. Submit to examination under oath, while not in the presence of another "insured," and sign the same;

8. Send to us, within 60 days after our request, your signed, sworn proof of loss which sets forth, to the best of your knowledge and belief:

a. The time and cause of loss;

b. The interests of all "insureds" and all others in the property involved and all liens on the property;

c. Other insurance which may cover the loss;

d. Changes in title or occupancy of the property during the term of the policy;

e. Specifications of damaged buildings and detailed repair estimates;

f. The inventory of damaged personal property described in 6. above;

g. Receipts for additional living expenses incurred and records that support the fair rental value loss; and

h. Evidence or affidavit that supports a claim under E.6. Credit Card, Electronic Fund Transfer Card or Access Device, Forgery and Counterfeit Money Coverages, stating the amount and cause of loss under Section I Property Coverages.

Analysis

The introductory language makes it clear that the insurer considers it has no obligation to provide coverage if a failure to comply with any of the conditions prejudices the insurer's position. For example, an insured may decide not to report a theft loss to the police, thus not allowing the insurer a chance to recover the stolen property. Or, instead of putting up a tarp after a windstorm takes off part of the roof, an insured waits until after further damage occurs.

The forms recognizes that the named insured or spouse may not always be able to fulfill the duties, thus the policy allows the named insured, spouse, their representative, or another insured seeking coverage to fulfill the conditions.

There are eight subsections in this condition, with subdivisions within several of these. The condition lists in detail all the things the insured must do following a loss in order to obtain payment from the insurer for that loss.

An insured must give prompt notice of loss to the insurer or its agent. In event of a theft, an insured must notify the police; in event of a credit card, fund transfer card or access device loss the company issuing the card must be notified.

An insured is required to make reasonable and necessary repairs to protect the property, and to keep accurate records of the repair expenses. Although not stated, the costs of protecting and making necessary repairs to protect the property are covered in addition to the direct property loss—but only to the extent that the entire loss does not exceed the limit of liability. However, an insured cannot assume the costs will be covered. For example, following a landslide that dumps significant soil against his home, an insured hires a contractor to remove and restore the premises. But, since loss resulting from "landslide" is excluded, the restoration and repair costs are not covered.

Another requirement is to cooperate with the insurer in the investigation of any claim. This reinforces the language prefacing the duties, which states that an insurer may deny a claim if an insured does not cooperate with the insurer.

For loss involving personal property, an insured must prepare an inventory of the damaged personal property. This inventory must show the quantity, description, actual cash value, and amount of loss. All bills, receipts, and related documents justifying the inventory figures must be attached.

As often as the insurer reasonably may require, the insured must show the damaged property, provide the insurer with requested records and documents and permit the insurer to make copies, and submit to examination under oath while not in the presence of any other insured and sign it. This language resulted from the outcome of a Missouri appeals court case, USF&G v. Hill, 710 S.W.2d 171 (1986), wherein the court decided that without an express policy provision, an insurer could not require an insured to submit to questioning away from other insureds.

The policy provision requiring examination under oath has been regularly upheld by the courts. The provision appears to have been most regularly invoked when the insurer has some reason to question the legitimacy of a claim. In one case, Americo Mello v. Hingham Mutual Fire Insurance Company, 656 N.E.2d 1247 (Massachusetts 1995), the insured declined to submit to an examination under oath, citing privilege against self-incrimination. (He was later charged with arson.) The failure to submit, however, is not always an absolute bar to recovery. In the case of Sheri Yeo v. State Farm Insurance Company, 555 N.W.2d 893 (Michigan 1996), the court of appeals held that the plaintiff's refusal had been predicated on the fact that she had already given a complete statement to the adjuster, and thought that was sufficient. The court said that if she agreed to submit to the examination under oath at some other time, the insurer could proceed with a determination as to coverage and continue the claims process. The insurer's investigation had not been prejudiced by the insured's one refusal.

However, sometimes the question of what is "reasonable" arises. There are no guidelines. Generally, examinations are held in an attorney's office and so mutually agreeable times should be arranged.

The requirement to provide the insurer with records has likewise been upheld by the courts. In the case of Robert DiFrancisco v. Chubb Insurance Company, 662 A.2d 1027 (New Jersey 1995), the court held that the insured must produce records, including tax returns, from a sole proprietorship. The insurer maintained that the income received from the business could not support the existence of the items claimed stolen in a burglary. The superior court upheld the insurer. Likewise, the court in the case of Bonnie Dlugosz v. Exchange Mutual Insurance Company, 176 A.D.2d 1011 (New York 1991) held that the insurer's request for income tax records was valid, and the insured could not withhold the records and still expect the claim to be paid.

The homeowners policies have required a sworn "proof of loss" since the 1982 edition. In the homeowners 76 program, the requirement was for a sworn "statement of loss." The difference is that a statement of loss requirement fails to indicate that the insured must submit proof—and not merely a sworn statement—to support the claim.

Earlier homeowners forms required that proof of loss be submitted by the insured within 60 days after the loss, "unless such time is extended in writing" by the insurer. The current language is obviously a more practicable requirement, eliminating the detail of obtaining written permission from the insurer for delay in submitting the proof of loss whenever settlement agreement is not reached within the required time.

The proof of loss must include facts about the loss such as cause, any mortgages or other liens on property, any other insurance, etc. Although most people do not keep receipts for personal property for anything other than "big ticket" items under warranty, it is important that receipts be maintained for any claim under additional living expense, and for any claim made under the additional coverage for credit card or electronic fund transfer.

 Loss Settlement

     In this Condition D., the terms "cost to repair or replace" and "replacement cost" do not include the increased costs incurred to comply with the enforcement of any ordinance or law, except to the extent that coverage for these increased costs is provided in E.11 Ordinance or Law under Section I—Property Coverages. Covered property losses are settled as follows:

1. Property of the following types:

a. Personal property;

b. Awnings, carpeting, household appliances, outdoor antennas and outdoor equipment, whether or not attached to buildings;

c. Structures that are not buildings; and

d. Grave markers, including mausoleums;

     at actual cash value at the time of loss but not more than the amount required to repair or replace.

2. Buildings covered under Coverage A or B at replacement cost without deduction for depreciation, subject to the following:

a. If, at the time of loss, the amount of insurance in this policy on the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, we will pay the cost to repair or replace, without deduction for depreciation, but not more than the least of the following amounts;

(1) The limit of liability under this policy that applies to the building;

(2) The replacement cost of that part of the building damaged with material of like kind and quality and for like use; or

(3) The necessary amount actually spent to repair or replace the damaged building.

     If the building is rebuilt at a new premises, the cost described in (2) above is limited to the cost which would have been incurred if the building had been built at the original premises.

Analysis

Condition D. is loss settlement. The cost to repair or replace does not include any increased costs associated with compliance or enforcement of any ordinance or law, other than that provided in the additional coverage of ordinance and law.

Different loss settlement conditions are found, depending on the types of property covered or method of property valuation to be used on the particular form. Personal property, awnings, carpeting, household appliances, outdoor antennas and outdoor equipment, whether or not attached to buildings, and structures that are not buildings all are valued at actual cash value, but for not more than the amount required to repair or replace them. Loss settlement for grave markers is on an actual cash value basis; coverage for grave markers or mausoleums, remember, are now one of the additional coverages.

The recovery of loss to buildings under coverages A and B, other than building items listed above, depends on the percentage of insurance carried to replacement cost and whether the property is actually repaired or replaced. If, at time of loss, the insured has an amount of insurance equal to at least 80% of the damaged building's full insurable replacement cost immediately before the loss, the insurance will (after applying any deductible and with no deduction for depreciation) pay the lowest of: the limit of liability applicable to the building; the replacement cost "with material of like kind and quality" of the damaged part of the building; or the necessary amount actually spent to repair or replace the damaged building.

Sometimes an insured will wish to relocate to another area and build there; the policy states that the amount paid for rebuilding at a new premises will be no greater than the cost to rebuild at the original premises.

A question that elicits various answers is how much of a building must be repaired or replaced in event of a loss. The question arises most when shingles or siding must be replaced, and the available shingles or siding do not match the old. Must the entire roof be re-shingled, or all walls resided? The language lends itself to a "yes." Although, for example, a shingle may be "part of a building," it is more properly a part of a roof. Similarly, a strip of siding is part of a building, but more properly part of a wall. And, it is the walls and roof that become "parts" of a building. But perhaps the most compelling arguments for full replacement are the principle of indemnity and the insured's reasonable expectation. The insured is told he will be made whole and restored to a pre-loss condition; based on this promise, he reasonably expects this will be done in event of a loss. He expects to be fully indemnified.

That there may be a difference of opinion between an insurance company and an insured regarding the appropriate amount of recovery under this provision is evidenced by the case of Higginbothan v. New Hampshire Indemnity Co., 498 So. 2d 1149 (La. 1987). Here a court of appeals reviewed whether the insurance company was correct in paying only to repair and not replace a roof that was damaged by windstorm. Three expert witnesses testified that due to the extent of damages, unless the roof was completely replaced, it could not be guaranteed leak-proof. The court ruled that the insurer's original payment for repairs was arbitrary and capricious, and therefore required the insurer to replace the roof and pay all penalties and attorney fees.

 b. If, at the time of loss, the amount of insurance in this policy on the damaged building is less than 80% of the full replacement cost of the building immediately before the loss, we will pay the greater of the following amounts, but not more than the limit of liability under this policy that applies to the building:

(1) The actual cash value of that part of the building damaged; or

(2) That proportion of the cost to repair or replace, without deduction for depreciation, that part of the building damaged, which the total amount of insurance in this policy on the damaged building bears to 80% of the replacement cost of the building.

Analysis

If there is less than 80 percent insurance to replacement value, the insurance pays the greater of (a) the actual cash value of that part of the building damaged, or (b) that proportion of the cost to repair or replace the damage (without depreciation) that the amount of insurance on the building bears to 80 percent of the building's replacement cost, but never for more than the applicable limit of liability. This is similar to a coinsurance clause except that it is applicable only to replacement cost—not actual cash value—recovery. (For further information on replacement cost insurance, see Replacement Cost Insurance. Also see Standard Homeowners Endorsements for information on HO 04 11 05 11, additional limits of liability.)

 c. To determine the amount of insurance required to equal 80% of the full replacement cost of the building immediately before the loss, do not include the value of:

(1) Excavations, footings, foundations, piers or any other structures or devices that support all or part of the building, which are below the undersurface of the lowest basement floor;

(2) Those supports in (a) above which are below the surface of the ground inside the foundation walls, if there is not basement; and

(3) Underground flues, pipes, wiring and drains.

Analysis

In determining the insurable value of the building, the following items are omitted: the value of excavations; foundations, piers, or supports below the lowest basement floor (or below ground inside the foundation walls, if there is no basement); and underground flues, pipes, wiring, and drains. But note that these items are covered if damaged in an insured loss. These items are usually omitted when determining replacement cost because it is unusual for foundation damage to occur (except if caused by an earthquake). However, if a total loss occurs the amount of insurance on the building may be insufficient if there is foundation damage, as may be the case in event of a severe fire that cracks foundation blocks.

When determining application of the 80 percent replacement "coinsurance" provision, the limit for the damaged building is applied. But for buildings covered under other structures coverage B, the limit for coverage B is used as the amount of insurance, since this amount is a function of the coverage A limit of liability.

 d. We will pay no more than the actual cash value of the damage until actual repair or replacement is complete. Once actual repair or replacement is complete, we will settle the loss as noted in 2.a. and b. above.

     However, if the cost to repair or replace the damage is both:

(1) Less than 5% of the amount of insurance in this policy on the building; and

(2) Less than $2500;

     we will settle the loss as noted in 2.a. and b. above whether or not actual repair or replacement is complete.

e. You may disregard the replacement cost loss settlement provisions and make claim under this policy for loss to buildings on an actual cash value basis. You may then make claim for any additional liability according to the provisions of this Condition C. Loss Settlement, provided you notify us, within 180 days after the date of loss, of your intent to repair or replace the damaged building.

Analysis

In no event will the policy pay more than actual cash value unless actual repair or replacement is completed or the cost to repair or replace the damage is both less than $2,500 and less than 5% of the amount of insurance on the building. The insured may claim the actual cash value initially—before repair or replacement is completed—and then after repair or replacement, and within 180 days after date of loss, notify the insurer of the intent to make an additional claim based on replacement cost. For example, if a dwelling burns, it may be easy to hire a contractor and immediately begin the rebuilding process. But if a dwelling is one of many destroyed by a tornado, locating an available contractor may prove impossible. Now, allowing the insured to notify the insurer of the intent to present an additional claim allows for more flexibility.

Form HO 00 04 05 11 has a very simple loss settlement clause. Covered property losses are settled at actual cash value at time of loss, but not for more than the amount required to repair or replace. No exception is made for the building additions and alterations additional coverage.

The loss settlement clause of form HO 00 06 05 11 provides for actual cash value recovery of personal property, and for replacement cost recovery for dwelling coverage A if the damage is repaired or replaced within a reasonable time. If not done within a reasonable time, the insured receives actual cash value, but not more than the cost to repair or replace. "Reasonable" is not further elaborated upon.

"Repair cost" building loss settlement was introduced into form HO 00 08 05 11 (modified coverage form) in the 1984 edition, formerly an option available by adding endorsement HO-88. See Homeowners Form HO 00 08 for a detailed discussion of this clause in form HO 00 08. Also see Standard Homeowners Endorsements for information on endorsements HO 04 81 05 11, which gives actual cash value loss settlement, HO 05 30 05 11, which gives functional loss settlement, and HO 04 56 05 11, special loss settlement.

 Pair or Set

 E. Loss to a Pair or Set

     In case of loss to a pair or set we may elect to:

1. Repair or replace any part to restore the pair or set to its value before the loss; or

2. Pay the difference between actual cash value of the property before and after the loss.

Analysis

Condition E., loss to a pair or set, provides that if there is a loss to part of a pair or set the insurer may elect to either repair or replace any part of the pair or set to restore the pair or set to its value before the loss, or pay the difference between the actual cash value of the set before and after loss. Note that the choice is the insurer's whether to replace or pay.

A novel application of the "pair or set" clause allows recovery of the actual cash value of a lockset after the theft of a key. Since the value of a lockset is in its ability to prevent unauthorized entry, theft of a key effectively destroys this value. It can be restored only by installing a new lockset or having the lockset rekeyed. Or, if the insurer elects option 2. (paying the difference between actual cash value of the property before and after the loss), the actual cash value of the lockset after theft of a key is zero so the full actual cash value of the lockset is payable.

 Appraisal

 F. Appraisal

     If you and we fail to agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent and impartial appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a court of record in the state where the "residence premises" is located. The appraisers will separately set the amount of loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of loss.

     Each party will:

1. Pay its own appraiser; and

2. Bear the other expenses of the appraisal and umpire equally.

Analysis

Condition F., appraisal, provides the method for resolving the question of the amount of loss when the insurer and insured cannot agree. This deals with amount of the loss only, and not whether or not coverage applies. Often an insured will request an appraisal when they believe coverage should apply and the carrier has denied coverage, but the appraisal clause is not for such situations.

The provision states that the appraiser should be "impartial". The appraiser selected by each party should not have a conflict of interest.

 Other Insurance and Service Agreement

 G. Other Insurance and Service Agreement

     If a loss covered by this policy is also covered by:

1. Other insurance, we will pay only the proportion of the loss that the limit of liability that applies under this policy bears to the total amount of insurance covering the loss; or

2. A service agreement, this insurance is excess over any amounts payable under any such agreement. Service agreement means a service plan, property restoration plan, home warranty or other similar service warranty agreement, even if it is characterized as insurance.

Analysis

Condition G. contains two parts. The first of these is other insurance. This provides that where there is other insurance also covering a loss covered under section I of the homeowners policy, the policies will pro rate the loss payment based on the proportional relationship that each policy limit has to the total amount of insurance on the loss. For example, if two policies cover a $10,000 loss, policy A with a limit of $50,000 and policy B with a limit of $70,000, payment under A is $4,200 (50,000/120,000 = .42; $10,000 x .42 = $4,200) and under B is $5,800 (70,000/120,000 = .58; $10,000 x .58 = $5,800). This clause does not pro rate insurance coverage for articles of personal property that are separately described and specifically insured by other insurance. As stated under the coverage C provision for property not covered, the policy does not apply at all to such property and cannot be called on to contribute with other insurance.

In unit owners form HO 00 06 there is an additional provision making an exception to proration when the other insurance on the property is in the name of a corporation or association of property owners. In that case, the unit owner's insurance is excess over any such insurance. Also see Homeowners Form HO 00 06—Unit Owners Insurance for information on endorsement HO 17 34 10 00, which allows for recovery on a covered loss if recovery under the association's policy does not occur.

Many appliances and home systems come with a service agreement. The agreement could be a warranty that applies to an appliance at the time of purchase, or a warranty that applies to a home itself. Or, the agreement could be a service agreement of the type that, for example, major retailers sell that may be used to cover appliances and other electric or motorized equipment that they manufacture. Such agreements often allow for repair or replacement of the defective part; therefore, the insurance in the homeowners policy is excess to this.

 Suit Against Insurer—Insurer Options—Loss Payment—Abandonment

 H. Suit Against Us

     No action can be brought unless there has been full compliance with all of the terms under Section I of this policy and the action is started within two years after the date of loss.

I. Our Option

     If we give you written notice within 30 days after we receive your signed, sworn proof of loss, we may repair or replace any part of the damaged property with material or property of like kind and quality.

J. Loss Payment

     We will adjust all losses with you. We will pay you unless some other person is named in the policy or is legally entitled to receive payment. Loss will be payable 60 days after we receive your proof of loss and:

a. Reach an agreement with you;

b. There is an entry of a final judgment; or

c. There is a filing of an appraisal award with us.

K. Abandonment of Property

     We need not accept any property abandoned by an "insured."

Analysis

Conditions H. through K., suit against us, our option, loss payment, and abandonment of property, spell out various rights and responsibilities of the insurer. These provisions closely parallel similar provisions found in lines 141-161 of the standard fire policy. For a discussion of these provisions, see The Standard Fire Policy.

The policy explicitly states that an insured cannot bring a suit unless there has been full compliance with all Section I terms. So, for example, an insured does not send a detailed inventory of damaged personal property to the insurer following a loss. This failure allows the insurer to request a dismissal of any suit because the insured has not complied with a duty following a loss.

Condition I. deals with an insurer option, and that is to repair or replace damaged property. The insurer must give notice within 30 days after receiving the signed, sworn proof of loss, but then has an option as to whether or not it will repair, replace, or simply settle a claim with a check. For example, an insured's home burns and clothing totaling $10,000 is destroyed. Among the destroyed items are eight white button-down shirts. The insurer has the option of purchasing eight shirts and giving them to the insured.

After the insurer receives proof of loss and reaches agreement with the insured, it has sixty days (unless changed in state specific provisions) to pay the claim.

 Mortgage Clause

 L. Mortgage Clause

1. If a mortgagee is named in this policy, any loss payable under Coverage A or 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 mortgages.

2. If we deny your claim, that denial will not apply to a valid claim of the mortgagee, if the mortgagee:

a. Notifies us of any change in ownership, occupancy or substantial change in risk of which the mortgagee is aware;

b. Pays any premium due under this policy on demand if you have neglected to pay the premium; and

c. Submits a signed, sworn statement of loss within 60 days after receiving notice from us of your failure to do so. Paragraphs F. appraisal, H. Suit Against Us and J. Loss Payment under Section I—Conditions also apply to the mortgagee.

3. If we decide to cancel or not to renew this policy, the mortgagee will be notified at least 10 days before the date cancellation or nonrenewal takes effect.

4. If we pay the mortgagee for any loss and deny payment to you:

a. We are subrogated to all rights of the mortgagee granted under the mortgage on the property; or

b. At our option, we may pay to the mortgagee the whole principal on the mortgage plus any accrued interest. In this event, we will receive a full assignment and transfer of the mortgage and all securities held as collateral to the mortgage debt.

5. Subrogation will not impair the right of the mortgagee to recover the full amount of the mortgagee's claim.

Analysis

The clause protects the mortgagee's interest primarily by providing that the interest of the mortgagee is not invalidated by any act or neglect of the mortgagor. This provision recognizes the fact that the mortgagee does not usually have direct physical control over the premises. The clause further provides that the mortgagee is to receive payment for any loss, subject, of course, to its interest and the limits of the policy.

 No Benefit to Bailee

 M. No Benefit to Bailee

     We will not recognize any assignment or grant any coverage that benefits a person or organization holding, storing or moving property for a fee regardless of any other provision of this policy.

Analysis

Condition M. (L. on form HO 00 04, since it contains no mortgagee clause) is the standard no benefit to bailee clause. If a moving company negligently damages the insured's property, the mover cannot avoid responsibility for payment. The insured's policy should not have to pay for the negligence of someone else, and the no benefit to bailee clause exists for that reason.

 Nuclear Hazard Clause

 N. Nuclear Hazard Clause

1. "Nuclear Hazard" means any nuclear reaction, radiation, or radioactive contamination, all whether controlled or uncontrolled or however caused, or any consequence of any of these.

2. Loss caused by the nuclear hazard will not be considered loss caused by fire, explosion, or smoke, whether these perils are specifically named in or otherwise included within the Perils Insured Against in Section I.

3. This policy does not apply under Section I to loss caused directly or indirectly by nuclear hazard, except that direct loss by fire resulting from the nuclear hazard is covered.

Analysis

Condition N. (M. on form HO 00 04) is the nuclear hazard clause. Nuclear hazard is defined as any nuclear reaction, radiation, or radioactive contamination, controlled or uncontrolled or however caused, or any consequence of any of these. Loss caused by the nuclear hazard is not loss by fire, explosion, or smoke; those section I coverages do not apply to loss by nuclear hazard, except that direct loss by fire resulting from the nuclear hazard is covered. For a discussion of nuclear exclusion clauses, see Nuclear Exclusion Clauses.

Recovered Property

 O. Recovered Property

     If you or we recover any property for which we have made payment under this policy, you or we will notify the other of the recovery. At your option, the property will be returned to or retained by you or it will become our property. If the recovered property is returned to or retained by you, the loss payment will be adjusted based on the amount you received for the recovered property.

Analysis

Condition O. (N. on form HO 00 04), recovered property, first appeared in the 1984 homeowners policy. It provides a means of readjusting loss when property on which a claim has been paid is recovered by either the insurer or the insured. The prevailing practice prior to this clause was that once the insurer had paid the claim all ownership rights to the property belonged to the insurer, who could sell the property for salvage or sell it back to the insured, at the insurer's option.

Under the current provision, the insured has the option to retain the property (or have it returned if recovered by the insurer) or let it become the property of the insurer. If the insured chooses to retain or regain the property, the loss payment is to be adjusted based on the amount the insured received for the recovered property. This implies that any salvage or recovery costs incurred by the insurer are borne by the insurer, and the insured need only pay back the amount received from the insurer for the loss in order to regain the property. This is of great benefit to the insured, especially in cases where the property was underinsured and the amount paid was less than the full value of the property.

 Volcanic Eruption Period

 P. Volcanic Eruption Period

     One or more volcanic eruptions that occur within a 72 hour period will be considered as one volcanic eruption.

Analysis

Condition P. (O. on form HO 00 04), volcanic eruption period, first appeared in the 1984 homeowners policy. With the addition of the peril of volcanic eruption it was felt necessary to define "volcanic eruption" in terms of successive eruptions. So all successive volcanic eruptions that occur within a seventy-two hour period are to be considered a single eruption. This clause does not address the further problem of successive eruption over more than seventy-two hours but with less than seventy-two hours separating any two of them. Presumably the insured would have the benefit of the most favorable treatment in such a case.

Similarly, earthquake endorsement HO 04 54 05 11 states that one or more earthquake shocks occurring within a seventy-two hour period are to be considered a single earthquake.

 Policy Period

 Q. Policy Period

     This policy applies only to loss which occurs during the policy period.

Analysis

Only losses that occur during the policy period are to be covered. It is to be hoped the wording "loss which occurs" will not prove troublesome. A loss may occur—such as a pipe springing a slow leak—but may not manifest itself until a water stain becomes visible. Conceivably, one policy could be in place when the pipe springs the leak, and another when the leak becomes evident. In the case of hidden mold or wet rot resulting from a covered leak in a plumbing or other system, there is coverage as provided in the form. In general, when the loss manifests itself is the date used for the date of loss. This helps prevent confusion and trying to pinpoint an origination date for something that is impossible to quantify.

Concealment or Fraud

 R. We provide coverage to no "insureds" under this policy if, whether before or after a loss, an "insured" has:

1. Intentionally concealed or misrepresented any material fact or circumstance;

2. Engaged in fraudulent conduct; or

3. Made false statements;

     relating to this insurance.

Analysis

Condition R., concealment or fraud, formerly appeared in the sections I and II—conditions. It was revised in 1994, and now appears respectively in both the section I and II conditions. However, the wording varies somewhat from the 1994 special provisions revision. The section I condition applying to the section I property coverages now states that "no insured" will be afforded coverage under the policy if any insured engages in fraudulent conduct regarding the insurance. The 1994 wording stated that "with respect to all 'insureds' covered under this policy, we provide no coverage for loss under Section I…" (In keeping with the section II severability of insurance clause, the concealment or fraud language is less restrictive for section II. See Homeowners Section II Conditions.

 Loss Payable Clause

 S. Loss Payable Clause

     If the Declarations show a loss payee for certain listed insured personal property, the definition of "insured" is changed to include that loss payee with respect to that property.

 If we decide to cancel or not renew this policy, that loss payee will be notified in writing.

Analysis

If an insured has leased or rented personal property, such as furniture, the entity with an interest in such property may be shown on the declarations as insured with respect to the property. Also, the entity will be notified if the insurer cancels the policy.